Solano Real Estate Scene: What’s your number?

When I was 28, I remember a life insurance sales person telling me that I needed to buy life insurance to protect my wife and kids. My wife was a full-time domestic engineer and 100 percent of our family income came from my job. He explained the theory of decreasing responsibility, which basically states that a young family usually has very few assets and a lot of liabilities and responsibilities and as you get older and the kids grow up, your liabilities and responsibilities will decrease and your assets will grow. He explained that right now I needed a lot of life insurance and that I had to immediately start investing monthly toward our retirement. The goal, he explained, was to grow my assets to a point that when my wife and I were 60 to 65 years old, we would need very little life insurance. He asked me, “What’s your number?” How much monthly income will you need when you retire in 30 to 35 years? My response was something like, “I have no idea and right now all I can think about is paying my first and second 12 percent interest rate mortgages and keeping the PG&E from turning off my lights and the water department from shutting off my water!” I was pretty sure he was going to make a proposal to me that I start investing $200 per month in life insurance and the stock market and so my response about being broke and stressed about my bills was setting the tone so it would be easier to reject his proposal and worry about all this later when I had more income and money, and for now I would just do my best to avoid dying. He explained the “what’s your number” question further by pointing out that if I wanted to retire at 60 in 2019 with an income of $100,000 per year, that I had to build a stock, real estate and IRA-401(k) portfolio worth something like $2.5 million. My “number” was $2.5 million. What is your “number”? If you have a fully vested government pension that pays you $7,000 per month when you retire at 60, that is equal to a “number” of well over $3 million, assuming you live to 90. If you have no government pension, you better have a “number” close to $3 million and you better have an affordable housing expense. The punch line of this column as it relates to real estate is housing expense. If you buy a home and obtain a fixed-rate mortgage, your housing expense at retirement is protected from inflationary rents and hopefully even paid off when it comes time to retire, thus reducing your number.