“Don’t simply retire from something; have something to retire to.” – Harry Emerson Fosdick
How much money do you need to retire? To quit working and be financially secure for the rest of your life? Have you thought about that?
Lee Eisenberg has. In fact, he’s written a book about it.
Eisenberg is a former editor of Esquire magazine. In his mid-fifties, he admits, he found himself asking this question. And, being a guy who makes a living thinking and writing about things, he decided to turn his inquiry into a book.
The book is titled The Number, and the number refers to the answer to that question: How much money do you need before you can shove the job and kick back?
The book is a smart, sometimes smart-alecky, discussion of America’s “debt-warp” culture and our preference for spending over saving. And because we are in debt, Eisenberg argues, most of us will never be able to afford to retire … even though we desperately want to.
As we get older, Eisenberg says, we begin to think more and more about The Number. We wonder what The Number is and how we can attain it. Our infatuation with The Number, Eisenberg suggests, is symptomatic of America’s spiritual shallowness. He makes fun of financial planners and pundits who provide easy formulas for figuring The Number. But then he spends the final chapter doing just that.
Eisenberg’s complaint is that online calculators and magazine worksheets are deeply flawed because they are “deaf and dumb” when it comes to what it takes to “lift your spirits and make your heart sing through old age.”
A financial plan without “a meaning plan,” Eisenberg says, “leads straight to the thudding revelation that – duh – all the money in the world doesn’t buy happiness.”
Eisenberg finds his “meaning plan” in “life-planning guru” George Kinder.
Kinder believes you have to “probe deeply into the soul and/or retain an empathetic advisor to help you explore your psyche before you can aspire to a custom-made financial plan.”
But apart from the New Age rhetoric, Kinder’s ideas on picking your Number look pretty standard. The Eisenberg/Kinder system is as follows:
1. Total up your invested assets (stocks and bonds, cash, etc.) and multiply by .04. This, Eisenberg says, tells you how much annual investment income you can expect to withdraw each year without worrying about running out of money before you die. (That is a low number – maybe very low. But it’s a number that many financial planners are using today.).
2. Add in the annual value of any home equity you have and divide your total equity by the number of years you expect to live. If you are 50 and have $600,000 in home equity and expect to live to 80, the annual value of your real estate would be $20,000.
3. Add any income you expect from inheritances. (Again, total inheritance divided by the number of years you expect to live.)
4. Add the amount of Social Security you expect to get per year. (You can figure this out by clicking here.)
5. Add any expected annual pension payments.
6. Add any income you expect to earn from royalties, fees, part-time work, etc.
What struck me about this formula is that it doesn’t give you The Number at all. Rather, it tells you what your yearly retirement income is likely to be (expressed, for simplicity sake, in today’s dollars) based on your current net worth.
That’s an interesting calculation. And it is something you should do, if you haven’t done it already. But chances are, when you get through with the calculation, you won’t be happy with The Number you will get.
In other words, the total yearly income you could get from your stock and bond funds, IRAs, pension payments, Social Security payments, etc. will probably not support the kind of lifestyle you are hoping to enjoy.
And since you can’t change the income you’ll get from Social Security or your pension plan (if you have one), you are back to asking the question that Eisenberg began his book with: If my current invested assets aren’t enough to retire on, what is The Number that is?
Financial planners have all sorts of clever and sometimes complicated ways of figuring this out. And most include what Eisenberg calls the “satisfaction factor,” which he describes as the percent of your current yearly expenses that you need to live a happy life.
Eisenberg says that most people make the mistake of thinking that happiness is more expensive than it really is. He imagines a healthy retirement lifestyle as one where “you meditate every morning, then devote a few hours to writing the great American novel, and the rest of the day to doing volunteer work in the community.”
“This life, or some variation of it,” he says, “will generally require significantly less money than what you spend now, not to mention the fact that you won’t have commuting-to-work costs; you’ll need to buy fewer spiffy suits and dressy shoes; and you probably won’t have to shell out on things like maintaining a boat or on mortgages you’ll have either paid off or gotten rid of by jettisoning excess real estate that isn’t integral to the dream.”
He asks: What is a reasonable satisfaction number? Eighty percent? Seventy percent? Sixty percent?
“You make the call,” are his final words.
Just like a magazine editor. Leads you to the ultimate question and then tells you to answer it yourself.
I’ll give you my quick and dirty formula on Friday … and I’ll see if I can be more definite than Eisenberg was.[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]