Enough for What?

Series 4: How Much Is Enough?

Part 2: Enough for What?

There is a question I have heard in many different forms over the years. Someone will be sitting across the table from me, perhaps a few years from retirement, and eventually they will ask: “Do you think we have enough?”

It sounds like a financial question, and of course part of it is. But increasingly I think the more useful response is another question: enough for what?

In Part 1 of this series, I wrote about why there is no single retirement number that works for everyone. Benchmarks can be useful, but they cannot tell you whether your particular combination of savings, superannuation, property and other assets will support the years ahead. That depends on what you expect those resources to do.

This week I want to take that idea somewhere more practical. Because two couples can retire on exactly the same day, at exactly the same age, with exactly the same amount of money, and have completely different financial experiences. The difference may have surprisingly little to do with investment returns. It can come down to the version of retirement each of them is trying to fund.

Retirement has become a much bigger brief

For previous generations, retirement was often imagined fairly simply. You finished work, paid off the house if you could, lived from your pension and savings, and perhaps took the occasional holiday. That description was never true for everybody, of course, but it was a reasonably familiar model.

Today, the expectations I hear are far more varied.

One person wants to travel internationally every year while they are healthy enough to enjoy it. Another wants to buy a caravan and spend months travelling around Australia. Someone else is perfectly happy staying close to home, gardening, seeing friends and taking an occasional trip up the coast. One couple wants to remain in the family home for as long as possible. Another is already looking forward to selling it and buying a smaller apartment near restaurants, transport and the water.

Then there are the commitments that sit around those choices. Adult children may need help with a home deposit. Grandchildren may be attending private school. There might be elderly parents who require support. Some people are determined to leave a substantial inheritance, while others tell me quite cheerfully that their children will receive whatever happens to be left.

None of these choices is inherently right or wrong. But they have very different financial consequences.

This is why I am cautious when retirement conversations become too focused on the size of the portfolio. A number on a statement tells me what somebody has accumulated. It does not tell me what they are asking that money to accomplish.

The expensive retirement isn't always the obvious one

We tend to associate an expensive retirement with luxury. Business-class travel, expensive restaurants, boats, golf memberships and long overseas holidays certainly cost money. But some of the largest financial decisions in retirement are much less glamorous.

Housing is a good example.

Imagine a couple in Sydney living in a home they bought decades ago. It might now be worth several million dollars, even though they never thought of themselves as particularly wealthy. They love the house, know the neighbours and have no desire to leave. Financially, however, maintaining a large property can carry substantial ongoing costs. Rates, insurance, repairs, gardens and renovations do not disappear because the mortgage has.

Another couple in a similar position might decide to downsize. On paper, that could release capital and reduce maintenance. But even that is not as straightforward as saying, “Sell the big house and buy a smaller one.” A well-located apartment, townhouse or villa in the same area may be surprisingly expensive. There are transaction costs, moving costs and sometimes renovations or new furniture. There may also be financial and superannuation considerations around what happens to any capital released.

The important point is not that staying is better than moving, or vice versa. It is that where and how you choose to live is part of the definition of enough.

The family home is not simply an entry on a balance sheet. It is also the place from which much of retirement is lived. That makes the housing decision both financial and deeply personal.

Then the family enters the equation

One of the biggest changes I have noticed in retirement planning is how often the financial plan now extends beyond the people who are supposedly retiring.

Parents increasingly tell me they want to help their adult children. In expensive housing markets, that might mean contributing towards a deposit, providing a loan, acting as guarantor or simply helping with living costs while a child saves. Other families want to pay school fees for grandchildren or provide financial support at particular stages of life.

These can be wonderful things to do. But generosity still needs to fit inside a plan.

Giving $100,000 to a child when you are 62 can feel very different from giving the same amount at 82. At 62, you may still have decades ahead in which that capital could otherwise have been invested and supporting your own spending. Your health costs are uncertain. Your housing needs may change. Markets will have good years and bad years. Life rarely unfolds according to the neat assumptions in a spreadsheet.

That does not mean parents should stop helping their children. It means the question needs to be considered in the context of everything else the money is expected to do.

I sometimes see people mentally allocate the same dollar several times. They want it to support their retirement, help the children, pay for future care and eventually become an inheritance. Unfortunately, money does not know that it has been given four different jobs.

This is where financial planning becomes less about finding the largest possible number and more about deciding which jobs matter most.

What do you want to leave behind?

Inheritance adds another interesting dimension to the question of enough.

Some people have a very clear objective. They want to preserve a certain amount for their children or grandchildren. That can influence how much they are comfortable spending, how their assets are structured and even whether they are willing to sell the family home.

Others take a different view. They have educated their children, helped them into adulthood and believe their retirement savings are there to be enjoyed. They still expect to leave something behind, particularly through the family home, but they do not want preserving an estate to prevent them from enjoying their healthy years.

Neither approach is automatically more responsible.

The difficulty arises when people have never really decided which approach they prefer. They spend cautiously because they are afraid of running out, while simultaneously accumulating an estate they never consciously intended to preserve. Years later, they may discover that they could comfortably have travelled more, helped family earlier or simply enjoyed a little more of what they had built.

The reverse can happen too. A retirement built around heavy spending in the early years may become uncomfortable later if longevity, health costs or changing housing needs were never given enough consideration.

A useful plan therefore needs to recognise competing priorities rather than pretend they do not exist. Enjoying money today, maintaining security for tomorrow and leaving money behind are all legitimate goals, but the balance between them is personal.

Sometimes enough becomes simpler

There is another version of retirement that receives less attention because it does not photograph particularly well for brochures.

It is the retirement where people discover they actually need less than they expected.

They may stop commuting, buy fewer work clothes and eat out less frequently. They may prefer cooking for friends at home to going to expensive restaurants. They travel, but perhaps more slowly. They have time to walk, read, garden, volunteer, look after grandchildren or spend a weekday at the beach.

For some people, the most valuable change is not being able to buy more. It is no longer having to organise life around work.

That can materially change the economics of retirement.

It can also reveal why retirement planning cannot simply be an exercise in replacing a percentage of your former salary. Salary and lifestyle are not the same thing. During our working years, income supports mortgages, commuting, children, professional expenses, saving and the general cost of being busy. Some of those costs reduce or disappear later. Others, such as travel, health, hobbies or helping family, may increase.

The task is to understand the shape of the life ahead rather than assume it will be a cheaper version of the life you have now.

Give the money a job before giving it a number

When people ask me whether they have enough, I still look at the numbers. We have to. Retirement planning involves cash flow, assets, superannuation, tax, investment risk, inflation, longevity and contingencies. Good intentions do not replace financial arithmetic.

But I increasingly think the arithmetic should come second.

First, we need to understand what the money is being asked to do.

Does it need to keep you in the family home? Fund ten years of serious travel? Help two children into property? Provide a buffer for future care? Preserve an inheritance? Allow you to retire at 60 rather than 67? Or support a relatively simple life in which time matters more than consumption?

Once those priorities become clearer, “How much is enough?” becomes a much more useful financial question.

It may turn out that you need more than you thought. It may also turn out that you already have enough for the retirement you actually want, but have been measuring yourself against somebody else's version of it.

And that brings me to the next part of this series.

Because having enough money and feeling as though you have enough money are not always the same thing. I have met people with considerable wealth who remain deeply anxious about spending, and others with far fewer resources who feel remarkably secure.

In Part 3, I want to explore why.

Next in Series 4: The Difference Between Being Wealthy and Feeling Secure