I had yet another lesson yesterday I needed to share. I am at the age where many people solicit me about “retirement” planning. These calls are valuable because they help me think about how I am going to plan to live my life on a “fixed income”, at least ten years from now.
Another light bulb moment. My household already is on a fixed income. My wife and I have full time jobs that pay a fairly consistent amount which means our household income from month to month is pretty much the same. When we retire, where the money originates will change, and it too will be “fixed”. The real-life lesson has always been about how to live within your means. The more “means” you have, the better you live. Duh. But most of us don’t live within our means. It’s cloaked in a new term “life-style”. How much money will you need to live your current lifestyle? I have no idea.
Here is what the expert on the phone told me: “You need to retire to Florida. I have lots of clients in Florida”. Ok, move to Florida. Got it. “But don’t buy, you can rent for only $5000 a month”. I almost fell out of my chair. I was told, by a financial expert, that I should spend $60,000 a year on housing, in retirement, on a property that I will have no equity and no possibility for an upside. Zero. Nada. None. For those wondering, $5000 a month would at current interest rates buy you a $1.2 million-dollar home or as I would call it, one hell of a lifestyle. Way better than now! He had my attention. I wasn’t sure how he planned to do it because I used to be a banker and I knew a few things.
A quick bankers Lesson, the 28% Housing Payment Rule: This rule focuses strictly on your mortgage payment. Lenders who care about you keep the payment at 28% of your gross monthly income. The calculation is as follows: Gross monthly income x 0.28 = Maximum monthly mortgage payment. Using this calculation, what this financial guru told me is, during retirement, I can live in Florida on the measly household monthly income of only $17,857.14. That’s “take home” (after taxes) pay of just $214,285 a year! This guy is good, I need him! He can find me $17,857 a month after taxes!
Ok, how much do I need to do that need you ask? For those wondering how you too can hit that amazing number, if you take out 5% annually (so you can preserve that pretty nest egg), you only need $4.3 million dollars in retirement savings. Oh, but that doesn’t include Social Security, so you can probably get by on $3.75 million. Yeah, that’s not happening for me or most of you. As I reminded you in American Dream posting number one, 96% of Americans do NOT have even $1 million dollars. If you are average, you are not even close. The average American family has $163,577 total saved for retirement at age 61. That’s not annual, that’s total dollars before Social Security or pension. My parents have told me “You will have a hard time living only on Social Security”. What?
No wonder all the scammers prey on Florida! Victims have been herded down there for the financial slaughter by professional retirement planners.
I have finally figured out I can’t afford the American Dream others believe I am entitled to have. I am more frugal than that and believe me when I tell you I am really bad at being frugal. There are a few moments when I broke my mold and demonstrated at least a little financial sensibility.
Many years ago, before it was fashionable, I took a great deal of abuse for buying a car on the internet. The car was $4000 less in Texas than in my home state, so I recruited my friend Larry and we flew to Dallas for $250 and drove the car home. If I told you how many people said to me “I wouldn’t do that for only $4000”. O.K, it was everyone. I viewed it then and now differently, I got paid $3750 for a weekend of driving with my buddy. We solved a lot of the world problems on that ride and I had $3750 to use elsewhere. I wish I had invested it, but I didn’t think about the fact I might retire some day and would need it. If I had, I would only need to find that missing $3.6 million for retirement right now.
I am learning though. My wife and I recently spent a Saturday in drivers training to save 10% annually on our car insurance. Only a few friends we told thought they could find the time to do such a silly thing. I get it, time is money and getting paid the equivalent of $89 per hour isn’t really worth it for most.
That’s because we have been trained on the idea of saving, even by using our time to do so, is seen as an unrealistic expectation. You could be using that time to get more stuff!
Instead, many of us have decided to live the American Dream as consumers saddled in debt. Mind boggling, stress inducing, keeping up with the Jones debt. The marketers are smart, they called it “lifestyle” and brand it with products only those in the lifestyle can have. It’s a trick called “exclusivity” and it preys on our instincts to have something we can’t.
Well, everyone else can’t, but I can if I am willing to spend only $5000 a month in Florida. Yeah for me.
The Mirror has two faces 
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