What Will You Focus On?
Assuming today is just an average day in the decade 2011 through 2020, 10,000 Americans will turn age 65.
This is extremely significant right now because 2011 is the year that the first baby boomers (those born in 1946) began celebrating their 65th birthdays. And on average, ten thousand Americans will achieve this milestone each and every day for these next ten years!
There has never been another statistic like it (in sheer numbers, and as a percentage of the population) in our history. In all probability, there will never be anything like it again.
Think about it: ten thousand people trying to retire every day for ten years! A staggering number!
The Defining Financial Issue
If you’re reading this right now, it’s highly likely that you’re right smack in the middle of this statistic, or you’re just beyond it, and thus, retired.
Think about the critical defining financial issue in each of these folks’ lives, and, more importantly, in your life.
Hint: it’s not the relationship between the Chinese currency and the US dollar. It isn’t the unemployment rate. It isn’t the number of houses being foreclosed on in 2010 and 2011.
It isn’t whether Greece, Ireland, Portugal, or even California is about to default. It’s not the federal deficit, or even the national debt.
Over your nearly three-decade retirement life, these issues not only won’t matter, but it’s highly likely that they will not even be remembered. (Try and remember what the media’s ‘financial crisis’ headline was fifteen years ago today.)
The defining issue in your financial life, and in the lives of today’s and tomorrow’s ten thousand 65-year-olds is simply this: will you outlive your money, or will your money outlive you?
Everything else is secondary and takes a back seat.
Are You in Control of This Defining Question?
What may surprise you is the extent to which you, and the daily insurgence of ten thousand new 65 year olds, control the outcome of this defining question.
It feels, and it is sold in the media, that the outcome is completely out of your control. After 22 years coaching retirees, however, I can say unequivocally that it is much more in your control than you may think based on the choices you make.
The blunt and simple question you and everyone else have to ask is: what would cause you to run out of money?
The simple answer: when your cost of living exceeds your income and you have to invade a diminishing Retirement Bucket™ in order to sustain your lifestyle.
The key to understanding the nature of this problem is to realize that your income needs are a moving target. Even at historical inflation rates of three percent per year (and, as you know, I recommend projecting higher for your safety), the dollar of goods you need today will cost about $2.40 in the thirtieth year of your retirement.
So, if you need $7,500 per month to support your lifestyle, you will need $18,000 to sustain the “same” lifestyle! Not a better lifestyle!
Now, I believe it’s critical to pause for a moment and read that last sentence again.
Notice that I didn’t say it would be “nice” to be able to have an income that will rise in the future to keep pace with your rise in costs from $7,500 to $18,000 per month.
I’m saying that it’s a MUST!
And, unless you have a strategy in place for creating an income stream that has some credible historical record of matching that upward curve of your living costs, your expenses may at some point begin pulling away from your income. And that’s a formula for eventually running out of money!
What Will You Focus On?
Given these unavoidable facts, the key question is what will you focus on?
Will you focus on “protecting your principal” or will you focus on the primary problem, which is “protecting your purchasing power”?
In my experience, your answer to that question, and your actions that follow as a result, will determine your success in battling the defining question of running out of money or not.
They will lead you to carefully analyze, plan, and strategically allocate your hard earned money where it has the highest probability of earning the rate of return you need to earn in the long run.
And, more importantly, despite short term movements in the market which will cause the overwhelming majority of the 10,000 baby boomers (a day) to lose their focus and tragically run out of money during their lifetime as a result.
Keep your focus!