The Difference Between Being Wealthy and Feeling Secure
Series 4: How Much Is Enough?
Part 4: The Difference Between Being Wealthy and Feeling Secure
There was something underneath the conversation I wrote about last week that I think deserves a little more attention.
In Part 3, I looked at what happens when one person in a relationship feels ready to retire and the other doesn't. On the surface, that can look like a disagreement about timing. One person wants to finish work, while the other wants to keep going. But after many years of having these conversations with couples, I have found that the disagreement is often not really about a retirement date at all.
Sometimes it is about security.
One person can look at what they have accumulated and think, We've worked hard, we've planned for this, surely we have enough. Their partner can look at exactly the same numbers and think, But what if it isn't?
Neither person is necessarily being unreasonable. They are simply experiencing the same financial position differently, and that brings us to an important distinction in retirement planning: being wealthy and feeling financially secure are not necessarily the same thing.
I have met people with substantial assets who still worry about almost every significant financial decision. They hesitate over holidays, question whether they should replace the car and become uncomfortable whenever investment markets fall, even when their overall financial position suggests they have considerable capacity to absorb it. I have also met people with far less who seem remarkably comfortable because they understand what comes in, what goes out, what they can afford and where their boundaries are.
That difference has always interested me because it suggests that perhaps “enough” is not simply something we calculate. At some point, we also have to believe it.
When accumulation becomes spending
Financial wealth is relatively straightforward to put on paper. We can list the home, superannuation, investments, cash and other assets, subtract liabilities and arrive at a figure. We can then model income, expenditure, investment returns and different retirement scenarios.
All of that matters. But the balance sheet does not tell me how somebody will feel when their salary stops arriving.
For someone who has spent 35 or 40 years working, saving and accumulating, retirement requires a surprisingly significant psychological adjustment. Throughout most of our working lives, we are conditioned to see progress in one direction. The mortgage goes down, superannuation goes up, savings increase and investments hopefully grow over time.
Then retirement arrives and the direction changes.
The money that has represented security for decades is suddenly expected to fund the next stage of life. Superannuation is there to be drawn upon. Savings may be used for travel, renovations, replacing a car or simply meeting everyday living expenses. Even when this is exactly what somebody has spent decades preparing for, watching the balance move down rather than up can feel uncomfortable.
I sometimes see people interpret any reduction in capital as evidence that something is going wrong, even when drawing on those resources was precisely what their retirement plan was designed to allow. Somewhere along the way, the balance has become a scoreboard rather than a resource.
That can also explain some of the tension between couples approaching retirement. The partner who wants to continue working may not simply love their job or resist change. They may see another year of salary and another year of contributions as another layer of protection. Their partner may look at the same year and see something entirely different: twelve months of healthy retirement that they will never get back.
Both are assigning value to something. One is placing greater value on additional financial security, while the other is placing greater value on time.
The uncertainty doesn't disappear when you have money
There are also perfectly rational reasons why people remain cautious.
Retirement contains uncertainties that no financial plan can completely remove. We do not know exactly how long we will live, what investment markets will do, how inflation will behave over several decades or how our health and family circumstances may change. A house may need substantial repairs. An adult child may suddenly need help. A couple who expected to remain independent may eventually require support at home or some form of aged care.
When employment income stops, those uncertainties can feel more significant because the ability to rebuild capital through another decade of work is diminishing.
This is where I think financial security starts to separate from financial wealth.
Security does not mean knowing that nothing will go wrong. Nobody can provide that guarantee. It means understanding how much uncertainty your financial position can reasonably absorb and what choices would remain available if circumstances changed.
There is a significant difference, for example, between knowing you have $2 million invested and understanding what level of spending those resources might reasonably support, where your retirement income will come from, how much liquidity you have available, what might happen during a prolonged market downturn and which expenses could be adjusted if necessary.
The amount hasn't changed. What has changed is your understanding of it.
That is one of the less visible benefits of financial planning. It can turn a large number into something more useful: a framework for making decisions.
When the target keeps moving
For people who remain uncertain about retirement, the instinctive solution is often to accumulate more.
Perhaps another year of work would help. Another $100,000 in super might feel safer. Paying a little more off the mortgage could provide greater comfort. Maybe it would be better to wait until markets improve or until interest rates settle down.
Sometimes those are sensible decisions. If the financial position genuinely does not support the retirement being planned, additional time and capital can make an enormous difference.
But I have also watched the target move.
Someone decides they will retire when their super reaches a particular amount. Eventually they reach it, but the number no longer feels quite sufficient. Another figure becomes the target. When they reach that one, something else creates uncertainty.
At that point, accumulating more may not be solving the problem because the problem is no longer purely financial.
It is confidence.
This is why projections are useful, but only if we understand what they are designed to do. A retirement projection is not a promise about the future. Markets will not deliver exactly the assumed return each year, inflation will vary and life will introduce events nobody predicted. What a good plan can do is test the consequences of different circumstances.
What happens if investment returns are lower for a period? What if we spend more during the first decade of retirement? What if we help the children? What if we remain in the family home longer than expected, or decide to downsize later? What if one of us lives well into our 90s?
Working through those possibilities does not make the future certain, but it can turn the vague fear of “running out of money” into something that can actually be examined.
And sometimes that is what allows somebody to finally say, I understand why this works.
There can also be a cost to being too careful
We talk quite rightly about the danger of spending too much in retirement. But there is another risk that deserves consideration, particularly when deciding whether to work for another year or two simply to feel safer.
There can be a cost to spending too little, and there can be a cost to waiting too long.
The early years of retirement are often the period when people have the greatest combination of time, health and independence. They may be able to travel more easily, spend time with grandchildren, pursue interests, see friends or simply enjoy having control over their week.
Those years have value, even though they never appear on a balance sheet.
If someone continually postpones experiences because they are waiting to feel completely financially secure, there is a possibility that the confidence arrives after some of those opportunities have passed.
That doesn't mean abandoning caution or spending money simply because it is available. Nor does it mean the partner who wants to continue working is wrong. As I wrote last week, retirement decisions within a couple need to accommodate two people who may have very different relationships with work, money and security.
What matters is understanding what is driving the decision.
If you are postponing retirement because another two years of work materially strengthens a financial position that would otherwise be vulnerable, that is useful information. If you are postponing because no amount has ever quite made you feel safe enough to stop, that deserves a different conversation.
What would actually need to go wrong?
One question I find particularly useful is not simply, “Will we be okay?”
It is: what would actually have to happen for us not to be okay?
That tends to lead to a much more practical discussion.
Perhaps spending would need to remain substantially higher than expected for many years. Perhaps investment returns would need to be persistently poor. Perhaps a major health or housing event would change the plan. Perhaps significant financial assistance to adult children would need to be reconsidered.
Once those risks are visible, we can also identify the choices available if circumstances change. Travel might be reduced for a year. A major purchase could be delayed. Investments can be structured with liquidity in mind. Housing decisions can be revisited. Some expenditure is essential, while other expenditure is flexible.
A retirement plan does not have to predict every future event correctly to be useful. It needs to help people understand where they stand and how they could respond.
That ability to adapt can create far more confidence than simply staring at a large account balance.
When does enough start to feel like enough?
I would never suggest that financial security is simply a state of mind. If the financial resources are inadequate for what someone expects them to support, positive thinking will not fix the problem. The numbers matter, and they need to be properly tested.
But once a reasonable financial foundation exists, something else enters the conversation.
Will you allow yourself to believe what the numbers are telling you?
Our relationship with money has been shaped over an entire lifetime. Childhood experiences, careers, mortgages, relationships, periods of financial stress, market downturns and even the attitudes towards money we inherited from our parents can influence what feels safe to us. That is why two people can look at almost identical financial positions and experience them completely differently. It is also why two partners looking at the same retirement plan may reach different conclusions about whether the time has come to stop working.
For me, the objective of planning is not to convince somebody that they are wealthy, nor is it to encourage them to spend more than feels comfortable. It is to help them understand their position well enough that their decisions are being driven by what is actually happening rather than by an undefined fear of what might happen.
Earlier in this series, I asked how much is enough? Then we considered enough for what? Last week, the question became more complicated because retirement rarely belongs to only one person. Sometimes one partner is ready before the other.
Perhaps the next question is the one that ties all of those conversations together:
What would need to be true for you to genuinely feel that you have enough?
Because eventually there may come a point when another year of accumulating wealth provides less value than another year in which you have greater control over your time.
And that leads naturally to the final question in this series.
When does enough actually become enough?
Next in Series 4: Part 5, When Enough Becomes Enough