What You Really Need to Retire

When I was young, I was stupid. I wanted money, and lots of it.

I came of age in the 1980s, when BMWs, cocaine, and the movie Wall Street were all the rage. If you didn’t have a bead on a million bucks by 30, then you were a failure. The only goal of working was to amass so much money that you could, in nice terms, tell the rest of the world to “go away.”

So, how much was that? Did I need $1 million? Even at 21, I knew a million dollars wasn’t going to cut it. How about $2 million? Do I hear $5 million? I never decided. Thankfully, life got in the way.

I got married. Had kids. Raised the kids and put them through college. I’ve had professional ups and downs along the way, with skinny years and profitable years. And I’ve also learned that carrying around a financial goal like a millstone isn’t a benefit, it’s a burden.

Because focusing on a number ignores the real problem that almost everyone will face in retirement… turning wealth into cash. And there’s no specific number that can solve that issue.

It sounds easy enough to convert wealth into usable money. Sell something. That’s great, but how much do you sell, and when?

There are a million fancy retirement calculators that help you determine your “number,” that magic level of wealth that will allow you to retire in the style you want, but precious few of them talk about how that number becomes rent money.

Monte Carlo simulators will spit out the probability of you reaching your financial goals. That’s sort of useful, but probabilities mean the risk of failure remains.

And you can find investment programs that show you how things might go if you spend down your nest egg by a certain percentage a year. But what happens if the markets go against you? Do you keep spending, banking on the notion that the markets will rebound? Or do you cut into your standard of living and try to shore up your investments?

These questions haunt all but the richest and poorest among us. And they don’t have to. Instead, we should turn the questions upside down.

I don’t need to solve for my “number.” I need to develop streams of income. I want cash flow that hits my mailbox (or bank account) on a regular schedule, giving me the financial wherewithal to pay for a comfortable lifestyle. If it takes me $800,000 or $4,000,000 to do it, that’s a different story, and will be specific to my situation.

But the focus is on income, not wealth!

As you think about your investments, consider what they mean to you.

Are they growing pockets of wealth for specific purposes, or are they simply an amorphous blob that is meant to somehow provide for you in the years ahead? If the answer is the latter, then I strongly urge to you start planning today on how you will convert your wealth to income, so that it provides what you will need most: cool, hard cash.

Who knows, as I look out at my own retirement, I might even use some of my income to buy an old BMW.

P.S. Our retirement guru, Charles Sizemore, will soon be sharing details about how exactly to generate the income you’ll need for retirement. It’ll be worth checking out so stay tuned to Economy & Markets for that.