Ep #140 - How Much Is Enough? It’s More Than Just Numbers

How much do you need to have stashed away to live a comfortable life? And how will you know it’s truly, enough? Listen in as Adam and Ben talk about how “enough” isn’t just a number on a spreadsheet or a Monte Carlo simulation output. Defining enough needs to include reflections on what matters most to you, what fulfills you, and what keeps you content. And it’s hard to get that output from a calculator!

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[00:00:00] Adam Werner: Hi everyone, and welcome to AB Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple certified financial planners on how we think and feel about everyday financial planning questions, and what should really matter most to you. A healthier financial life starts now.

[00:00:28] Adam: Welcome back.

[00:00:30] Ben: How are you today, Adam?

[00:00:32] Adam: Doing all right.

[00:00:33] Ben: Good.

[00:00:33] Adam: How about yourself?

[00:00:35] Ben: I'm excellent. I am excited to talk about the concept of enough. So as usual, let's just jump in with two feet here. I think we have a big responsibility with our clients.

I think the old school financial planning model was very math driven, right? When we talk about how much money should somebody have, do you remember that commercial? I think it was ING. When I looked this up, it was actually 2008, which is kind of funny to think about. Yeah. But people were just walking around with a big orange number floating above their head, and that number was supposed to represent how much money did they need to basically retire and live the life they wanted to live.

So. Yes. Let's talk a little bit about like the number side of this, but this concept with clients of like how much do I really need and what is going to be enough, is a really psychological hurdle. And I think there's a lot of fear around, even if we told them, the math tell says this, is that really true?

Is that the way it's gonna be? Like what really is going to be enough?

[00:01:38] Adam: Yeah, and I mean, we get asked question all the time or, posed the comment, well, I always heard I needed a million dollars or 2 million, whatever the number is, right? I need this and then I'm gonna be fine. And often the answer from our standpoint is, sure, but it all depends on, yeah, your situation, right?

How much are you going to spend? What's your life going to look like? What do you actually need? That will dictate whatever that number is, right? We can back our way into an actual. For that number. But that doesn't, to your point there, that doesn't necessarily answer the question of is that really enough, and how do I feel comfortable to know that whatever I have saved is going to last as long as I may want or need it to last?

[00:02:30] Ben: Right? 'cause if we, just stick to the theme that we truly believe and have kind of centered the business around here, that money is just a tool to live a life you wanna live then that money's gotta turn into something more like it has to lead to fulfillment. And that's where I'd love to discuss with you today, the difference between that math and just the feeling, like the mindset that whatever that number is, I'm going to find a way to be content knowing that money's going to be aligned to like my life and not just some sort of balance sheet.

[00:03:02] Adam: Yeah. Yeah. And I think the obvious approach for many people and there's this saying that I’ve heard growing up, a friend of my dad's would always say, if some is good and more is better, then too much is just the right amount. Like, there's no such thing as too much. If I have too much, then that's enough, right?

But we wouldn't want people to put themselves in that spot where they are aiming or targeting or putting themselves through a process that in theory, right? Maybe they're foregoing something for that future to make sure I don't want any scenario where I could outlive my savings, right? So I'm just gonna super frugally and save as much as possible and just eliminate that as a concern.

But then of course, we would on the other side say, yeah but for who and for what? To your point, coming back to fulfillment, this money should serve a purpose in your life and not just to set it aside and die with as much as possible.

[00:04:04] Ben: Well, there might be the other side of this too, right? The concept of lifestyle creep where you have these increases of income while you're working or your wealth grows, but then you spend more and spend more to fit that, right?

All of that's kind of proportional together. So you're this idea of, well, how much am I gonna need? Well, that future need just continues to grow and grow, and enough to somebody becomes more and more, and that's not good either.

[00:04:29] Adam: Yeah. For sure. So I think that in, in those kind of scenarios, I think people, clients, often end up focused more on the what can go wrong, which I guess in all fairness is certainly how I, and maybe we as planners often have to think, right?

We wanna try to plan some contingencies around what could go wrong. Let's have a plan in place so that if that ever comes to pass, it's not catastrophic to your plan. But then that often leads to more of the fear-based planning. Let's talk about all the negatives and let's just eliminate those negatives.

But then that doesn't necessarily lead to more of those purposeful outcomes, like, I have this money, but what is its purpose? What do I actually want to get out of my wealth, my savings, my investments.

[00:05:21] Ben: So then let's pivot to that part of the conversation, right? And maybe let's start with, again, the wrong way to kind of define a number.

And then let's kind of just shift into how do we have conversations that, as you just put, are a little bit more value driven? So yeah, again, maybe give me an example. I kind of, well. You can use your own example. I'll go back to the way I kind of started this, right? Yeah. We used to do planning that just felt very much like calculator work, like present value calculations and some of those things that may have just felt more, I'll say arbitrary.

[00:05:56] Adam: Yeah. Well, but think it because it's simple. Right? It's not nuanced.

[00:06:03] Ben: Well, it needs to be a component of that. Sure. Go ahead. Yeah.

[00:06:05] Adam: Yeah. Well, no, I was just gonna say if we could just break it down to a simple equation and not have to worry about any of the nuance and as we know so many different variables, nothing happens in a vacuum.

But if I could just use a very straightforward, simple formula that says if I could replace 90% of my income while I'm working in retirement. I will be fine because this is what I've been used to living off of while I'm working. And if it's no different in retirement, then status quo is success.

[00:06:34] Ben: But for people that aren't even numbers driven, people wouldn't their first question and wouldn't argue. So you're using 90%. That's ironic. We just met somebody a couple weeks ago who came in very bright man, has his crap together, says when we say, well, what do you want in life and teaser, like this is where we're going in the conversation a little bit.

The answer wasn't fulfillment, it wasn't tangible things, it wasn't specific experiences. He answered it by saying, I want 90% of my working income. And our follow up to that of course is, but why? Yeah. Why 90%? So if we led the planning with somebody being like, they come in, they say they want our help, and we say, well, we need it now to quantify this.

We are numbers people, like, let's get a number to that. If we just said, you should have 90% of your working income, their response to us should be, but do I? Why? Right. Yeah. So, so let's not, let's not define your number that way.

[00:07:31] Adam: Right. Yeah. So I guess another way that is maybe not the right way, and I guess is relying too heavily on Monte Carlo simulations without some sort of anchoring in what does someone actually want out of retirement or out of their goals in life. Now to be fair, we rely on these Monte Carlo simulations in our planning tool, but I think the key there is it's a conversation facilitator and not the be all end all when it comes to planning and our projections again, it's a tool and not every tool is going to be infallible, and especially when it comes to planning projections.

I know we've talked about this really ad nauseum on other versions of the podcast. There are so many variables that are going to go into somebody's life when it comes to retirement planning and retirement projections, and over such a long period of time. They are educated guesses and that's really it.

They, we need to start somewhere. Right? We need to have a baseline. But I think anchoring that back to, you said it earlier, right? What is, what's important to people in their life? How do they want to allocate their resources? And then let's back our way into great. If the projections look good, Monte Carlo simulation says, you're in good shape.

Your money's going to outlive you. Right, right, right, right. That's the scenario we would want for people. Not the opposite, that you're gonna end up with more than a dollar leftover when you pass. That's a good scenario, but it doesn't get into the nuance of but did you maximize the savings and dollars that you have for what's actually important to you in life?

[00:09:17] Ben: Well said. We need to recognize that the numbers matter, right? We need to have the confidence to tell people that this modeling is we believe factual. Like we, we believe that the Monte Carlo is telling us good things because we trust the inputs.

And those inputs have to be kind of value based, right? Shift the conversation to what do you truly want? Like if we're plugging in numbers here, those numbers need to be representative of something. Right? And if it is certain experiences, yes, it's okay for us to plug in numbers that might be representative of travel or time spent with family or where you wanna put your energy.

We need to be confident that we're putting in buffers for health, right? Things that you might be a afraid of. Those are the types of things that I think then lead to, okay I'm trusting the number output. I truly believe that I do have enough. Right? Yeah. And we need to be able to ask those questions and we, we would want all advisors, all planners, to go through that process of you need to ask good questions. You need to be able to answer. Okay. You call it like forensic accounting? Like Yeah. But like why do these numbers exist in this plan?

[00:10:23] Adam: Yeah. I hope that's where we're, maybe a little bit different than your standard run of the mill advisor or planner, in that we do want to know the answers to some of these questions, what does a perfect day look like? Right? Yeah. Just to get to the bottom of what's actually important to somebody.

Right. It's the regrets conversation, right? You paint the picture of it's later in life. What were those regrets? If you could flash forward into the future, what are those things you wish you would've done and you didn't? Or what are the things you did and you wish you didn't?

Just to get an idea of where someone really places the value for themselves in life.

And some of that, I think on our end just comes back to like the mental accounting.

[00:11:05] Ben: Yeah.

[00:11:05] Adam: Being able to create different buckets that are intended for different purposes. And I think in my mind when it comes to that mental accounting and that mental bucketing. It all comes back to just peace of mind, right?

To know that if I have my needs met by this account or this pool of money, good, I can check that box. And then if I have this next bucket that fulfills a lot of the wants in addition to the needs, that's great. Gives me some flexibility, and then hopefully, right? We're in a scenario where there is an abundance, right?

And then everything else can truly be discretionary. Can truly be flexible, can truly be applied to those things that somebody would say, you know what, I want to, I wanna spend time around my family.

[00:11:52] Ben: Yeah.

[00:11:52] Adam: Doing these things in this area. Here's a general idea of what it, what that may cost over time, but this pool of money is what's going to help me do that.

And by, by bucketing things in that way. What we've seen anecdotally from clients is it just helps people like give themselves permission. Yeah. To spend some of what they have saved.

[00:12:15] Ben: I think it also helps them get out of that whole idea of like, anxiety driven decisions or fear that enough is going to not be enough when they're now 10 years into retirement.

Right? If we're looking at that number as like one big thing and we go through a volatile market, then we're assuming that all things are going wrong because we're just focused on that one number, right? Where if we actually do a good job bucketing, okay, but this account is for your needs. This account is for lifestyle, joy, growth things. By the way, this is your uncertainty bucket where, things that will pop up that you didn't plan for are still being covered. And by the way, like you said, here's the excess, here's a legacy bucket. If we give them the opportunity to kind of sparse that out, it, I think it just becomes psychologically a little bit easier to see the ebbs and flows happen.

Knowing that. Okay, but what's what I perceive as bad out there, or what I'm being told is bad out there. If it's not affecting the core, the foundation of my plan, then I have, I hope I have the patience to let this storm pass and not feel like, okay, I thought I had enough and now I am feeling like I didn't.

[00:13:29] Adam: Yeah. And I think part of that just comes back to our approach to the three bucket theory, right? That in, in theory if you have your needs met by a pool of assets on the front end, you have your lifestyle kind of met in the middle, then hopefully that if in times of market stress or, interest rates are sp go back to 2022.

Interest rates are spiking, inflation is spiking, stocks are down, bonds are down. That again, that doesn't, should not impact your day to day, but it may affect some of those more discretionary spends or , those discretionary decisions. But then we're hoping that those adjustments are not wholesale.

We need to completely change our approach to life, it's, we're gonna, we're gonna move this dimmer switch down a bit this year. But as we've seen, the market has rebounded. Maybe now you can turn that dimmer switch back up when it feels prudent to do so. And this is again, just, that's just an example of maybe where we've kind of seen that in practice.

[00:14:32] Ben: So if I'm kind of summarizing this, then there are, I think when we want to present the idea of enough or we see situations where clients are really struggling with that, then when we say there needs to be like personalized planning, what we're saying is we need to have conversations around how they would define that.

And that's not in numbers, but that's just in experience and why money matters to them. Like the one size fits all calculator is just not the way to go about planning. It needs to be far more dynamic and. Frankly, I think that's why conversations matter. I think that's where, okay, I am becoming more comfortable with this concept of like, AI, but I'm not sure how that conversation is generated in a way where our experience on like bucketing and dealing with anxieties and market volatility in all the different situations.

I'm not sure how you ever replace those conversations.

[00:15:29] Adam: Yeah, for sure. For sure. And I think, yeah, even just maybe we kind of made this point on, maybe I'll just reiterate it, right? It's, you said it right, that using any one size fits all kind of metric or rule of thumb or just a very basic calculator doesn't necessarily factor in all of the purpose side of things for people, right.

It's. It is building in some buffers. Right. Let's build let's build some contingencies in here. I know I said that earlier. Do we have flexible strategies for withdrawals in certain given years? Kinda the way I just laid out that, that bucket scenario, are there guardrails for, at what point does work truly become optional if I'm not yet retired?

Right. Just giving somebody that level of control, and we've talked about this before too, and I just, I feel like I just said this to somebody last week. What we've seen is when people don't have like a defined I need to retire at this date, right? Yeah. By just getting somebody, hopefully feeling comfortable to the point where you have enough, if we've gone through this exercise appropriately, just knowing that they could walk away from work at any point in time and do what they want to do in retirement and when they want to do it.

We've seen that has often led to people being able to work longer or at least pivot to something that may not feel as stressful or gives them more purpose or more fulfillment, or more contentment. Yeah, where just going through the conversations hopefully, will lead to that outcome where it's not just, I'm saving and I need to target a certain number.

But I don't know, like, but again why that number and why should I be doing this if I don't know how I'm going to actually use it in the future?

[00:17:19] Ben: So that has to be the biggest takeaway. Like enough can't just be a number, a spreadsheet, your investment accounts, whatever your data aggregation tool is, we like, yeah, it has to be a reflection on what truly matters to you, because only then can we really just stay focused on, yeah.

The values for you to have the clarity, the contentment, and the trust that what we've said is enough is actually enough.

[00:17:44] Adam: Yeah. Somebody going through that thought exercise of, okay, if I had a hundred million dollars, right. I think for most people that's probably enough.

[00:17:53] Ben: Yeah.

[00:17:53] Adam: But just going through that thought exercise of if I had more money than I think I would ever need. What would change? What would I do different? But then what wouldn't change? Right? What would stay the same? And I think that aspect of it is incredibly helpful to planning in the here and now for people that may not have a hundred million dollars.

But if I had more, what wouldn't change? What would I still approach the exact same way? What would be the same things I'd be doing for the same amount of money, whether I had a hundred million or I had a million, these would still be things I wouldn't change in that scenario. And I think just going through some of those conversations and some of those thought exercise can help people navigate what may actually be important to them.

Because I know for myself, it's not something that I think about every single day and have crystal clear answers on and it can change from time to time. Right? It's life will take us on paths. It will meander. Yeah. We'll go to some forks in the road. But hopefully maybe those things that do matter, stay more consistent than not.

And just going through some of these conversations I think can help give people some of that introspection to find out maybe what's truly needed for the retirement side of things that we're kind of looking at here.

[00:19:11] Ben: Makes sense to me. Love it.

[00:19:13] Adam Werner: Great.

[00:19:14] Ben: Till next time. Thank you sir.

[00:19:17] Adam Werner: Thank you.

[00:19:18] Ben: Bye.

[00:19:19] Adam Werner: See ya.

Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant, and financial advisor, or tax advisor prior to making any decisions or investing. Thanks for listening.