PETE THE PLANNER: The more money you make, the more you can delude yourself

There are only two successful retirement strategies. Just two. And the sooner you choose which one you’d like to employ, the better chance you have of securing a desirable outcome.

Yet most people don’t make a choice. They cross their fingers and simply assume their retirement math will work because they currently don’t have what they consider to be financial challenges. You know, like the people who have financial challenges.

Additionally, high, and ever increasing, income seems to exacerbate the misjudgment. “Instability in retirement is a plebeian issue,” their incomes trick them into thinking.

Yes, I’m suggesting the more money you make, the more susceptible you are to fooling yourself.

If you want to insulate yourself from the indiscriminate cruelty of financial instability in retirement, select your strategy.

Is your strategy to have a bunch of money? Or is your strategy to not need a bunch of money?

This isn’t a game of semantics. No, this is the fundamental decision you must make. Are you trying to put so many nuts in your tree that you can’t possibly run out of food, no matter the prudence of your appetite? Or are you tempering your appetite to make the math easier?

Don’t mistake this for the gospel of frugality.

Years ago, a partner at a prestigious law firm sat in front of me, terrified. He had earned millions of dollars over the course of his career and had lived a very comfortable lifestyle. His assumption, which is a fault of so many people, no matter the tax bracket, is that his family’s comfort would continue in perpetuity.

Why wouldn’t it? He had earned millions of dollars. As his income climbed, so did his ability to afford an ever-increasing amount of, well, everything. Throughout his storied career, this person’s lifestyle was dependent on a bunch of money.

His terror accompanied his realization that his demand for money in retirement far surpassed the supply of money he was going to have available in retirement.

I’ve witnessed this phenomenon from people of every level of education and every level of income. Even people earning seven-figure incomes annually think they can out-earn the bad math of compulsive spending.

Grab a pen. You’re going to make my point for me. It’s line-graph time. The Y-axis will be measured in dollars, and the X-axis will represent the life span of your career. Starting from the left, draw a line representing your income level during the years you’ve already experienced and continue the line as you project the income you’ve yet to earn. Now draw a second line representing your lifestyle over the same time frame. If the space between the two lines doesn’t increase, and if the lines don’t break their parallel relationship, you might be in trouble.

The math of retirement doesn’t work unless your lifestyle smooths out at some point in your career as your income continues to rise.

Countless executives have lamented to me their misplaced confidence in their career trajectories, upon finding themselves no longer part of their organizations’ futures. Salt seeps into those wounds when their retirement strategy, knowingly or otherwise, primarily involved having a lot of money. Their earnings lines and their lifestyle lines were not growing farther apart—they were parallel.

I’m not mocking, judging or vilifying these people, or you, if I’ve just described your reality. Instead, I’d like to offer you a path forward. Understand what it means to strategize to “not need a bunch of money” in retirement. This involves simple procedures such as timing-up your mortgage payoff with your projected retirement date. It also involves complicated commitments such as refusing to take on Parent PLUS loans and resolving not to enable your adult children’s dependence on your income.

We are gatherers of obligations, but if we want to ensure financial stability, we must purposefully eliminate obligations as the end of our careers near. The hidden surprise in this way of thinking is that early retirement is much more in reach for those individuals who truly focus on eliminating monthly obligations. If your 20s, 30s and 40s are rife with the accumulation of obligations, especially in the midst of a successful and lucrative career, then your 50s, and by God, your 60s must consist of the curtailment of your collection of commitments.

The next time you talk to your financial adviser, tell her which strategy you’d like to pursue. If you don’t, it’s time to acknowledge that crossing your fingers is your only hope.•

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Dunn is CEO of Your Money Line powered by Pete the Planner, an employee-benefit organization focused on solving employees’ financial challenges. Email your financial questions to askpete@petetheplanner.com.