Single to Retired: The Common Thread
Why Life Cycle Models Matter
Households come in all shapes and sizes, and so do their money questions.
A retired couple, a mid-life couple juggling kids, and a recent college grad just starting out have totally different financial needs and worries. Money flows in and out, they keep track of what they have and what they want, and those choices shape their lives.
You could think of a household like a little business with earnings and expenses. But unlike big companies that mostly care about making money, households are about people—full of emotions, love, and ups and downs. They have different goals and can handle risk differently.
Your Life, Your Money
Personal Finance Economics explores how any household, no matter its situation, can make the smartest financial moves.
Picture two totally different households: one is an empty-nester couple about to retire, wondering when they can finally start enjoying retirement, if moving to a care facility is the right call, or when to start taking Social Security. Plus, they ask if investing in stocks is still a good idea.
Then, there’s a single 25-year-old who's been working for three years, just hitting $75,000 a year, figuring out if they should save for a house, take advantage of their work 401(k) match, and if their credit score even matters. Totally different questions, right?
On the face of it.
No matter the household, all those choices and what you have add up to your living standard. And for most people, how much they earn and what they own puts limits on what’s possible. So here’s the big idea: wouldn’t it be great to get a better handle on your living standard today, tomorrow, and way down the road?
The Best Budgeting Idea
The word 'budget' doesn’t pass a smell test. I made the case in a prior post. Lazy, narrow, and misses the bigger picture; how happy you are with your life.
That is your living standard.
Your living standard value is different from mine because of differences in our earnings, future prospects, and what we own. It’s different from your neighbors for the same reasons.
The best budgeting path needs three steps.
Figure out what kind of living standard you can sustain over time
This will show you how much you can spend each year and how much you should save
Knowing your spending cap for the year, you spend in ways that make you happy
Your Next Step
You can know your living standard number by using MaxiFi. MaxiFi is a lifecycle modeling tool. Sounds fancy. The interface is intuitive. I can help you use it, too. It is what I use personally and what my students used in class.
Your financial storyline exists whether you know it or not. It’s under your hood. Lift the hood and look at the engine. It’s amazing. You will see how your income and Social Security benefits interact. Estimates for the taxes you must pay, given where you live. Ultimately, how you should spend and save, and the impact of your investment choices.
What is Your #1 Financial Goal Today?
Identify your spending cap?
How much to save for a rainy day?
Whether to convert retirement funds to a Roth?
Whatever your goal today, the path to success is to determine your best living standard to meet your objective.
My side of the bargain is if you need help, DM me. It’s part of the deal.
Need more drill-down when you read this note? Please add your comments and questions to this post.
You can read my prior posts on “Living Standard,” by clicking through.
Back soon.