The other day a friend asked if the 4% rule was intended to preserve capital or annuitize it. I answered that it is intended to make a portfolio sustainable for 30 years (hopefully longer). Marketwatch had an article that cites data of the average retirement period lasting 23 years (starting at an average age of 61) and then asks, can you make your money last for 23 years. If you really want to bet on 23 years, then with just a mediocre sequence of return you could probably get by taking more than 4%.

Another interesting number in the Marketwatch article was $46,000 which it says is the average amount spent headed by households 65 years or older. Average won't be terribly useful but you might be able to frame you 65+ expenses. What do you spend now? When you retire will your mortgage be paid off? If so, subtract that expense. How much are you saving for retirement now? You probably won't be saving for retirement after you retire. What is the net increase/decrease going from paying for health insurance now versus supplemental insurance once you turn 65? Even if that is just an estimate, merely being in touch with these dollar figures will help with planning.

Taking out the mortgage and saving money, we'd be at $30,000 for fixed monthly expenses and factoring in setting aside $1000/mo for emergencies, $10,000 for fun (in a pinch we can cut this way back or eliminate it altogether) and maybe another $5000 for anything I am forgetting and we're up to $57,000.

$57,000 times 23 years equals $1,311,000, that seems like a lot. That equation assumes no growth or even interest and ignores Social Security. I write all the time about the benefits of living below your means and we have been doing it our entire married life together. One benefit is that where some articles say that SS should not be counted on to cover half of your expenses, if you live below your means it can cover more than half, a lot more maybe. My full retirement amount (FRA) as of now is $2900, I can get closer to $3500 if I wait to 70. My wife would max out at $1450 which adds up to $4400/mo or $52,800 and I only need $57,000? Does that mean I only need $96,600 ($4200 per year times 23 years)? I will want to assume a 23% haircut to Social Security (this is the threat for sometime in the mid-2030's), you may not believe it will happen but better to expect the reduction and be pleasantly surprised if it doesn't happen, so applying that haircut we get $3388/mo or $40,656 for the year.

Are you now 40 or 50 or 60? How many years until you retire? What can you do to reduce your expenses, to decrease your financial footprint between now and then? That question is really the crux of this. What big bad number is your starting point and then how can you go about reducing via lifestyle, delayed retirement, monetized hobby or other work or some combination of all of those.

No matter how much you think you need, the number you wind up with is your reality and you'll have to find a way to make that work. Thinking you need $1 million and ending up with $961,000 won't require much creativity but winding up with $600,000 will, that's just common sense. The earlier you start to prepare, the more prepared you'll be when the time comes...if you even need a plan B or C, you may not.

Much like the quote attributed to Woody Allen that there is no situation where having more money made it worse, there is no retirement plan where more contingencies made it worse.