As a society, we’ve been fascinated by and fixated on numbers for a long time. This pertains to financial planning, where the common thread of various strategies is the calculation of an amount that must be accumulated by a future date in order to fund a particular financial goal. It applies to onetime disbursements such as saving for a deposit on a house, and to planning for recurring expenses including college education and retirement.
The focus on a single amount that must be saved in order to successfully retire was portrayed in the 2010 ING commercial, “What’s Your Number?“ In it, a man walks his dog through a neighborhood carrying a large orange block displaying the amount “$1,086,523.” One of the neighbors who’s trimming his hedges asks the man what he’s carrying. The man responds, “This is my number. It’s the amount I need to save to retire the way I want.“
I experienced contradictory reactions the first time I saw this commercial: (a) This is great that the goal of planning for retirement is being promoted on TV, and (b) The focus on accumulating a single dollar amount, while a step in the right direction, oversimplifies retirement planning. In my mind, the commercial conveyed three unspoken messages, none of which individually or collectively could be further from the truth:
- If you hit your number, you won’t outlive your retirement assets.
- There’s only one number you need to hit to ensure retirement success.
- Your income sources, including types and amounts, is irrelevant.
Anyone who retired between October 1, 2007 and March 2, 2009 when the Dow Jones Industrial Average dropped over 7,000 points, or 52%, would take exception with the “one number” approach. Planning to accumulate a fixed dollar amount by a specified date and thinking this will be sufficient to meet financial needs for the rest of one’s life ignores the basic tenets of retirement-income planning and, as such, is going to be a recipe for disaster more often than not.
Instead of asking, “What’s my number?,” we should rephrase the question as, “What’s my income number?“ This makes much more sense when placed in the context of retirement-income planning which is defined in the Glossary of Terms section of my blog, Retirement Income Visions™, as follows: “The process of planning for a predictable income stream from one’s assets, that when combined with other sources of income, is designed to meet an individual’s or family’s financial needs for the duration of retirement.”
Retirement asset planning is the way to go in the accumulation stage to build a solid foundation for a successful retirement plan. Retirement income planning came into being as a separate discipline as a result of acknowledging the uncertainty of traditional retirement asset-planning solutions for providing a predictable and sustainable income stream to match one’s needs in retirement. As discussed in my February 21st article, “Is Your Retirement Tied to Your Adviser’s Bias?,” unbeknown to their clients, the ability of individual advisers to discuss and deliver sustainable retirement income-planning solutions that are suitable for a particular client may be limited in certain cases.
“What’s your income number?“ is the focus of initial and continuing discussions that I have with clients when doing retirement income planning. Unlike the ING commercial, which emphasizes accumulation of a single dollar amount, I calculate projections of fluctuating annual after-tax income needs based on projected inflation-adjusted expenses using multiple scenarios. Furthermore, this is updated on a regular basis based on each client’s situation.
Whenever I do retirement income planning, I try to keep in mind the following line spoken by Anna Faris in the 2011 romantic-comedy film, “What’s Your Number?,” the origin of the title and theme of which was completely different than the ING commercial: “Sometimes you can’t live life by the numbers. You have to figure it out as you go along.”
Robert Klein, CPA, PFS, CFP®, RICP®, CLTC® is the founder and president of Retirement Income Center in Newport Beach, California. Bob is also the sole proprietor of Robert Klein, CPA. Bob applies his unique background, experience, expertise, and specialization in tax-sensitive retirement income planning strategies to optimize the longevity of his clients’ after-tax retirement income and assets. He does this as an independent financial advisor using customized holistic planning solutions based on each client’s needs and personality.