As a financial planner, I have a similar conversation repeatedly with clients when we are discussing retirement planning. The big question when it comes to planning for retirement is, of course, “Am I saving enough?” Many books tout a “number” that one must achieve in savings to have a comfortable retirement. There are also numerous “rules of thumb” that one can follow to find the right savings target.
But in reality, the answer is much more complicated. Everyone is different, and everyone has different views on how he or she wants to live life in retirement. Furthermore, everyone is different in how they are living their lives now. I have observed that people will pretty much retire in the same fashion in which they live their lives in the years leading up to retirement. In other words, I typically don’t see a huge shift in lifestyle when folks retire. Once people are retired they might travel more, but generally they don’t start living radically “higher on the hog” than they did before retiring.
Having done financial planning for over twenty years, I have seen it all when it comes to people having a design for what their retirement will look like. My firm has seen its fair share of “crack-smoker” plans (our affectionate term for them!), where people have mounds of debt, no substantial savings, and, despite that, aspire to live on nearly twice what they currently earn in retirement. Oh, and they want to retire early, too! These plans are a disaster from start to finish, and one of the toughest parts of my job is gently letting people know there is “no freaking way you can make that happen with your current course of action!!!”
Don’t get me wrong: I am no dream crusher. I encourage big thinking when it comes to goals. However, wishes are not horses, as the expression goes. Setting a goal and creating a plan to get there is a far cry from wishing. In the case of our “crack-smokers,” if they buckled down and stopped spending, radically paid down debts, and ramped up their saving rate (meanwhile killing it in their career to increase their earning capability), they conceivably could achieve that retirement goal. The challenge is many people don’t want to do the work required to achieve a big goal.
The bottom line is this: If you want a “big” retirement, you have to put the hard work in get there. If, on the other hand, you live fairly “small” and plan to retire that way, the goal is quite achievable.
When I say “living small,” I mean living within your means. ALWAYS. Preferably, you adapt this philosophy at the very beginning of your adult life. Regardless, once the epiphany hits, you dial back your lifestyle to fit within your means.
If your needs are smaller, then your bucket of money for retirement can be smaller. Plus, living small affords you the ability to save more efficiently for retirement. If you already spend less than you earn, directing the excess income to retirement savings is much easier. On the other hand, if you are “living large,” then you are probably strapped each month. As a result, saving for retirement becomes a chore and a hassle, and it leaves you feeling deprived.
My advice is to choose to live small. There really is no downside. Living small keeps you out of unnecessary debt, allows you to accumulate savings more easily, and takes the pressure off the idea that you need a million bucks to have a decent retirement.
How do you live small? Did you come to this lifestyle later in life? Share your wisdom below!