The Number

One of the points that The Number makes again and again and again is that the number has to reflect what you want to do with your life, from this point on. There are caveats out the wazoo about that, but that's a key, pivotal point. If you don't know what you want to do, you won't have a clue about how much money you'll need in order to be able to do it. Oh, for sure, you'll know that More is Better, but how much more, you won't know -- which is partially why so many people assume that its got to be a Big number. What a Big number is varies by person. I used to think that a Big number was having five hundred thousand dollars, and I still think that -- but now I also know that it depends on when I intend to start drawing down on it, and how I intend to start drawing down. Start now, live large, and five hundred thousand might get me through five years. Five years???? Okay, perhaps ten. But not more than that, not if thats your only source.

So that translates into When can I start drawing down? If you think you're going to live for ten years or less, you can start right now. If you think you're going to live for thirty more years, not for another twenty. What do the odds say? How long did your parents live, and their parents? Well, my father died when he was 69; my mothers still alive at 83. My grandmothers both died in their eighties; the only grandfather I remember died in his seventies. So, based on that, I've got a likelihood of living till some time in my late seventies, early eighties. If I had the $500K, and those spending plans, I could start in my late sixties -- but if I'm in robust health, maybe thats too soon. Whats the old joke? Modern medicine makes it possible for most of us to live until we're senile? And poor, too.

I'm not fixated on it, but I think about the number every so often, and about when I can stop working. And I twitch whenever the examples in the book say things like 'assume you're sixty, and you've got three million in investments.' What? Three...million??? Hey, its just an example. But still: examples like that make me twitch. So I cut to the chase, about two thirds of the way through the book, to where I knew the book had a quick and dirty assessment of what the number would be, and, first cut through, my jaw dropped.... and not from pleasure. I need how much? Thats like DOUBLE what we have now! I am so screwed....

Then I thought Wait a minute... thats assuming that you have no other sources of income. But you will -- pension (small, but there), two 401Ks (three, counting my wife's), Social Security (which I like to refer to as Sociable Security). So how much do you need, assuming all of those are there when you want them? (And I know, I know: given how companies can apparently get away with murder, that might be a shaky assumption.) But still: how much? So I took out the spreadsheet, subtracting the column with the estimated expenses from the column with estimated sources, so that I knew how much of a differential we'd have to generate from other sources (ie, withdrawals from The Number), and cranked that number. I used four percent as the assumed withdrawal per year -- that's the assumed withdrawal that you see used a lot, incidentally. It assumes that you want to fund a retirement for about twenty five years, with the same amount of withdrawal per year. So, for example, if you need to generate one hundred thousand dollars a year to live the life you want, you'll need 2.5 million to fund it. Why? Because four percent of 2.5 million is one hundred thousand, every year for 25 years, about. (Is there more to it than that? Oh, yeah.)

So, how much do I need in order to generate that differential for twenty five years? I cranked the numbers, closed my eyes, and pressed the button.

I feel a little better. Not totally, because I'm a worrier, but still: better. Somewhat. If the rough cut is right, I may end up senile, but we won't be poor. Not real poor, anyway. And even if we do, as my wife likes to point out, one of the benefits of senility is that you don't know you're poor. Or senile, for that matter.

Incidentally, if you pick up the book (and I really recommend it: though I did cut to the chase three quarters of the way through, I intend to read the whole thing, because its worth reading), that rough cut, including its expansion, is on a single page, in Appendix A. In case you're as impatient as me.