A friend of mine (~50years old with wife) is feeling miserable about retirement but their finances say otherwise. They have two paid off homes (2.2M + 600k with one bringing in rental income). 3 paid off vehicles. Make ~200k per year incl rental income. Have 2 teenagers (soph and junior) with roughly 70k each saved for their college. With investments totaling ~2M. So, a total net worth (~5 mil). Expenses run them around 100-120k per year in HCOL area. What can I say to them to help them NOT worry so much about their future? They seem like they are in a good place. What could I be missing?
How does one get confident they have enough to retire?
byu/Any-Ad-3988 inpersonalfinance
Posted by Any-Ad-3988
32 Comments
Maybe they just want someone to emotionally commiserate with them on the plight of mankind rather than actually looking for a solution.
On the chance that they actually want to model out data regarding success/failure of retirement, consider hiring a fee only fiduciary for a one time consultation to review their situation and run some scenarios.
I think they’re worried of getting old. Period.
Financially they’re better than the rest of the country.
Why do you know so much about your “friend”?
Figure out what I will be living off, then actually live off it for 6 months or a year
Life and what could happen… I’m in the same boat as your ‘friends’ and am terrified about not having a regular job income. It’s the loss of control that is at the root of it for me. Add to that the fear of the unknown…and yeah don’t care what the calculations say, I’ll never belie them.
They *ARE* in a good place, but investments and rental income aren’t enough to cover that kind of expenses yet. Then again it’s really only because kids are expensive. Once they don’t have to spend on kids anymore they can retire.
Those are nice financials – real nice – for someone in their 50s. Not sure why you’re that deep into a friend’s $ situation but, whatever.
There is a psychology behind the way we look at money, dependent on world view, how they grew up, income/risk level & more. No expert, but the truth is some that accumulate wealth well still fret. Alot. And, will have a hard time spending it. Clock’s ticking on life, tell them to Carpe Diem!
Inherit enough? Even then…
Great question I don’t have the answer to. I’m just here because I read this and mused “how can I read this and think that guy is fine?” Then look at my own numbers and be like “I’m not even close!”
Living in a HCOL area can warp your perception of what you need. If they are planning to stay there forever, they may indeed need a ton of money.
As far as worrying is concerned, it is kind of a personality trait. Some people are worriers. They will never have enough that they won’t worry, most likely. Not much you can do about it.
Maths.
It either maths out or it doesn’t.
I never wanted to retire. I see no point in not working. For me work was great fun. The money didn’t matter. I had to retire because of my health about 2 years ago. I’d go back tomorrow if I were able. My twin happily retired about 20 years ago and lives every minute of it. To each his own I guess.
Two homes and two teenage kids in HCOL @ $120K/year spend?? Doesn’t track. Did you really come here expecting guidance that would be helpful to your friend?
The question is why they would involve you, and then why would you ever want to be involved in a friend’s financial situation?
Any advice you give could totally backfire. Maybe you personally convince them to retire and the day after retiring he falls and breaks a hip at his new pool. Now he has you to blame.
I would stay far away from those conversations. If anything, find a couple books/articles that cover the basics and let them “discover” the answer themselves.
I was in a similar position until I sat down one day and “crunched” the numbers. I used a few paid and unpaid softwares to simulate and project my net worth over the course of my and my wife’s life expectancies, then did the math for expected expenses needed to sustain my life styles and accounted for health care costs and late stage health expenses. When I put all these together and modeled a “moderate” investment return at 6%, and my cash out-flows, my worries subsided. Many of my models showed that I would end up with more than what I started with. It’s important to stay on top of things while being smart about roth conversions and withdrawal strategies to minimize taxes but when you really do your homework and “know“ your numbers, you won’t worry so much. People worry because they don’t know their numbers.
It’s hard to transition from Saver to Spender.
Probably they suffer from the same disease I did that you have a milestone number rather than whether your investments cover your income.
Unfortunately/Fortunately for me, I got laid off 8 months ago at 56 and had to pressure-test my retirement plans based on the expenses we’d developed, and I actually can retire (if I have to anyway). My point being that a lot of people who have done a good job still feel like they don’t have enough. I still don’t, but apparently I do.
For a lot of people their work is a core part of their identity and letting go, even sometimes with jobs they hate, is hard. To me, this screams emotional over financial.
If they have 25x their annual spend, they can retire. That is the bar. If they decide not to, understanding the why would be most helpful.
My retirement plan is death. So comparatively, I would say they are doing GREAT!
The cost of healthcare in the US without an employer plan can be concerning, especially when one has assets.
I understand where they are coming from and my net worth is a fraction of what they have.
When you have a lot of money by most standards then your standard keeps rising. And you find more things to worry about that people with less can’t afford to worry about.
We have a financial advisor who looked at our our income, investments, and spend rate and ran models with different sets of assumptions. That was what I needed to be comfortable.
Once they get past paying for college hurdle, it will become easier for them to convince themselves that retirement will work. That’s the way it worked for us at least.
College can be a mixed bag depending on where they’ll go. Since they have 2 paid off homes, it’s unlikely they’ll qualify for any needs based scholarships for their kids. That said, $70K is a good start, especially since you never have to pay off college in one payment. If they both go to state schools, they’ll likely have no problem. If they both want to go to very high priced institutions, or med school or some other kind of grad school, and the parents want to cover 100% of those bills, they’ll need more.
“Enough” for retirement never really depends on how much you have saved. It really depends on how much you intend to spend during retirement. If they can get past their kids college and still have north of $2M, and they can live on $80,000/year comfortably (4% rule). Yep, they’re good.
Get terminated after 37 years and 10 months
If they’ve got that kind of money and they’re still worried about life? Nothing you can say is going to fix it.
How do they spend 100k a year with fully paid off homes and cars? They must have incredibly high lifestyles which yeah if they want to live like that in retirement they’ll need a lot of money. Once they have about 4 million in savings they should feel pretty good with a 4% withdrawal rate.
For me personally, it was the recent point where <4% of my portfolio exceeded my current annual expenses including discretionary (vacations, etc.). Still have a relatively small mortgage balance where I continue to make my regular payment. So now I’m planning to back off the pre-tax investing (down to the match) and get the mortgage paid off ASAP. At that point, continued work becomes truly optional.
Why is it your role to tell them they can retire and not worry? They sounds more than capable of making decisions about their financial future.
We are in a similar situation and not retiring for a while for various specific reasons. I feel like they have what seems to you is a lot of money and so therefore should retire. It’s much more nuanced than that.
If you were my husband’s friend? I would want you to stay out of it.
I have friends that have $8M+, late 50’s. They don’t think they can retire because their 2 kids are still in college, “on the payroll,” as it were.
Unless you don’t enjoy working, no reason to retire just because you are financially ready
My wife is that way. We have seven figures’ worth of savings and investment and our Social Security alone would cover our living expenses.
I finally had to haul her in front of an investment guy to tell show her the numbers and assure that, unless we do catastrophically stupid things, we’ll never even come close to running out of money.
I think the problem comes with those snake oil salesmen like Suzy Orban or financial services companies who hoist the bogey man and claim that if you don’t have $2.5 million in net worth outside of real estate (Orban’s number), then you will be living in a refrigerator carton under the interstate.
For me, when my pension matches my take home pay.
I could have banked the difference and kept working but my wife was already retired and I didn’t see the point of working when I didn’t need the money.
1. Tell him he is in the 2%-3% of the US population in terms of wealth.
2. Tell him about the 4% rule.
3. Tell him about the rule of 72.