There is something irresistible about having a number.
$1 million.
$1.5 million.
$2 million.
Whatever the number happens to be, once someone gives it to us, we can immediately start doing the maths.
How much have I accumulated?
How many years do I have left?
What return do I need?
How much more should I be saving each month?
And, perhaps most importantly:
Am I on track?
For people in their 40s and 50s, that last calculation can be particularly uncomfortable.
Because the closer retirement gets, the less theoretical the number becomes.
But I think there is a problem with the entire exercise.
Not necessarily with the maths.
With the question.
The Question Sounds More Objective Than It Really Is
Ask someone how much money you need to retire and you will usually get an answer based on a series of assumptions.
How much will you spend?
How long will you live?
What will inflation be?
What returns will your investments generate?
What will healthcare cost?
What happens to interest rates?
How much of your portfolio can you safely withdraw each year?
Change any of those assumptions and your retirement number changes with it.
Sometimes considerably.
Which means the number that feels reassuringly precise is actually the output of a collection of estimates about a future nobody can know.
That doesn’t make retirement modelling useless.
Far from it.
It simply means we shouldn’t mistake a useful model for certainty.
And there is another assumption buried even deeper inside most retirement calculations.
One we rarely question at all.
We Assume Retirement Means Income Stops
Think about the conventional retirement model.
For perhaps 30 or 40 years, you work.
Your knowledge, experience and ability to solve problems produce an income.
You use some of that income to live.
And you use another portion to accumulate assets: shares, funds, property, pensions, retirement accounts and so on.
Then retirement arrives.
At that point, the model assumes something important happens.
Your earned income largely stops.
The assets you accumulated over the preceding decades must now support you instead.
Seen that way, the obsession with the retirement number makes perfect sense.
If the tap is about to be turned off, you’d better have a very large tank.
The question becomes:
How large does the tank need to be?
But what if the tap doesn’t have to be turned off completely?
Stock of Wealth Versus Flow of Income
There are two related but very different things involved here.
The first is a stock of wealth.
The value of the assets you own at a particular point in time.
The second is a flow of income.
Money continuing to come in over time.
Traditional retirement planning quite reasonably spends a great deal of time thinking about the first, because the stock of wealth must eventually produce the second.
But that distinction creates an interesting question.
Suppose you wanted $100,000 a year to support your desired lifestyle.
There is an enormous difference between needing your accumulated portfolio to produce all $100,000…
…and needing it to produce $60,000 because another asset or activity reliably produces the remaining $40,000.
I’m deliberately not suggesting those numbers as a retirement plan.
The point is conceptual.
The amount of capital you need depends partly on how much income that capital has to replace.
Yet we tend to begin at the other end.
We ask for the number first.
Your Retirement Number Is Really an Income-Replacement Number
This is what I think gets missed.
For most of our working lives, we already possess an extraordinarily productive asset.
Our ability to earn.
If you’re an experienced executive, professional or business leader, that asset may have taken decades to build.
Education.
Judgment.
Relationships.
Reputation.
Industry knowledge.
The ability to communicate, negotiate, lead, sell, analyse or solve difficult problems.
Together, those things produce cash flow.
Then our conventional retirement model assumes that, on a particular date, we’ll largely stop monetising that capability.
So we spend the preceding decades accumulating a second collection of assets large enough to replace the income generated by the first.
That’s perfectly rational if that’s the retirement you want.
But it isn’t the only possible model.
What If You Didn’t Have to Replace All of Your Income With Investments?
This does not mean working full-time until you’re 85.
For me, that would rather defeat the purpose.
Nor does it mean abandoning conventional retirement assets. I own investments myself and consider them an important part of my financial future.
The more interesting possibility sits between those two extremes.
What if, before leaving your career, you deliberately developed another income-producing asset?
Something you owned.
Something that wasn’t dependent upon remaining employed in your current role.
Something that could potentially continue producing income with considerably more control over when, where and how much you worked.
Suddenly, retirement planning becomes a different problem.
You are no longer asking only:
How much money must I accumulate before I can stop earning?
You can also ask:
How much of my future lifestyle needs to be funded from accumulated capital at all?
That is a very different question.
This Changes the Meaning of “Enough”
Imagine two people with identical lifestyles and identical investment portfolios.
One reaches retirement with no income beyond what the portfolio produces.
The other has spent the preceding years developing an asset that produces an additional stream of income.
They may have exactly the same net worth.
But financially, they are not in the same position.
The second person has another lever available.
They may be able to withdraw less from their portfolio.
They may be less dependent on what markets happen to do in the first few years of retirement.
They may be able to delay drawing down certain assets.
Or they may simply have more choice over what retirement looks like.
None of those outcomes is guaranteed.
But that’s precisely the point.
Instead of trying to predict one future perfectly, you’ve created another option.
The Goal Isn’t to Replace One Big Number With Another
There is a trap here.
We could simply swap:
“How much do I need to retire?”
for:
“How much passive income do I need?”
And we’re back where we started.
Another magic number.
Another prediction.
Another attempt to make an uncertain future certain.
I don’t think that’s the answer.
A better retirement plan may involve thinking in terms of multiple assets performing different jobs.
Some provide liquidity.
Some provide growth.
Some provide income.
Some provide resilience.
And perhaps one of those assets is something you build yourself.
Not because it is guaranteed to work.
No asset is.
But because a financial future that depends on several sources of value may give you more options than one built around a single target number.
There’s Another Advantage to Starting Before You Need It
This is particularly important if you’re still several years from retirement.
An income-producing asset doesn’t have to work immediately.
In fact, I would much rather discover that something doesn’t work while I still have a salary than after I’ve handed in my resignation.
That changes the way I think about building one.
I don’t need to bet my future on an idea.
I can test it.
I can look for evidence.
If the evidence is encouraging, I can invest more time and money.
If it isn’t, I can adjust or walk away.
That is a very different proposition from waiting until retirement and then discovering that you urgently need another source of income.
Time before retirement isn’t merely time to accumulate more money.
It is also time to test and build things while the consequences of being wrong are still relatively small.
Perhaps We Need a Better Retirement Question
None of this makes the traditional retirement number irrelevant.
You should know what you own.
You should understand your spending.
You should model different futures.
And you should understand how much income your investments might reasonably support.
But I wouldn’t stop there.
Because “How much do I need?” quietly assumes that the solution to retirement is accumulating a sufficiently large stock of wealth and then drawing from it for the rest of your life.
Perhaps it will be.
But perhaps there is a more useful question:
What combination of assets and income-producing capability could support the life I want?
That question doesn’t give you a neat seven-figure answer.
It gives you something I think is more valuable.
Options.
And when the future is uncertain, having more options may matter considerably more than having the perfect number.