Retirement Planners Are Re-Thinking the “Number”

One of the first books I read specifically about retirement planning was “The Number” by Lee Eisenberg. The book was interesting and thoughtful but in the end asked more questions than it answered. The “number” of course is the size of a retirement nest egg needed to support a desired retirement lifestyle. Most financial planners seemed to target that number when designing a retirement plan for their clients. 

Since reading that book, I’ve come to understand that conventional thinking about “the number” is misguided. Increasing your net worth to prepare for retirement is helpful if the assets acquired can reliably generate the income you will need. Now many retirement planning experts are refocusing their ideas along those same lines.

One recent example of this redirected thinking away from the “number” can be found in this video from Consuelo Mack’s Wealthtrack.

The first speaker tears a page directly from my retirement planning play book. What I call a “Failsafe Retirement Plan” he calls the “floor strategy.” By floor, he is referring to a baseline income that you will need to survive in retirement. He argues – as I do – that your first task in retirement planning is to acquire low risk , inflation-protected sources of income  that will provide that retirement “floor”. If you have a good year with your other investments, take that trip to Paris. If you have a bad year, it’s time for a staycation. Makes sense, doesn’t it?

Isn’t it interesting that retirement planners are suddenly seeing the light about retirement income being more important that wealth accumulation?

In another recent Wealthtrack show, the guests were asked to name that “one investment” that will provide a safer, higher income in retirement. One guest suggested a five-year immediate annuity. A second guest recommended – wait for it – TIPS. That should sound familiar to regular readers here.

I suppose the takeaway from this brief discussion is this: If you or your financial adviser are focused on your “number”, you may be doing damage to the long term viability of your retirement plan. I have always been an advocate of monitoring net worth as a way to track financial progress. Now I understand that as you move through your baby boomer years, you need to determine how that net worth will support you when you stop working. In these years of low or negative market returns, that is a big challenge.

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