Define Comfortable

Balancing Investing vs Spending

Specifically, financially comfortable.

Do you save every penny possible in order to have a better future? (my Dad)

Or do you spend my money now and enjoy life without concern for the future? (my Mom – note: she didn’t spend it on herself, she was very generous in helping others. In particular my brother and myself.)

Naturally you can imagine these conflicting approaches created numerous marital problems for my parents (who foolishly enough didn’t get divorced until they were seventy!).

Juggle these opposing approaches? (Me for most of my life) Spend in bursts, to enjoy life, but also save and plan for the future so you can have another burst to spend.

What I failed to do for most of my life / career was to “pay yourself first“. In other words, every time you have income, invest some of it. Then pay your bills and party with the rest.

Now after bungling the sale of my Minnesota house, I’m very much in the mode of invest every penny to assure a comfortable retirement.

Which brings me to “define comfortable“. In theory, if I trusted inflation wouldn’t go insane, I could retire this summer with very little extra for fun or trips. Basically spend the next fifty years reading books and writing articles. 😇

Or I could stick with my plan to not retire for three more years, invest like crazy and then if I do moderately well at investing, I’d have an extra $18,000 a year to spend on “fun”.

Planning for the future has one major flaw: the future is unpredictable.

My guess is that most people planning retirement are not factoring in inflation, or at least not true inflation. Since 1985, the USA has averaged 5.7% inflation. If you are retiring on Social Security as your primary income, keep in mind that only three times in the past twenty years have Social Security cost of living adjustments kept up with inflation. On average, the Social Security cost of living adjustment is less than half of inflation.

Balancing a budget involves not just looking at the income you will have, but also what your expenses will be. If you are relying on Social Security 100%, you might be comfortable at first, but after a decade you might be feeling a financial pinch (with no options to do anything about it).

For myself, I’ve adjusted my expenses so that I can live comfortably on just social security, with a big cushion built in for inflation. In addition to that, I have my retirement accounts (Roth, IRA and 401k). IRA’s have the requirement of RMDs (Required Minimum Distributions) which means that at age 73 you are forced to start drawing a significant amount. Your children didn’t need any inheritance did they?

What is financially comfortable for you?

Have you achieved it? Will you achieve it? Are you still living in a fantasy that a miracle will happen in the future?

Do you have a plan? Do you need help making a plan?