Tell Me What Your Retirement Looks Like

Stop and think what you might reasonably expect your retirement to look like, given what you’ve done so far. Steel yourself with brutal objectivity projecting as realistically as possible exactly what your financial picture will look like the day after you retire.

Are you smiling?

If your financial behavior remains static, and you’re 45+, what does your retirement look like — really? Ya probably don’t wanna think much about it cuz it’s closer than it used to be, and you know it.

Everyone should hear what I do in my office from people just like you. Hard workers who haven’t spent foolishly, at least not more than most of us. They own their home, with a decent equity position, some better than decent. They have anywhere from $10-70K in their 401K/IRAs, maybe six months of living in the bank, and work at jobs paying $40-130K a year. Many have the future added blessing of college for one if not two or three kids — and the financing thereof. Even if they go to Cheap State University, transferring from a community college, it still makes a dent in The Bank of Mom and Dad. Been there, lived that, twice.

If the above description is remotely close to your situation, even if you can point to a small income property or two, here’s a peek at what you might be living sooner than you think.

For the sake of this example I’m gifting you with a free and clear home. You’re welcome; it was nothing. You have $68K in your 401K, your wife has $39K. You own a couple cars, a three-year old Toyota SUV, and a five year old Honda sedan. You have no car payments. (You’re welcome.) Your Social Security income is just under $23K a year. You have no pension — just your 401Ks. They’re yielding you a little over $7K annually.

What, no high fives?

Let’s examine your fixed expenses. We’ll assume a home valued at roughly $200K, instead of a California value. Real estate taxes, insurance, water/sewer, gas/electric, and general maintenance will be at least $4-6K. Transportation will include auto insurance, gas/oil, and maintenance & repair. This will run you at least $4K yearly. That second car may turn out to be a luxury you’ll choose not to afford. Any premiums on life insurance plus health insurance will cost at least another $3K a year. Keeping your stomachs full will run at least $6K a year, and that assumes every meal is at home.

So far you’ve spent roughly $19,000 a year — on fixed expenses. Haven’t traveled, gone out to eat, golfed, gone to the movies, got the grandkids presents for birthdays and holidays, or simply treated yourself to a visit the next state over, where your son lives. What do you think your after-tax income is for the $29,000+ you’re receiving from Social Security and your 401K? At best you’re netting $26-27,000 and that’s being kind. If you stay well, your cars don’t need any major work, the roof doesn’t start leaking, and you ever want to have a life beyond eating and sleeping, $5-7,000 of so called ’extra’ money just isn’t going to cut it. And let’s be real here — you think these numbers match real life? Think maybe your expenses might be a tad higher?

Stop and think a moment. This’ll be your retirement ’till ya die, or until the cannibalizing of your 401K is finished. ‘Course, once you start that it’s the slipperiest of all slopes, and a short one at that. You soon decide you’re not living your retirement, you’re serving a self-imposed life sentence.

Once Murphy turns his evil eyes your way, the end will not be pretty. Remember O’Toole’s Corollary to Murphy’s Law: Murphy was an optimist. It’s not too late to change course. You have the assets available to turn your retirement into one of giggling grandchildren, trips to exotic places, a second home, and a relatively high, stable, monthly income. But that will only become reality if you’re brutally objective today.

Think what you can reasonably expect your retirement to look like, given what you’ve done so far.

Are you smiling?

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.