In my search to determine what people actually mean when they say they want a “comfortable life” and in particular a “comfortable retirement” I have come across two conflicting definitions. No wonder, then, that such statements confuse me.
I usually think that comfort means being free from physiological (mental and physical) pressures or stresses. For instance, there may be less stress associated with sitting in a certain chair. What I did not understand why anyone would go to such great lengths and engage in work that was clearly stressing them out to sit in a chair that was mildly more comfortable but caused a disproportionate level of stress, that is to say, the marginal utility of upgrading the chair was lower than the marginal cost of adding one more year of work.
However, there is another definition of comfort which is founded on contentment and general life satisfaction. Uh oh, that’s a slippery slope right there because it is subjective to all sorts of external fads and fashions. By this definition we would only consider ourselves to be comfortable when we are satisfied. However, wants are supposedly infinite, at least, you know, the material wants, as I note that wants to get off our asses and exercise seem to be fairly limited, and this means that those wants can never be quite satisfied. They always grow on top of a moving baseline which in the worst case is defined by what everybody else seems to want (keeping up with the Joneses) and in the best case is defined by what you want.
This means that a person can never be quite comfortable in this frame of mind. Being comfortable based on such wants actually turns out to be a stressor and the usual argument (which I have been asked is): Well, you’d like to own a boat, so wouldn’t it have made sense to work one more year, then you could have bought a nice boat instead of cheap fixer upper(*). I could have done that, but maybe then, that boat wouldn’t have been enough. Maybe I’d also have wanted a nice truck, so that’s one more year on top of that. Since trucks wear out, I’d need to make sure that I had money to replace it when it wore out in 12 years, so add a third year. And so on.
(*) I haven’t bought one yet, but I’m looking.
“Just one more year and I would be able to retire in comfort”; except that’s what I’m telling myself every year and meanwhile my salary and responsibilities keep increasing and it becomes harder and harder to let go and then at age 48 I get a stroke which leaves me without control of the right side of my body, but not everything is lost, because I can always spend the boat and truck money on meds.
Some more comments: Maus makes some great comments below, so I figured I’d respond to them in the main post.
The first issue is the safety or income factor. First people seek a 4% withdrawal rate to cover their expenses because 4% has been shown to survive worst case scenarios over 30 years. Then they seek 3% just to be safe which is a 33% margin. Then the target changes to 2% just to be a bit safer even though this is actually a 100% improvement compared to the original case which means that in the historically worst case they’d end up with millions of dollars they can’t spend. Heck, even I will end up with a million bucks in my fifties and several millions by the time I die simply because I saved too much. The only danger would be to suddenly double one’s spending but I figure as I learn more and more and adapt an increasingly sustainable lifestyle my spending is more likely to go down than up.
There is only so much safety money can provide, so working to accumulate more money to provide more safety is irrational. If, say, the country gets hit by hyper inflation it does not matter too much whether you have $500,000 or $5,000,000. The marginal safety provided by money is decreasing. If I wanted ultra safe, then, I would create a stash with a 50 year supply of toilet paper, etc. and put a guard on it. That’s safe. Still, that does not eliminate the other safety issues like getting cancer (it also happens to vegans, just not as much), or getting killed in a freak accident (falling toilet seat from the sky).
A closely related safety issue is that people are more comfortable with what they think they have control over like their jobs and their cars and uncomfortable with what they don’t have control over like investments or airplanes even though the latter is statistically safer. For instance, I did not lose my portfolio in this downturn and in fact it came out stronger than it went in, but many people lost their jobs. In that sense I think there’s a necessary transition from thinking about once investments as actually being investments than being a savings account denominated in a stock market index. I think many make that mistake. In fact, the changing one’s frame of mind is not easy. Personally, though, I no longer ask “Have I saved enough for retirement?” but “Can I live off my investment portfolio income?” much in the same way that a salaried person asks “Can I live off my salary?”
The poverty of imagination is another great point. It amuses me that so many people say they’d still be working at their job even if they didn’t need to…you know, the passionate ones… do you really mean to say if you had these hundreds of other opportunities to do other stuff, you’d still pick your job of all things. I think many think there’s little alternative to their jobs other than sitting at home watching their DVD collection twice over, then going out to eat at every restaurant in town and then what? … Imagination is important but unfortunately, the imagination available for sale is pretty expensive: vacations, resorts, exotic activities, … There’s no need for that. Learn to play the guitar. Restore a classic car together with other people interested in the same thing. Meetup.com is a good place for this. Join a drinking club with a sailing problem, you know, a yacht club, or a coffee club with a biking problem. Personally, I have scheduled activities 4-5 days a week and that’s certainly enough for me. Sometimes it’s even too much.