The Financial and Emotional Components of Pulling the Trigger

You've worked your entire career, diligently saved, and finally, the question looms: how do you know when you've saved enough money to leave the workforce and fully embrace retirement? For many, it's not just a math problem.

I recently came across a fantastic post on Reddit that perfectly captured this dilemma. The user wrote: "My spouse and I have just over $3 million. It's liquid. We have about $1 million outside of our retirement accounts and the rest is inside. We're in our mid to late 50s. In a lot of ways we have enough, but some part of me is strongly resisting that reality."

This sentiment is incredibly common for people nearing retirement – they feel like they have enough, but they just can't pull the trigger. Let's break down both the financial and emotional sides of this pivotal decision. I also did the same on my YouTube channel in a video here.

The Financial Component: Do the Numbers Add Up?

For many, the first step is crunching the numbers. The top commenter on the Reddit post referenced a great starting point: a blog series by ERN (Early Retirement Now) that delves deep into safe withdrawal rates.

For those unfamiliar, safe withdrawal rates were popularized by financial planner Bill Bengen in California in the 1990s. Bill sought to answer a fundamental question: how much can you spend in retirement without running out of money, even if you retired at the worst possible time? Ultimately, his research famously landed on 4% as a safe withdrawal rate.

If we apply that 4% rule to the couple in the Reddit post, with their $3 million portfolio, they could safely spend $120,000 per year. And considering they are in their mid to late 50s, they are still a few years away from turning on Social Security at the earliest. When you add in potential Social Security benefits to those portfolio withdrawals, it becomes very likely that they do indeed have enough money to meet their needs in retirement.

(The ERN blog series offers dozens of posts and spreadsheets if you want to spend hours analyzing every decimal point for your perfect number!)

The Emotional Component: A More Nuanced Challenge

While the math side of retirement can be satisfyingly tangible, the emotional component is often far more nuanced and, in my opinion, much more difficult.

1. Identity Shift: You're about to shift your entire identity from being a "producer" – saving, working, and investing – to a "consumer" of wealth. This is a significant psychological transition that should not be underestimated.

2. Beyond the Spreadsheets: Doing safe withdrawal rate calculations is satisfying because it's quantitative. You can analyze inputs and metrics with data at your fingertips. The emotional side, however, is much more "touchy-feely" and less about hard data.

3. The Cascading Effect of Unpreparedness: It's crucial to put in the work on this emotional side and figure out what you're truly going to do with your time and how you're going to lead a fulfilling life in retirement. If you don't:

   • Best Case: You might "fail" at retirement and re-enter the workforce, going back to what you were doing before.

   • Mid-Level: Many people get sucked into projects they hate, ending up busier (and less happy) in retirement than they were while working (e.g., serving on an HOA, getting pulled into unexciting volunteer projects).

   • Worst Case: You simply don't know what to do with yourself, leading to depression and a lack of purpose.

It's clear that putting time and effort into the emotional aspect of retirement is just as vital as the financial planning.

Resources to Jumpstart Your Thinking

The top commenter on that Reddit post also mentioned a couple of excellent books that can help jumpstart your thinking on this topic:

• "Die with Zero" by Bill Perkins: This book challenges conventional wisdom about saving and spending, encouraging a more intentional approach to maximizing life experiences.

• "The Psychology of Money" by Morgan Housel: This book explores the often irrational ways people think about money and provides timeless lessons on behavioral finance.

Are You Ready to Pull the Trigger?

Deciding when you've saved enough for retirement involves a careful balance of financial realities and personal readiness. It's a journey that requires honest self-reflection as much as it does spreadsheet analysis.

At Barrett FP LLC, we offer expert financial planning on an hourly basis, focused entirely on helping you achieve your goals.

Learn more about how we can help you navigate both the numbers and the emotions of retirement and see if we're a good fit.