Find Your Balance – Part II

Find Your Balance continued…

In our retirement plan, over the last few years, I have consistently adjusted the desired annual income up. The retirement income goal has gone from $125,000 to $150,000 to $200,000. Why have I been adjusting the income goal up the last few years? There are multiple reasons: increased household income, stellar market returns, and increased estimates of what we will be receiving from our various pensions.

So why I am now reducing the desired annual retirement income goal?

Tracking ExpensesOver the last six months the wife and I have been tracking every penny we spend and we know exactly what our monthly expenses are. When we subtract the mortgage from that number (the house will be paid for before we go into retirement), we feel pretty comfortable at making a guess at what our monthly expenses will be when we retire in 11 – 13 years.

That number is $5,000. Multiply that times 12 and you get $60,000 annually. Because I like to figure conservatively when it comes to retirement planning, I added 50% to that number, giving us $90,000.

We are very fortunate in that we will have five pensions between us in retirement. My current projection of our income from those five pensions is $122,000 annually. As you can see, even without our retirement accounts (TSP [the 401(k) comparable defined contribution plan for Federal employees] and IRA), we are $62,000 ahead of our projected need and $32,000 ahead of the inflated goal.

As I noted, I plan conservatively with respect to my retirement and I am working on the assumption that something negative – beyond my control – is likely to happen to one or more of our sources of retirement income (look no further than the mess in Detroit [here and here] and the Federal government’s short experimentation with reducing COLA for military retirees as examples).

With that thought in mind, I have taken that $90,000 number, doubled it, which gives us a new annual income retirement goal of $180,000.

What does that mean in the near-term? Nothing really. We plan to continue maximizing contributions to each of our retirement plans and we have no plans to go out and spend a large chunk of money on a major purchase.

Maintain Your BalanceHowever, in the long-term it means that we will not be looking for additional ways to invest more money. Our foundation is solid and our plan clearly shows that we are ahead of pace and doing the things we need to do. It also means that as we earn pay increases or otherwise come across ‘extra’ money, it can be spent a little more frivolously. Perhaps more gadgets around the house (audio, video home automation and technology is my other passion) are in my future.

While I do not believe we were too far out of balance with the way we approach living today and saving/investing for tomorrow, there was the possibility. I tend to focus pretty intently on a goal and with the success we have had the last few years, it is not out of the realm of possibilities that I could continually adjust the goal up if I don’t keep myself in check. While I want to unequivocally ensure that we have enough money to enjoy our retirement years, I do not want my life to be about how much money I can accrue. At the end of the day, I do recognize that you can’t take it with you.

I believe our new goal is appropriate for the retirement lifestyle we want to lead without taking away from our enjoyment of life today.

And you SavvyReader. Have you found your balance?

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. Terrific article James. If I might add that Kathleen and I are in the process of greatly increasing our our cash position, that being above our emergency fund. Our goal is to have enough cash on hand that in addition to my military pension, we can live for five years without touching our nest egg. As we get closer to retirement, we don’t to get caught in financial market conditions resembling the ’08 – ’09 market meltdown. Can you imagine retiring and planning on tapping your nest egg while the market is at a point similar to March, 2009? We’ll still fully fund our TSP/401(k)’s in the interim………….

    • Thanks for stopping by, Gage. Great to hear from you. I can appreciate your desire to be in a position to live for five years in retirement without touching the nest-egg. In fact, our newest goal is closely related. In the event we find ourselves in a position where we want to, or need to, retire 2-3 years before planned, I want enough in our cash accounts to sustain us during that period. As you are well aware, the longer you can keep your mitts off of money from retirement accounts – particularly the tax-exempt variety (e.g. Roth IRAs) – the better.

  2. You have to pay taxes on that income so you do need to gross it up more. 90K may be a bit high though. I’m thinking we can manage on 50 – 60 annually which means gross income needs to be 60 – 72. That means I need 1.5 – 1.8 mm. ay-yi-yi

    • Great to hear from you, Deb. You are correct in noting that I didn’t address taxes (or inflation) – two factors that absolutely need to be considered – in the post. While a detailed plan must include consideration of those factors, I was speaking more broadly about the things that need to be considered to find financial balance. Believe me, my own plan (detailed in an Excel workbook comprised of seven worksheets) accounts for every conceivable factor when it comes to managing a retirement plan.

      The wife and I are pretty fortunate in that we will have five sources of passive income in retirement, which reduces the amount of portfolio income that will be required. As it stands now, our portfolio needs to be at $1.3M in 13 years. Fortunately, we are significantly ahead of pace. Even at a conservative rate of 5% returns, we should end up just a little north of $2M.

  3. It is a hard rope to walk. It’s the unknowns that scare me. For instance Detroit as you mentioned, what if that happens to Government workers? Will I be able to live on that? Truth is there are so many variables and unfortunately we cannot predict the future, we can only try our best to save what we think will be enough.

    • No doubt that it can be tough to find balance between the competing interests – living for today & planning for tomorrow – as there are a number of variables, many of which, as individuals, we have no control over. Hence, the need to develop a detailed plan that takes into account as many knowns as possible. Additionally, I believe it is important to use more conservative estimates during the planning process. Something not done in Detroit and other municipalities with respect to projected rates of return on investments.

      I mentioned in the post that our projected monthly expenses number is $5,000. Multiply that times 12 and you get $60,000 annually. I could have left it at that number or lowered it (maybe assuming that we will spend less in retirement). Instead, I added 50% to that number, giving us $90,000 as a goal for annual income retirement. Another example of how I use more conservative calculations: although we have done considerably better over the course of managing our investments, I only assume a 5% rate of return.

      At the end of the day, you have to know what you are spending today, what you would like to spend in retirement, and develop spending & savings/investing plans that support both in order to find your balance.

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