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It is quite an interesting phenomenon, but as humans we often arbitrarily assign importance to some numbers over others.
Most of the time we get away with this, but other times it can come back and bite us.
Lapping the sun.
Does it really make the occasion more special that you circled the sun 50 times over, lets say, only circling it 49 times?
We tend to celebrate those birthdays that are divisible by 5, and especially 10, as some momentous occasion that supersedes birthdays that don’t have a tidy number associated with it.
I am guilty of this behavior myself.
For my 45th birthday I went all out and took my girlfriend (now fiancee) to Bali for a week-long celebration that was by far the best vacation I ever took.
I had always wanted to go to Bali long before my 45th birthday.
It was truly a bucket-list item, yet I kept postponing it for many years.
I decided that celebrating my 45th birthday would be the perfect occasion to do so but why?
Was it just because 45 was divisible by 5?
That was indeed the case.
I could have gone when I turned 41, 42, 43, or even 44, but no, in my mind it had to be 45.
In retrospect my decision worked out.
However at the time I had no idea what the future held in store:
I could have not lived to see 45 by some freak accident or grave illness.
Something could have happened to me physically that would have made the trip impossible.
The odds were in my favor that I would make it (and I did thankfully), but it was by no means a guarantee.
We have all heard tragic stories of those individuals who diligently worked and saved their entire career for a golden retirement that either never came or was tragically cut short.
[This hit close to home as my father was one such individual who worked hard as an internist and died at the age of 50, never getting to his golden years of retirement].
Even now as I am, too quickly, approaching 50, I am considering what type of vacation I should plan, completely forgetting that I still had my 49th birthday to go through first.
Similar situations occur when celebrating anniversaries as well.
In fact I waited for our 5th anniversary of dating before going to Bermuda (another bucket-list destination) and proposing to my fiancee in June 2019 because I thought that numerological milestone was special.
They say age is just a number, and it really is.
Care must be taken to not push dream vacations/experiences too far into the future so that it would coincide with a “milestone” birthday or anniversary.
There is always a chance that the future does not fall into place the way you anticipated and that dream bucket list trip is never realized.
Tip the scales.
Another area where we seem to fixate on numbers is our weight.
I remember when I started reclaiming my life and body back after the divorce.
I started working out religiously (primarily elliptical) but felt like I truly accomplished something only when I broke through the 200 lb barrier.
For years I had been on the wrong side of 200 lbs.
When I finally saw the scale I use begin with a “1,” it was exhilarating.
Now was I that much healthier at 199 lbs than 201 lbs?
Of course not.
But the breakthrough psychologically of being under 200 lbs demonstrated the importance I arbitrarily placed on those three numbers.
It is important to realize that an artificial numerical barrier we mentally construct is often of little import in terms of actual real life benefit.
The 2 comma club.
If you poll the general public, I think most people dream of becoming millionaires.
Saying you are a thousandaire doesn’t quite have the same ring.
So we strive to get our net worth into the 7 figure range and achieve that all important 2nd comma.
Reaching a net worth of one million dollars is definitely something to be celebrated as, the old saying goes, the first million is the hardest.
But what happens if you never reach 7 figures?
Does that mean you are a failure?
In the grand scheme of things, the difference may be so insignificant that it is laughable:
- Investor A has $1M investable portfolio accumulated at retirement.
- Using the 4% safe withdrawal rate from the Trinity study, this can provide an annual income of $40k.
- Investor B was “only” able to accumulate a $950k investable portfolio prior to retirement.
- Using the same SWR as above, Investor B can anticipate $38k/year.
The difference between the two investors is only $2k/year.
It is certainly not an earth shattering, life-altering lifestyle difference between this millionaire and his or her thousandaire counterpart.
Yet in our minds we have constructed this artificial financial barrier that we have to cross in order to have success and therefore deem Investor A successful and Investor B not.
What could make matters worse is if Investor B, approaching the end of his or her working career, decides that he or she has to do something risky to bridge the last $50k in a last ditch effort to make the 2 comma club because that was the financial goal originally (and arbitrarily) set.
Much like my example with the weight barrier at 200 lbs, the 7 figure net worth barrier may not have a significant impact in real life utility, especially if you are just below it versus just above it.
My own number biases.
When I first started out my post
apocalyptic divorce journey, I grabbed onto numbers out of thin air so that I could have some sort of goal post to work towards.
Not knowing what the financial implications were, I arbitrarily chose $5 million dollars as a target net worth goal.
It had nothing to do with calculating how much money I needed annually.
It just sounded like a special number (much like how we assign birthdays that are divisible by 5 as special).
I also arbitrarily chose the age of 55 as my goal for early retirement (doubling down on divisible by 5 numbers for guidance).
However, as I began to understand the financial world better, these numbers started trending down as I realized I did not have to hit these self-imposed numerical barriers in order to have a good lifestyle in retirement.
Although it is important to create your “number” to aim for when first starting out, it is equally important to continue to reassess your progress and alter these numbers as the picture becomes clearer.
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Good post XRV. There is a lot of psychology and emotions with numbers. They have found that people will buy more too if something is $9.99 than $10 even though there is no difference. Have a happy Thanksgiving!
Thanks VP! Yeah I have to say I call for the 99 cent part a few times in the past. Lol
Also another trick is raising the price and then giving a “discount” back to the original price. Pretty sneaky but I am sure it works (I know Amazon sometimes is a culprit in this with the lightning deals etc)
Have a safe Thanksgiving and hope you get to enjoy it with loved ones
You operate out of an assumption of abundance and stability. Let’s say your need is 35K. Both 950K and1000K satisfy at 4% Suppose the market drops by 10% so 1000K becomes 900K and 950K becomes 855K 4% of 900 is 36K. 4% of 855K is 34.2K as in you are in the red and so withdrawal becomes 4.1% in the face of a poor sequence of return. Suddenly your longevity becomes an issue.
Very true. A lot of assumptions are out there (SWR one of the biggest ones people hang their hat on) that assume things will chug along as normal. But even in your example my point is made that the annual difference between someone who hit 7 figures and one that just missed it in a down market is only $1,800/yr (36-34.2) so the magical 7 figure number every strives for is not that much different in everyday practice compared to someone who fell shy by $50k of that 7 figure threshold prior to retirement.
suppose your portfolio generates 6% and inflation is 1%. Suppose inflation goes to 5%? On 1M in 10 years 1/4 is gone. On 950K 2/3 is gone. If you quit at 50 in 10 years you’re 60 and unemployable as a physician and 5 years farther from being dead meaning you need more money, compared to the 55 year old. That magic of compounding works both ways. You HAVE to run the scenario past accumulation through to death to do an adequate comparison.
Good point. Yes the difference will definitely widen with a longer time frame and those parameters. I operated under the assumption of the Trinity study (which again is a major assumption) that you can start out with 4% SWR for both and each year increase the amount every year after with inflation. But yes, that’s an ideal situation that likely does not happen in the future.