I recently read a fantastic book entitled The Number: A Completely Different Way to Think About the Rest of Your Life, by Lee Eisenberg. The principle message of the book is that a person must know his or her own "number," which is the amount of money each of us needs to be confident that our post-retirement lives will meet our expectations.
According to Eisenberg, everyone’s number is different, but thinking about the number is more than thinking about a dollar amount. Equally important is defining the kind of life you want to live.
In the following edited excerpts from my radio show, Lee and I discuss some of the most important points of the book. I sincerely urge all my Making Money Alert readers to pick up a copy of Lee’s book, as I am sure you will find it as valuable as I did when it comes to thinking about what really matters in life, and how you can make sure you have the financial wherewithal to realize your true passions.
DF: Why aren’t more Americans aware of what they’ll need to have a happy retirement?
LE: What I found is that there are really four kinds of people that think about, wrestle with or don’t deal with the number. The biggest group by far, and I was the poster boy for this group, are procrastinators. These are people who will do virtually anything to avoid coming to terms with figuring out how much they will need for the rest of their life. There are a ton of reasons for this, but basically nobody wants to think about dying, getting old and nursing homes. It’s easier to go home and watch the Olympics than to get out a piece of paper and start doing calculations.
The second group I call the pluckers. These are people who say they know exactly what their number is, except that all they are really doing is plucking a number out of thin air. They say, "I need $1 million to be happy, or I need $5 million."
The third group is people that really do work hard at figuring out their number, I call them plodders. They spend hours online with retirement calculators and spend a lot of time reading self-help books. Basically they know their number, but they leave out one very crucial variable in those calculations, and that is how do I get a little passion and fun and productivity and meaning out of life?
Finally, the last group that is almost the complete opposite of plodders, and I call those probers. They know that the second half of life really needs to be built around fulfillment and engagement. They know that they’ve got creative impulses that they’ve never had time to indulge. But they almost never stop to think that those things come with a price. They leave something out of their reflections, and that is some basic financial literacy that will allow them to pay the rent.
DF: Why should Americans care about their number?
LE: Well, you can’t pick up a newspaper or turn on the TV without running headfirst into a really scary headline. For example, IBM a few weeks ago froze its pension plan, and it’s by no means the first large company to do that. GM announced that it was capping health care benefits for hundreds of thousands of retirees. The Commerce Department issued a report saying that the savings rate was the lowest since the depression.
Clearly the retirement game has changed. In the book I call it the changeover from the old rest of your life in which you lived, you retired, and shortly thereafter you died. And while you were retired there were some very reliable support systems in place. You had healthy corporate pensions, you had a rock-solid Social Security system, and people really didn’t have to worry about managing their own retirements. Today, or the new rest of your life, it’s radically different. Pension funds are hurting, Social Security is questionable and we, you and I and everyone else, are basically expected to be the captains of our own ship.
You know we have to say, "There is our happy sunset on the horizon," and we have to get ourselves across choppy water in our own little boats, many of which are leaking. The only problem is that nobody taught us really how to sail. Nobody gave us a paddle. All of a sudden, people are waking up to the fact that unless we gain more confidence about managing money, and unless we figure out what that money will be best used for, there is nobody else out there that is going to do it for us.
To listen to my complete interview with Lee Eisenberg, click on the link below: