Perhaps the most common question I hear from new clients is: “Do I have enough to retire?”

The problem is that they’ve never done a concrete analysis to answer that question. Why? Many fear the possibility that by digging into their number, they will discover that they’re not even close. The dread is often palpable. Because they are afraid to know the truth, many people have been relying on educated guesses discovered via back-of-the-envelope calculations or simple website calculators to determine the answer. Obviously both are inadequate. Your retirement is too important to trust to what amounts to a wing and a prayer.

You Need a Financial Plan

To determine whether you have enough, you need to create a financial plan with a CERTIFIED FINANCIAL PLANNER™ professional on sophisticated software. Your financial plan is likely to be as complicated as you are. You’ll find that the inputs, from your expected medical expenses to the amount that may be required to help your children through life’s challenges, are far beyond what can be calculated on the back of an envelope. Because simple calculations are likely to be more misleading than helpful, you cannot afford to skip this step.

Of course, financial plans aren’t perfect, either. Think of it: You don’t know how long you will live, the impact of inflation, or the investment returns you will generate. With so many important unknowns, financial plans are as much about probabilities as facts, and you’ll need to update yours every year. But a good financial plan can provide an essential roadmap to get you on track.

Focus on Spending, Yuk!

The reality of financial plans is that the question of “Do I have enough?” is less a question of your assets at retirement and more a matter of how you spend them down afterward. Spending is the critical lever, the element that makes or breaks a financial plan. If you’re willing to cut enough from your current spending and your projections of your future spending, you probably will have enough.

Both how long you work and how much you spend can have a meaningful impact on a financial plan, since changes tend to last for years on end. Those are the two levers to focus on, though admittedly, neither are very pleasant to consider – especially spending! 

Investing to Get Enough – It’s a Math Problem

Although you can’t control what the markets do, you can control how you invest. Investors tend to sabotage their returns by pulling money out of investments at market bottoms and buying at market tops, according to research by Boston-based Dalbar. Investing can be very emotional. It can also be fun trying to outsmart the market and searching for the next Apple or Amazon. Enjoy the fun while you can, but set limits on how much you are willing to risk (that is part of your financial plan, too). 

Once you find yourself within 10 years of retirement, your investment strategy needs to change. Now it’s a math problem. How do you get from here to there – there being the end of your life – with reasonable probabilities? Why does the fun have to end? The stakes of missing your target return are too high. Imagine running out of money after you’re too old to work – that’s when life can really get tough. Don’t let that be you. Embrace the math problem.

A Disciplined Investment Process

Retirement investing should be a disciplined, integrated process:

  • Plan your retirement and determine your priorities
  • Incorporate your priorities into a financial plan
  • Use your financial plan to derive the target return you need
  • Select an asset allocation based on historic probabilities that can deliver the target return
  • Invest with low-cost ETFs (exchange-traded funds); keep your costs under 0.20%
  • Manage risk through rebalancing and capitalize on downturns to buy at exceptional values 

If you can do a financial plan and invest with discipline, you can answer the “Do I have enough?” question with confidence. “Yes, I have enough!”

If you’re asking the question, “Do I have enough to retire?” you probably need a financial plan. A CFP® professional can help you create one and invest so you meet your goals.