Lifestyles of the Rich and Famous (Photo credit: Wikipedia)
This summer the New York Times ran an article called ‘For Would-Be Retirees, A Million-Dollar Illusion.’ The gist of the article was that increasing inflation and low returns on bonds can create a situation for retirees where they could run through a $ 1 million dollar nest egg before they die. A million ain’t what it once was! I’m not near retirement and I don’t have a nest egg that size, but I found the end of the article to be very thought-provoking:
“When you are in your 50s… you can try to save as much as you can and try not to get accustomed to a lifestyle that you won’t be able to afford later on”
If a retiree is drawing conservatively from a $1 million portfolio and taking Social Security, that might look like $61,000 per year. Nice, sure, but not the kind of cash that will have Robin Leach calling you to be on “Lifestyles of the Rich and Famous”. Cranking up the “lifestyle” too high during your working years and you might find retirement to be a rude awakening. If you are used to saving, and living a comfortable yet not opulent lifestyle, your retirement income might feel a whole lot like what you have been used to.
It seems one of the big barriers to creating wealth (aside from debt) is what goes on in our own heads. Or, as the article implies, what lifestyle we think we deserve to be living. It might sound like: Someone with my income wouldn’t drive a used car… I have a full-time job, so if I want Starbucks, I am darn well going to have it…. My family doesn’t ‘do’ leftovers… All my neighbors have a cleaning service… I think that we already live a fairly modest lifestyle, with the exception of vacations. This summer, though, a number of bloggers have opened my eyes to some areas where I have been unaware of my own lifestyle beliefs. If you haven’t met them yet, check out Creative Savv and The Prudent Homemaker. They are both showing me ways to create a healthy, frugal and less wasteful lifestyle … and I’m tuning out my inner brat who demands “Champagne wishes and Caviar Dreams.” Now I am off to pick (more) zucchini for dinner tonight, inspired to save a little more towards the things that really matter to me.
Have you ever given yourself a lifestyle adjustment?
The Healthful Saver 
I have to laugh at your timing with this post – I have spent today trying to determine how much we ‘need’ for retirement. I found myself getting frustrated with the calculators on several websites. They all assume in retirement you will live on 75% of your current income, where is that number from? Not including debt repayment we live on less than that now! Once we are debt free, buy and pay for a home, how will I reach 75% of my current income for living expenses?
I have had the same thoughts as you… when I take out all the money we are saving (mostly retirement, kid’s college, home emergencies) it might just be our biggest expense going. Personally, if you are enjoying life now, but saving well for the future, it seems to be the best thing you can do because the future is a wildcard and you have no way to plan exactly what you need. Oh, and taking care of your health is a biggie too.
Twenty years ago I would have never imagined my life to look the way it does – and when my mom was 40, she could have never imagined that at 70 she would be doing things like hiking alone all the way across Scotland. We barely left our state when I was growing up!
Hi Jen,
I think most of us in the western world do think we are entitled to many things. It’s built into our culture. What we see in the media and our friends’ lives is expensive meals out, extravagant holidays, shiny new cars, designer clothing for children, over-the-top expensive handbags for their moms. I have pangs of envy, at times. I want to look like I’m successful, too. And all that stuff is how our culture defines a successful individual. I had a ridiculous moment a while back, of “oh, woe is me. My purse came from Target, and not some designer boutique.” Really ridiculous. Especially now, as our singular financial goal is to get our youngest two kids through university, without loans.
I find it very helpful to read historical novels, to remind myself of how good we have it, even as money feels very tight. It wasn’t all that long ago that a 6-day work week was the norm, and not considered “working like a dog” at your career. Farm wives got up at 5AM, and jumped right into their work day. No morning coffee and the newspaper before starting the day. Yes, we have it very good, now.
For us, with an income reduction happening this summer, we’ve been forced to examine all of our spending. It’s been a good thing, really. We fully understand our priorities. We know which areas we can reduce spending in without sacrificing quality of our lives. We are being thoughtful and conscious with where our money goes. And I think that is empowering. We aren’t just looking at the utility bill, throwing up our hands and saying to ourselves, “what can we do?” Because now we realize there are plenty of things that we can do.
You’re absolutely right — planning for retirement begins with how we live our lives during the working years. I see a lot of people setting themselves up for huge disappointment in their golden years.
Thanks for the thought-provoking comment, Lili. At least we have our blog community where we get more pats on the back for unplugging the coffee pot than purchasing any designer purse or luxury car!
I was thinking of the hard-working generations not that far removed from us today in fact. We were at a Children’s Museum and by far the most engaging area was a mock supermarket. Kids worked the checkout, the bakery, restocked shelves. My daughter restocked shelves for an hour straight! She was sweating! While we don’t want to return to days of kids getting injured on farms and in factories, there is a human need to do productive work. I tried to remember that when I had to make dinner tonight and didn’t feel like it. I didn’t have to milk a cow or stoke a fire for 8 hours to bake bread either.
If someone is living a $100,000 a year lifestyle, not only they not saving, but they have a lifestyle that requires an enormous amount of savings ($2 million +) to maintain in retirement… except they aren’t saving!
It’s funny I used to love that show when I was a kid! Ha ha ha.
Me too… and don’t forget ‘The Love Boat’ on Saturday night!
Reblogged this on Budget + Brain = Success and commented:
Great blog post and a definite must read!
Thanks so much on the reblog!
Great post 🙂 I am living alone this year (which I love) but will have to give myself a lifestyle adjustment next year and go back to share housing because it is really too expensive to do long-term. I’m also hoping when I start working full time that I can continue living like a student and put all of my extra money into savings.
I bet you will do just that, and be saving like mad for a paid for house!
Thanks for your comment.
This reminds me of my most hated commercial – “Because you deserve it…” Please! During the Olympics (the only time I allow live television in the house) the kids have to listen to me rant about this statement every time it comes on!
You are right, there are a lot of voices in the media telling us how tough our lives are, how we are too tired to cook, to clean our home, and deal with our kids. Moms make most family buying decisions, so we are the target of these messages in particular.
One advantage of paying off debts and mortgages is that you actually KNOW what your expenses will be after retirement! My expenses will be exactly what they are now, minus the work expenses and minus the retirement savings (which will be complete). As you say, the key points are to avoid lifestyle inflation and “keeping up with the Joneses.” Along the way, I’ll have to absorb actual inflation rates, too. But that is not a huge challenge compared to what has gone before.
I was thinking about those ‘Joneses’… The world was pretty different when I was a kid in the 70s. I don’t think anyone I knew ever had their kitchen renovated. We had 1 car, 1 phone. No one had a cleaning service. I wonder what would have happened during the Carter years if Americans had had so much lifestyle riding on their income.
This is a crucial question for people intending to retire one day – and the answer is even more crucial. We went through a similar thought process several years back and pushed our savings rate up to about 20% of income. As you point out, this has a double effect. You save more. And you increase your ability to live on less so that you will need less to retire.
We even went so far as to design a spreadsheet to see how much of a difference it made. Say, for instance, your investment return averaged 6% — I know, high these days — then if you saved 10% of your income, it would take 40 years to get to the point of covering 100% of expenses from your returns. If you saved 20% of income, this drops to 28 years.
Of course, it should be possible to do it in less time for a couple of reasons. Unless you plan to pass on 100% of your capital to your heirs, you can draw it down while retiring. And, as one commenter points out, you can expect to retire with fewer expenses than you have while working and raising kids. Some planners say you should expect to reduce your expenses by about 1/3 when you retire. Some friends who’ve retired have done much better than this – it may depend on how much you want to travel. (Lots!)
We share Crazynoiia’s frustration with retirement calculators. We’re thinking of making and publishing our own. Maybe there’s a demand for that!
If we didn’t already say so, thanks for the Follow!
PS. We enjoy this story of the banker and the fisherman: http://www.meetup.com/South-Delta-Free-at-55/messages/boards/thread/20275652
A ‘No Pension, Will Travel’ retirement calculator sounds great!
A friend recently said ‘I can’t afford to tell myself ‘I’m a lawyer, I can buy that’ anymore.” That was wisdom that really stuck with me.
Right now we believe we are saving about 40% of income in some form (includes 529, saving for home repairs, and retirement)… like Crazinoia, we don’t expect to need to replace our full income at retirement because we have yet to even be spending that full income amount in our working years.
Love the story. I feel I understand that banker all too well…
Wow! That’s impressive. You’re leading the pack to be sure! Stay well.