LE: “Retirement” is obviously changing, we hear about it ad nauseum. People live longer, they’re healthier and more vital. They don’t want to be put out to pasture, they want to be productive and engaged. On the financial side, we’re finally beginning to realize that the old funding systems — corporate pensions and Social Security, for example — are increassingly fragile or non-existent. We’re now captains of our own retirement ships, or leaky tubs, even though we may not feel very equipped to steer our boats to that happy sunset on the horizon.

JLP: What should people in their 20s and 30s be doing?

LE: People in their twenties and thirties should at least take full advantage of IRAs and 401(k)s and gain a healthy respect for what compound interest and long-term investment returns can do for you. Younger adults also have to accept the fact that, unless you have a rich uncle, you’ll be pretty much on your own, so be prepared. Also, it’s never to early find your creative channel — I use the term loosely to mean finding an interest, a passion, a vehicle that can offer meaningful inspiration and engagement.

JLP: Can people who don’t have a “big” Number still have a comfortable retirement?

LE: Everyone needs food, shelter, clothing, and health care. Beyond those, I can’t think of too many other things that require you to have a great deal of money. Which isn’t to say there aren’t endless ways to enjoy and indulge the things that cost a fortune.

JLP: In your book, you mention the field of life planning. What exactly is life planning and how is it different from financial planning?

LE: Life planners, GOOD life planners, believe that ” life planning is financial planning done right,” as life-planning gurGeorge Kinder likes to say. That is, you start by working out the reasons you may be confused, anxious, or fearful about money, then work your way to what will make you happy, THEN sit down and do a financial plan that takes all of that into account.

JLP: When, if ever, do you plan on retiring?

LE: Personally, I never intend to retire, at least in any traditional sense. When I stopped working at Lands’ End last year, a lot of people congratulated me on my “retirement.” It was like fingers on a blackboard. I hadn’t retired at all — I just stopped going to an office. Writing “The Number” was in many ways a lot harder and more intense than anything I’d done before. And, to tell you the truth, a hell of a lot more fun. Not that my wife would agree.

JLP: And that concludes my interview with Lee. Thanks Lee, for taking the time to do this interview. Best of luck on your new book and on reaching your Number.

JLP: Why did you decide to write The Number?

LE: I wrote “The Number” because that when I thought about my own future — what would it take to feel secure over the next few decades? — I realized that there were a lot of key questions I couldn’t easily answer. On the financial side, sure, I could turn to online retirement calculators and lots of conventional wisdom in self-help financial magazines and books. But long-term satisfaction and security doesn’t just revolve around HOW MUCH? The better question is HOW MUCH — AND FOR WHAT? And yet, as I began to talk to people in their forties and fifties, I realized that most of them were either uncomfortable or unaccustomed to talking about these things. Admitting to money anxiety, or letting loose with what would really make you happy, struck me as taboo subjects for many people. So I figured it would be interesting to delve into this muck, get some well-protected secrets out into broad daylight. What better way than in a book?

JLP: What exactly is “the number?”

LE: “The Number” is how much money you’re going to need to fund the various things — and not just the material things –that will bring you satisfaction over the course of the long-term.

JLP: Does the Number change over the years? How often should people evaluate their Number?

LE: Obviously, no one Number fits all. Some people need a huge Number if all they care about are houses, boats, and playing golf at the world’s best courses. And Botox, of course. But if what you really want is to write the great America novel, the Number required is very different. So it helps to figure out your goals BEFORE sitting down with a calculator, or even a qualified financial adviser.

JLP: What is one lesson that you would like your readers to take from the book?

LE: The biggest lesson I learned is that the unexamined life may or may not be worth living — but an examined life often costs a lot less.

JLP: Is the concept of retirement changing? How?

LE: Retirement” is obviously changing, we hear about it ad nauseum. People live longer, they’re healthier and more vital. They don’t want to be put out to pasture, they want to be productive and engaged. On the financial side, we’re finally beginning to realize that the old funding systems — corporate pensions and Social Security, for example — are increassingly fragile or non-existent. We’re now captains of our own retirement ships, or leaky tubs, even though we may not feel very equipped to steer our boats to that happy sunset on the horizon.

I’ll post Part 2 tomorrow.

I enjoyed reading The Number. It was a light read but it wasn’t elementary. The entire time I was reading it I was thinking about who else I knew that needed to read it. Personally, I think EVERYONE needs to read this book. I hope this book is a runaway best seller so that we, as a nation, can get this issue out on the table. There are too many people who don’t have a clue (or they simply do not care) as to what their Numbers are as this passage from the book illustrates:

“Of workers fifty-five and older, only one in four has invested assets of more than $100,000; one in three has less than $50,000. One out of every two baby boomers will not have accumulated enough to match their current standard of living. Nearly one of two boomers say they are less than confident they will outlive their money.”

I don’t know about you, but I find those numbers to be rather ominous.

The book is arranged in three parts: Part 1 – Chasing it, Part 2 – Figuring it, and Part 3 – Finding it. The author believes we are all “chasing” our numbers regardless of whether or not we are actually doing something about it. He divides number chasers up into the following groups:

• Procrastinators – They have no plan and no real sense of the Number.
• Pluckers – They have a vague plan and an arbitrary Number.
• Plotters – They have a plan and a Number but no real sense of purpose.
• Probers – They have a plan and a Number that is centered on what would really make a difference in their second-half life.

He then goes on to ask the question why the vast majority of people have no plan for their Number.

Part 2 of the book discusses the pitfalls that people get into when trying to figure their number. He uses a hypothetical multi-generational family as an example of just how personal the Number is for each person. I thought it was a powerful example. He also explains how unprepared and unorganized the planning industry is in trying to help people understand and plan for their Numbers.

Finally, Part 3 brings it all together with a series of chapters on living in retirement (or downshifting as he likes to call it). He believes that in order to successfully understand your Number, you must look beyond numbers and find out what is really important to you. He then introduces the concept of life planning, which in my opinion is a mixture of psychology and financial planning.

This book is a gem. I HIGHLY recommend it for EVERYONE to read. I’m sure I’ll be writing more about the issues discussed in the book. After all, I want to help you figure out your Number.

Here’s some reviews from other bloggers that you may want to check out:

Blueprint for Financial Prosperity
ConsumerismCommentary
FreeMoneyFinance
MyMoneyBlog
Money & Investing

Other reviews outside of Bloggerville:
Wall Street Journal (free)
Business Week

• How much income can you expect from Social Security and at what age can you expect it? The younger you are, the more likely it is that you will have to wait longer before you qualify for Social Security.
• Can you expect to have monthly income from a company pension? Be careful with this one. Companies have found ways to take pensions away. I would be extremely conservative with estimating pension income. In fact, I would even consider planning without the pension income and if you end up getting it, consider it a bonus or a gift. You don’t want to make the mistake of planning on a $2,000 per month pension and then get to retirement and find out it’s not there.
• What are your chances of inheriting money from your parents or grandparents? Again, I WOULD NOT base my retirement plans on an expected inheritance.
• Will you work during retirement? If so, how much can you REALISTICALLY expect to make?

Those are some things to think about while you are trying to figure out your Number.

For this example, we will assume that you want $100,000 in income and that you want to fund all $100,000 with your own retirement savings. We’ll assume that you are 20 years away from retirement and you expect a 3.5% annual inflation rate over the next twenty years. Looking at the chart from yesterday’s post, we can see that you will need $198,979 in income in order to have the same purchasing power of $100,000 today.

Now, to find out how much money you need to be able to fund that $198,979, we simply divide $198,979 by your desired withdrawal rate. What is a withdrawal rate? It’s the percentage of your account that you want to withdraw for income needs. Here’s what the formula looks like:

So, for this example, we will plug in the numbers that we know into the equation so that it looks like this (we’ll assume a 4% withdrawal rate):

If you remember your algebra, you can solve for the account value by dividing $198,979 by .04, like this:

So, what does this tell us? It tells us that if you desire an income of $198,979 and you only want to withdraw 4% of your money per year, then you will need to have $4,974,475 in your retirement account by the time you retire. Also, it is important to note that if you want your income to keep pace with inflation, you will need your account to grow at least 7.5% per year (4% withdrawal rate + 3.5% inflation rate = 7.5%) in order to keep you from eating into your principal.

Next time, we will go into more detail about withdrawal strategies.

Take a look at the chart below. In the left hand column is the number of years until retirement. Assuming the different inflation rates, the grid shows you how much you might need in income to equal $100,000 in today’s dollars. Of course, the longer you have until retirement, the more income you will need.

From what I can gather, the book is about “life planning,” which is a fancy new term for financial planning. I have never understood how a good financial plan could leave out “life” stuff. I mean, a good financial plan should take into account what the client is trying to accomplish. For instance, what about buying a first home or having a baby. Is it possible to have a realistic financial plan without taking those events into account? I don’t think so and I don’t know of a financial planner who wouldn’t be interested in that information. Therefore, I think financial planners have been doing some sort of life planning all along. Now, there is a name for it.

Those are my thoughts. I’ll try to post more later today. In the meantime, check out The Number.