How much is enough? At what point do we have enough money to retire? Alternatively, how hard are we prepared to work to earn more income, to save more dollars, to go without today, for the benefit of tomorrow?
My client interactions tell me the answer will vary considerably. There are retirees who live on National Super alone. They will tell you that they do everything they want to, that they don’t go without and that they are happy. They may have retired early. They live a no-frills lifestyle. Others have become used to a standard of living with more spending during their working lives and it feels important to their life satisfaction to maintain that.
Research distinguishes two types of well-being. There is the emotional quality of an individual's everyday experience—the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one's life pleasant or unpleasant. American research suggests that improvements in this measure cap out at about US$75,000 of income.
Life satisfaction refers to the thoughts that people have about their life – how it is tracking versus the best life they can imagine for themselves. Higher income and wealth do seem to continue to increase life satisfaction. We might not feel happier, but we feel more satisfied.
Additionally, we have different money personalities. The compulsive saver views money as a source of security and will have a tendency towards being frugal. They will often hunt out bargains and will exercise great care with their spending in case any be wasted. How much is enough might be a never-ending journey for them. As it is for the worriers, who are constantly concerned about losing money and will let worry and anxiety about money eat away at their happiness. They can become stressed by spending – an underlying fear that they will run out of money. Conversely, other money personalities can be more indifferent to money and less prone to worry. For them, the answer of enough can be “as much as I have right now”.
One way of knowing how much is enough is to have a financial plan. A plan puts real numbers around what is otherwise just a guess.
Imagine a family with a household income of $100,000. When they consider retirement, they note mortgages and children will likely have gone, so their expense landscape will look different. But they want to maintain a similar standard of living. Seventy percent of their income, or $70,000 per annum, is a realistic starting point for their retirement. If their goal is to retire at age 65, prudently they will want their funds to last another 30 years. It is possible to calculate the amount of money they will require at age 65 to make this happen, and by extension what they need to do today to bridge the gap, if anything.
While the answer to how much is enough will vary for all of us, taking the time to calculate a target, even if it changes over time, is a very good starting point.
