Sid Roy
“Sid, what is your number?”
This was the odd question that came up during a career conversation with one of our senior leaders at work. I was taken aback by that question especially because it had come up at the office, not with a financial advisor.
As I mulled over it, the amazing clarity of that blunt question really hit home. I really had not thought that deeply about a concrete number – a dollar amount as a retirement goal. And yet, everything is connected to that number.
How much do I need to live comfortably throughout my retirement? How much should I be earning now to be on track for that lifestyle? More importantly, how much should I save and how do I invest? How much can I afford for my significant expenses such as a house or my kid’s college education? How much would my healthcare savings be?
If my earnings are not meeting my expectations, should I be looking for a higher paying job? That was the link to the career conversation. But it touches a lot more than my career. I considered myself somewhat knowledgeable on investment habits and in general doing the right thing. It was a moment of realization of a hard truth after returning from office that evening. I really had no clue about my investment goal. Somehow, I had started at the completely wrong end of the problem. I had gotten myself busy and missing the forest for the trees. As a result, I was having lot of difficulty answering some of these questions and feeling confident about my future. Indeed, as I said earlier in a previous article, starting asset allocation without being clear about my goal was my biggest mistake.
Starting Asset Allocation without being clear about my goal was my biggest mistake…
Thankfully, this wake-up call had not come too late for me. I reversed course and put all my energies into answering the simple question: “what is your number?”. It took time and it was not an easy conversation with myself and my family over the next few weeks.
Now, sometimes friends ask me to give them a number they could target. While there are some calculators readily available for typical costs of college and healthcare, there are some choices only they can make. There is no magic trick. The important thing to remember is to be truly honest and realistic with yourself and your family.
So, what is the key takeaway? Before you spend a lot of energy on investment strategies and exotic investment opportunities, find your number as if your life depends on it. It truly does. It is the most important step in getting your investments right for your kind of retirement.