Enough: How Do You Know When You Have It?

How do you know when you have “enough”? I was chatting with a client the other day who has the “just a few more years” syndrome. This client is locked in a career he no longer loves by a pair of beautiful golden handcuffs. He said, “Well you know, it’s never enough.” I called him on it and said that was nonsense. There is definitely a point of “enough”. Once you’ve reached that point, every bit more that you earn and save doesn’t increase your happiness. In fact, it may diminish it. There is a very real point of diminishing returns after which more makes no improvement in joy or happiness while working longer clearly diminishes happiness.

How do you know when you’ve got enough? How do you find this illusive endpoint? 

When I was in high school, I went hiking with a classmate in an Arizona canyon after school. The sun set and we hadn’t anticipated how quickly we would be encased in darkness. So, we packed up and climbed straight up out of the canyon, as we could just discern the ridge line ahead in the distance. We climbed and climbed higher but the ridge line was still just ahead of us. At one point, we climbed so high I could no longer hear the water below. Yet we were no closer to that illusive ridge. We realized we could easily get lost. We decided to go back down to the water, spend the night in the canyon and follow the stream back to the road when the sun came up in the morning, which worked. (Mind you, my poor mother was worried all night and sent the search and rescue team to find us in the morning. The days before cell phones…)

The problem with illusive endpoints is that you can keep going and going and never get there until it is too late and age catches up with you.

In a consumer society, it is all too easy to assume that more money can only be better. However, the research on money and happiness shows this isn’t true. There is a point where you really do have enough. It is a real number. Any more after that point will not make any difference to the quality and enjoyment of your life. It is worth figuring out what this number is so that at the very least you don’t waste precious years of your life in a job you don’t enjoy. If you love your work, you’ve already made it! 

I personally bumped into “enough” when I was about 50 years old and realized that we could retire early if we wanted to.

You can easily crunch the numbers yourself to figure out if you have enough to retire and you don’t need a Monte Carlo calculator to do it. You can test it on Vanguard’s retirement calculator to double check. I stopped doing 1-1 coaching to free up my time, but soon realized that I love coaching. Why would I stop doing what gives me joy? However, if you aren’t enjoying your work, then every extra year you put in is a year of life that could potentially be put to better use and enjoyment.

Time is the most precious commodity of all. This is especially true when the kids are just about out of the nest and you can start to reclaim your life. With any luck, you still have your wits about you. These are really valuable years as you still have time to start a new and different career, go back to school and study something you’ve always wanted to for the pure joy of it, or retrain for a new field. Maybe it’s the time to start a business and see it flourish before retiring for good. Or maybe it’s the time you travel while you are still fit and able. These are good and valuable years not to be wasted saving up a couple of million more just to be a fraction more secure. 

Okay, so you are now wondering, “How do I know when I have enough?”

The formula is incredibly simple. In fact, it just got easier thanks to the latest in retirement research by William Bengen and Michael Kitces, the original creators of the 4% Rule for sustainable withdrawals in retirement. They admit that they used the 4.5% Rule for their own clients and suggest that 5% is often a very reliable withdrawal rate if you have a well-diversified portfolio. 

If you are currently enjoying life, you can simply multiply your total annual living expenses (include taxes) by 20 or 25 and that is your number. However, if you quit your job and lose medical benefits, you will need to factor in medical expenses and health insurance. So add that to your total and make sure you add in taxes, too.

Let’s take the average salary of $53,000. If you multiply it by 20 you’ll get $1,060,000 as your number. Add in $12,000 a year for health insurance and that brings the annual sum to $65,000 x 20 =$1,300,000. But it gets better because you can subtract social security and any other pension income from your total annual expenses. If you want to be more conservative, multiply by 25 instead of 20. If you will earn some extra income consulting part time then multiply by 20 as you won’t need to draw down as much from your retirement pot. 

This calculation is about as accurate as you need to get, simply because there are so many variables that can dramatically affect your retirement that are impossible to control or predict. It is difficult to know how long will you live, what the rate of inflation will be, whether the stock markets crash just as you are retiring, and so on. I recommend that as you get within 10 years of retiring that you meet with a fee-only financial advisor to make any corrections to your plan. You also want to make sure you have the correct amount of insurance, a will, health proxy or trust, as needed.

If you don’t have enough, it might be that you haven’t really looked carefully at the numbers. Most people don’t need millions to retire and enjoy life. Even if you spent $300,000 a year (some say this is the happiness number for living in expensive cities), you’d need $6,000,000 invested to maintain that lifestyle. You don’t need tens of millions to live a very upscale, luxurious lifestyle in an expensive city. And even if you spend a million a year you don’t need more than $19,280,000 to retire in the most amazing luxury. There isn’t much you couldn’t do with that kind of money! 

Money itself is over-rated when it comes to happiness. The research on happiness and money indicates that $75,000 is the peak happiness figure. (You’ll need more for living in the expensive cities like NYC, Chicago, San Francisco). Which means “Enough” comes in at $1,875,000 and less if you account for social security, which you should. If your social security generates the average of $20,000 a year, you can subtract it from the $75,000 which lowers your annual sum to $55,000 a year x 25 = $1,100,000. A significant chunk of money to be sure, but one that you can reach by consistently saving and investing 20% of your salary during a 30 to 40 year career. 

Why only $75,000?

It is enough to live comfortably, but not so much that going out to dinner is no longer a treat. The more money you have, the easier it is to buy special treats more often. If you go out to dinner regularly, then it doesn’t become a special treat. Strangely, people are happier if they still need to parcel out the special treats. The dangers of hedonistic adaptation, meaning you never get enough! 

How to get off the hedonic treadmill? 

Get your personal and emotional needs satisfied. Once our needs are satisfied, we tend to feel that we have enough. When our emotional needs aren’t satisfied, you can never get enough of what you don’t really need. You’ll be insatiable. And that is mainly down to “feeling” unsatisfied, not because you actually don’t have enough.

Don’t know what your emotional needs are? Take the free Emotional Index Quiz to find out what your top four needs are and get off the treadmill. It is possible to fulfill your needs once and for all. You don’t need to go through life feeling like you’ll never arrive. There are practical steps to satisfy your personal and emotional needs. When you do, you’ll feel, well, satisfied. 

We know that when we eat too much, we don’t feel well. Eating too much can even hurt, especially after a huge Thanksgiving dinner. The longest-lived cultures in the world stop eating before they are full (at about 80% full). They know that too much isn’t better. In fact, eating a little less than you want, is actually ideal from a health and happiness standpoint. You don’t feel like a bloated beached whale.

The same goes for just about everything. When we have too much stuff, we can’t find the things we need or we spend too much time cleaning and organizing. Bring on Marie Kondo to clear the clutter. Yes, you’ll be happier with less stuff to overwhelm you (and that is coming from a true maximalist!).

The old saying, “You can never be too rich or too thin” is not true. Too much money and you lose the joy of being creative and resourceful. You lose the joy of having to save up for something special –the joy of having worked, saved and earned for this treat. Treats stop being treats. You start taking the good things you have for granted. You can get irritated by small things and lose perspective. 

So yes, there is an “enough”. And that enough is worth taking some time to figure out. Start by looking at your annual expenses. Cut the expenses that don’t give you joy (e.g., commuting, work clothes). Add in the expenses that do give you joy (e.g., giving to charity, visiting friends and family, education, coaching 😊, travel, massages). Now add in the necessary expenses (e.g., medical expenses, long term care insurance, home repair and maintenance). 

Once you have your total annual expenses calculated, multiply by 20 or 25 and that’s your magic number. In our case, we can multiply by 20, as we’ll have some money from social security and some business and rental income. The more alternative streams of income you have coming in, the more diversified you are and the less you’ll need invested. 

There’s your “Enough” number. Anything else is emotional. So go take the quiz. Sort those needs out so that you feel satisfied and content even if you don’t have “enough” to retire yet. This will help you feel grateful for what you do have.

P.S. Just in case you were wondering. I do stuff myself like a turkey at Thanksgiving. We have instituted a wonderful family tradition of eating pumpkin pie with whipped cream and crystallized ginger for breakfast — just in case I don’t have room after dinner. It goes great with a cup of coffee! And for the ultimate in decadence, try slipping a little Baileys into your coffee.

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