There is no magic number
“There’s no magic number for retirement. It’s more like a magic trick: now you see your savings, now you don’t!”
About a month ago, I had a 5-hour Microsoft Teams call with a close childhood friend (and reader of this Substack!) He thought a good discussion topic for my Substack would be to answer the age-old retirement question “What is the magic number?” The “magic number” refers to a specific amount of money someone believes they need to save in order to retire comfortably.
(And, no the “magic number” is NOT “3” as in the School House Rock video I remember from childhood!)
So dependent on situation
At the time, I argued that it wouldn’t make for a good Wednesday B-sides post because I didn’t feel there was practical advice for me to give here. Everyone’s situation is so different. My childhood friend and I discussed factors such as location, longevity expectations, personal health, and even income sources. Even between us, his situation is so different from mine because he lives in suburbia, has a healthy family history, is totally fit himself (he runs a 5:32 mile today at age 57!), has a low stress government job that he feels comfortable doing as long as they let him, and can expect a pension as a government employee. Our situations couldn’t be different!
(For those who are new to this Substack, I have already written about my urban lifestyle, family history of heart disease and dementia, my own challenges with diabetes and chronic kidney disease, and burnout.)
However, where my friend and I were very aligned was in the feelings, so I decided to make a Sunday post about this.
My views are limited to a lucky quartile
For context, I refer back to a popular podcast episode back in 2018 of ”Afford Anything” featuring Suze Orman as a guest.
For those, who don’t want to listen to the audio, the text of the excerpt I clipped of Suze Orman’s audio is here.
“Do you wanna know what I learned years ago?
I did all the retirement planning for Pacific Gas and Electric, which is the utility company for Northern California. And 7000 people would retire. And they'd all see me right? I did all the retirement planning most of those years for them. And what was fascinating is that people who made 50 or 60,000 a year, who were the line workers, the gas meter readers, the all of that. They had more than enough money to retire versus the executives that had millions in their 401K, was going to get a pension of $13,000 a month, and blah blah blah blah.
And what I learned from all that is that when you make a lot of money, the more money usually you make, the more money you spend. You don't save it. You don't invest it. You're not wise with it.
And when you don't make a lot of money, normally you don't spend like you have a lot of money because you don't.”
To me, this point about spending less is the biggest one to make for those who have been fortunate enough to start building retirement savings, as Suze Orman noted about PG&E employees. According to USA Facts, in 2022, about 46% of households reported any savings in retirement accounts. Only 26% had saved more than $100,000. So, I recognize that the spirit of this “feelings” post is targeting those in the luckiest quartile who have been able to have steady work, avoid crippling expenses, and save money.
Life, not a “magic number”
For me and Marsha, the decision to retire was not around a “magic number.” We have many friends who could have afforded to retire a long time ago but chose to stay at their jobs for non-financial reasons, including loving the work, sticking to work as their identity, or keeping their minds and bodies active. We also have friends who retired for reasons outside of their control. (I mentioned ageism in the tech industry as a real issue.)
In our case, we likely retired a little bit ahead of any “magic number” that would normally get set for us. Like the Suze Orman anecdote of the PG&E executives, we live a pretty expensive urban lifestyle with high condo fees, pay high city, county, and state taxes, maximum out-of-pocket medical expenses, and we have been traveling to see our kids in far-flung places in the world (the subject of a future post in backlog!). That said, we also moved out of expensive areas (Silicon Valley and Seattle), gave up living in large homes that could hold lots of “toys”, don’t have vacation property, and own just one 22-year old car. I also continue to take on consulting gigs, such as executive coaching, largely to help out friends, and these gigs also provide some supplemental income and investment equity, too.
I’ve gone into my personal reasons for retiring early. Surpassing a “magic number” wasn’t one of them. For me, it was about how to get the most out of the rest of my life, and I just didn’t feel like trying to do another startup and repeating old patterns was the best way to do that. I also didn’t think I was going to achieve enlightenment through a bigger house, a vacation home, more toys, and cooler cars, either. For me, it was about getting time back by not worrying about work or home projects, taking care of my health, spending time with our family, and having friends. This is where we spend our money right now.
And, this was the discussion with my friend. As a saver and a planner, he was already familiar with the common metrics of the expectation of what to spend in retirement (55%-80%) and the 4% rule for retirement withdrawals. He was already contributing to the government employee retirement system. And he already knew he was on-track for a successful retirement at the right time for himself. However, even for him, it wasn’t a “magic number.” He was already in a situation with a public sector job that let him keep pursuing his Masters Track running hobby. He was spending time with his church and doing workshops. He even officiated the weddings for his two daughters! At the same time, he is doing the right things day-in and day-out to put himself in the best financial position possible. I really enjoyed his reflections on his life, and I’m encouraging him to write more, too!
Back to the practicality
After our conversation, my friend reinforced the lack of a magic number but also stressed the need for rational planning.
In fairness, I acknowledge that some rational planning does play into the mix for retirement. In line with this concept, we had our financial advisor at JPMorgan run a Monte Carlo simulation, using their own proprietary technology. It didn’t require much work on our side, as we already share with our financial advisor our portfolio allocation as well as our goals as part of an overall wealth plan. On top of this, for retirement planning, we simply had to fill out a form with our current lifestyle expenses. (Advisors make sure that we are thinking about this completely.) The output of this exercise was a (IMHO, somewhat useless) number, where “80” was a threshold of probability of success of our overall plan, and our plan “scored” above that. Personally, it feels like there’s a little bit of “wizard behind the curtain,” as JPMorgan doesn’t provide clients with self-service access to their model to see how to “tweak” it. For us, the important takeaway was much less about the number but more the conversation with our advisor because there is no exact science here.
I understand that only about a quarter of people in the US are lucky enough to even have a legitimate conversation about retirement planning right now. However, to me, so much more about this is about living life than a “magic number.”
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