The term “sustainable” can bring about many first impressions. One might evoke an environmentally conscious mindset. As in, long-term ability to continue without resource depletion.
Another meaning, at least that comes to mind to me when it comes to standard of living, is the ability to continue without significant difficulty or intervention. A sustainable lifestyle is one that you can live now and for the foreseeable future without major worry of it being degraded. That degradation, given human nature, is often due to simply not being able to afford the lifestyle any more!
When I look at the life patterns of many people, it seems as though people simply try to live their lives based on the ability of their current income to support a desired level of expenses. Too often, that means that the expenses equal or exceed the income. That’s a difficult situation for many folks, and sadly – some are put into this position unfairly through no fault of their own. However, many simply live irresponsibly whether they know it or not.
When does the lifestyle become unsustainable? I think it’s when people assume that the good times will go on forever, without any problems. Kind of like the mindset of people that expect to work in old age, without realizing that this might not be possible. When they realize that their income and savings might not be able to cover their lifestyle, they end up having to change it downward.
I don’t know about you, but the idea of having a lower standard of living when older doesn’t sound fun. It’s a big source of financial motivation, trying to avoid money issues when older.
Along those lines, I think it’s worth considering how much money you’re on track to have for retirement, and what your cash flow will be during that time:
We may be able to work in old age, but it’s not guaranteed – even if you want to do so. Health issues and ageism can make this a very dicey proposition to be able to count on working.
Social security? That’s not a ton of money, and many people don’t want to count on it getting it anyway. Pensions? It’s not like most people are going to be getting the benefits of one. If you will, that’s great!
So, where is your income going to come from? If you can generate passive income, that would be great. If you have investments, income from them can be a big source of income. Or, you just might be withdrawing money directly from the nest egg. There is a school of thought that believes a 4% withdrawal rate can be manageable to ensure cash flow through retirement. In that case, if you want a $40,000 per year retirement, you would need a $1,000,000 portfolio.
Keep in mind, we’re talking about today’s dollars, and purchasing power. Do you think you will have $1,000,000 in today’s purchasing power saved up by retirement age? Whatever you project to have - be it lower or higher – it can obviously affect your ability to generate income. For example, a retiree having $200,000 saved would withdraw $8,000 annually based on these calculations.
I think a lot of us tend to have a belief that expenses would be lower when older. After all, there wouldn’t be any kids around day-to-day that we need to support, and our lives would be simpler overall. However, we generally don’t get any healthier when older. Think about the younger people you know, and the older people you know – who has more ailments, illnesses, conditions, and aches and pains?
With health expenses so outrageous for many people, I think some people just might face higher health care costs in retirement. Especially if long-term care is needed. So, when planning for what expenses we might have when older, let’s keep in mind that they just might be very substantial.
What Does This All Mean?
When you look at the cash flow situation we might have when older, it seems like a lot of people are on track to have to make some massive lifestyle changes.
I think it makes sense to realistically assess where you think you will be in the long-run, and live a lifestyle now that is actually sustainable. In other words, one that you can get used to, and continue to live when older. Why get shocked by lowering our standard of living later? Worse, why put ourselves in a bad position later because we lived it up when younger and healthier? Let’s be nice to the future old version of ourselves
To the extent we can save and invest early and often, while also living within our means, maybe we can put ourselves in position to even have a more comfortable lifestyle when ready to retire. That’s the dream many of us have been sold – or sold to ourselves, anyway. It just takes planning to make it actually happen.
My Questions for You
Do you ever think about how your lifestyle in the future might be versus the one you have now?
Have you done the analysis to project where you are on track to be down the line?
I’m curious how sustainable you think your current lifestyle might be (or might not be), and what assumptions you’ve made in determining this.