The best book on financial planning to hit bookstores in 2007 was undoubtedly The Number by Lee Eisenberg.  For those willing to study the possibilities, it was a great resource.  While I would always encourage a person to read this excellent book, I suspect the mere title of the book has created an interesting, continuing problem.

A perception has developed that there was one magic number that qualified a person to retire.  You only needed to find that number.  It was a secret.  You needed a sorcerer, a mystic to reveal this one true number to you.

Actually, that number is custom-tailored for each person.  One size doesn’t fit all.  A million dollar “next egg” is enough for some people but means starvation for others.  Initially, the process is more of a accounting question, based on a retirement budget.  There are rules of thumb that suggest your retirement budget should be 70% or 80% of your current budget, but I have found that is not helpful.  A mystic earns his pay when guiding your budget to determine if you should retire or not.

After massaging your retirement budget, can you retire then?  Let’s assume your pensions, Social Security, and income as a Walmart greeter, still leave you $40,000 less than your annual living expenses and also assume you have a $1 million portfolio, then your portfolio must distribute 4% a year.  Is that reasonable?  What risk are you assuming to get that 4%?

Medical expenses are almost certain to increase substantially, especially long-term care expenses.  Your retirement budget will change with time.  A recent study suggested a 65-year-old couple retiring should set aside about $380,000 for Medicare premiums, supplemental health insurance premiums, co-pays, meds, and final expenses, like nursing home costs and funeral expenses.  If you set aside that amount out of your million dollar portfolio, leaving your $620,000 to produce $40,000 of income or 6.5%.  At that point, you’re almost certainly in trouble.

What, you don’t have a long-term care policy?  It’s probably not cost effective anymore, but maybe you might consider a universal policy with “living benefits”  Ask your mystic about that.

Of course, you haven’t forgotten to update your Will, your Living Will, your general power of attorney, your medical power of attorney, your financial power of attorney, and trust agreement . . . have you?  Your mystic will remember.

The most important lesson, if you actually read the book, is that financial planning is not a science.  It is an art, flexible and changing with time.  It is more than a mere software package.  It is more than any written plan.  It is an ongoing relationship, a way-of-life