Will I Have Enough Money for Retirement? Or Will I Outlive My Funds?

About eight years  ago, an old friend, who I’ll refer to as Jim, called me. He was 60 years old at the time. His parents had recently passed away and left him some money.

Watching his parents in their old age not only left him with a stronger sense of his own mortality, but also with a sense of urgency. Like many of us, he had a bucket list and he was eager to retire and get to it before he got too old and feeble.

Jim is passionate about motorcycles.  His dream has always been to ride into the sunset on his Harley and see the beautiful parts of our country that he had never visited. “Will I have enough money?” Jim asked. “Can I ride off into the sunset?”

I spent a great deal of time investigating calculation programs that would help answer his question. I delved deeply into Jim’s finances. Getting the right answer is extremely important and extremely difficult.

To answer this question, projections have to be made—which brings us to one of my very favorite quotes, from Niels Bohr, Nobel Prize-winning physicist: “Prediction is very difficult, especially when it’s about the future.”

Humans are not blessed with prescience. But we can get an idea. We can get a range of possibilities and we can apply percentages to the probabilities of what might happen. The result is similar to what you get in a weather forecast. You rarely hear there’s a 100 percent chance of rain, even when it’s already raining!

Answering Jim’s question means calculating his expected taxes, taking into account the effect of inflation, making adjustments for lower income after he retires, and including the range of expected returns from his investments—over a period of approximately 30 years.

All of which is a lot easier to say and write than it is to do.

I worked for weeks trying to figure out the answer to Jim’s question. I asked so many questions, I felt like I was pestering him. When do you expect to retire? Do you have a pension? Do you want to leave any money to your children and grandchildren? What are your expenses now? Will you work part time in retirement?  There’s more, but I think you get the idea. I believe that in these kinds of plans, what you don’t know, what you don’t discuss, can and probably will hurt you.

After doing an exhaustive inventory of Jim’s assets and future plans, I started my analysis. I was still investigating retirement planning software, so Jim became my test case. I ran his numbers through each of several programs. The results were consistent. After weeks of investigation and analysis I finally had an answer for Jim.

It was a very emotional moment for me when I called my old friend Jim and told him, “Yes. You can ride off into the sunset when you plan to. You probably will not outlive your money.”

Thinking back on that moment still gives me chills. It was life altering for Jim.  In the ensuing years he retired from his company but still works part time for them. And he is taking more and more time for magnificent motorcycle tours of the Great American West. Over the last couple of years I have received photographs of him in Yosemite Valley and other places in the Sierra Nevada Mountains.  He has emailed me on his phone from Lake Tahoe, from over in the Wasatch Range in Utah, and from the Going to the Sun Road in Glacier National Park in Montana.

Jim is living his dream.

Working with him was also life altering for me. I shifted the focus of my practice. I took a yearlong course and passed intensive exams to become a Chartered Retirement Planning Counselor. What took me weeks to do for Jim now takes days and sometimes hours.

How do you answer the question for yourself? Will you outlive your money?  To answer that big question, you need to gather numerous pieces of information. In the years since Jim asked his question, here is the process we have developed.

First, get your Social Security statement from the Social Security Administration.  Get it for both you and your spouse.  Review the different claiming strategies to determine the optimum strategy for you. Review your current expenditures and come up with an estimated monthly budget figure. At this stage, it hasn’t been determined if you will need to reduce spending in any way. We just want to know what your expenditures have been.  You can then remove major expenses you expect you’ll no longer have, such as a child’s college education, and add in new expenses, such as for increased travel.

Will you have any other sources of income in retirement? What are your savings and investment accounts? How much more do you think you will save before you retire? Do you anticipate receiving any lump sums such as proceeds from the sale of a business, an inheritance, or the sale of an investment property?

As I said, there is no such thing as too much information in this process. This is all footwork. Next we enlist the help of computers, using a program that creates 250 random scenarios of your future. We really don’t care about 248 of those scenarios. And we only care a little about 1 of the remaining 2. The one we care the most about, by far, is your worst-case scenario. Because if your worst case still works, then we feel pretty good about the idea that your money will probably outlast you.

If it doesn’t, then we need to dig in and find where changes need to be made.

What we don’t want is for you to get to your late 80s or early 90s and be out of money.

Hal answers the question:  What can you do when you will outlive your money?

Hal Masover is a Chartered Retirement Planning Counselor and a registered representative with, and securities and advisory services through, Financial West Group member FINRA/SIPC.  Comments and questions can be sent to hmasover@fwg.com.