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May 18, 2020

Planning Your Retirement Savings Using Expenses (Not Income) – with Joe Saul-Sehy


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Have you ever wondered if you are on track with your retirement savings? We’ve all seen the articles that suggest how much money you should have saved by certain ages. But is that really the most effective way to approach retirement planning?

Joe Saul-Sehy, host of The Stacking Benjamins Podcast and former financial advisor, stopped by to share a different approach to retirement savings. Instead of focusing on income, Joe says we should look at something else. If you’re ready to rethink retirement savings, let’s explore the importance of focusing on expenses instead of income. 

Is That Retirement Savings Article For Real?

Even if you’ve only spent a handful of minutes researching money online, surely you’ve come across an article with a list of retirement savings guidelines.

You know the kind.

Readers look up their age and then compare their actual retirement savings with the suggested amount. An article might suggest saving half of your annual salary by 30 or saving twice your annual salary by 40. 

Joe says these articles are effective in the sense that they get people to click. More than just clickbait, though, the articles serve a purpose. They get readers to reflect on their savings. They might even plant the seed for financial independence. In that regard, Joe says these articles can truly get people interested in retirement planning

The Problem with Retirement Planning by Income

However, there are big drawbacks to these retirement savings articles as well. People might feel intimidated or frustrated. That could actually scare them away from doing any additional retirement planning. Even if people don’t feel behind, they still might be planning from the wrong set of numbers. 

Joe says another key aspect of retirement planning is striving for balance. Hitting certain numbers is great and being future-focused is important. However, Joe stresses the importance of also giving consideration to today and finding ways to enjoy life.

In fact, Joe says that people should strive to build moats around what is most important to them. If you only focus on income numbers in your future planning, you can sacrifice more than you need in the present moment. 

Why Expenses Matter More Than Income in Retirement

When you let your income dictate your retirement savings, you may or may not be saving the right amount for you. Joe shares the story of two different types of clients he would meet with as an advisor.

One client might be interested in retiring to a small community in northern Michigan. She might have $25,000 a year in expenses as a retiree.

Another client might want to travel the world. He would want an annual budget four or five times that amount, possibly more.

By keeping your retirement planning focused on your projected expenses, you can better align your savings with the retirement you want. 

Why We Should Plan with the End in Mind

Some of the most effective retirement planning starts from the end, Joe says. People rise to the occasion when they have a specific goal and see what it takes to achieve their goal. If you focus on your estimated expenses in retirement, you can come up with a more effective plan for your retirement savings.

Instead of trying to hit a general income metric, this backwards planning allows you to create goals that are tailored to your retirement. Then, you can break them down into shorter goals by year and by month.

Once you see the amount that you need to put aside to invest, that is when you can really make important money moves. That might mean increasing your income, reducing expenses, and doing other types of planning to help you meet your goals.

Related Interview: Do I Really Need a Finance Advisor?

How to Meet Your Retirement Goal by Changing Expectations

Joe says there are two main levers that people can manipulate when it comes to retirement:

  1. How much money you invest
  2. The rate of return

Both of these impact your retirement savings. If you find that you might not have enough money to hit your retirement goal, you can save more money. You can also explore higher risk investment options that may yield a higher rate of return. For some people, it might mean pushing your retirement age back a year or two. 

When you see those numbers concretely, that can also motivate you to save more. Joe encourages people to only overspend on what they’re passionate about. By designing your life in that regard, the amount you can put away toward retirement can increase dramatically.

Increasing your income and reducing your expenses might even mean adjusting your retirement planning. Your retirement age might get pushed forward, and you might be closer to financial independence than you realize. You might also find yourself with unexpected options. For instance, you may be able to spend more in retirement, take a sabbatical now, or take less risk with your investments. 

Key Takeaways on Retirement Savings

When it comes to finances, oftentimes, taking the first few steps is the hardest part of the journey. While retirement planning guidelines can be helpful to some, it is important to not let them discourage you.

You also don't want to let an income estimate distract you from the benefits of using expenses to plan your retirement savings. Not only will focusing on expenses be a motivating and effective way to set goals, but it can also help ensure that you retire to the lifestyle you want.

How are you doing with your retirement savings? Are you on track?

Please let us know in the comments below.


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Paul Clitheroe

Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.

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The Marriage Kids and Money Podcast is dedicated to helping young families build wealth and happiness.

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