when your finances don’t fit into the standard box // lies the financial industry tells us

raise your hand if one of these things has happened to you:

• you’ve filled out a retirement calculator, to think about how much you need to save, and realized that there was no option to enter what you spend, only what you earn?
• you’ve completed a financial assessment of some sort, and been told that you need much more life insurance?

we are planners by nature. if you’re planning for early retirement or thinking about it, you’re most likely a planner, too. we mapped out our finances long before we ever thought early retirement was a possibility, and we’ve always known where we stood relative to our goals. one thing this means is that we’re suckers for any sort of online calculator — how much house can you afford? are you on track for retirement? what’s your overall financial picture?

but once we started planning in earnest for early retirement, we quickly realized: these calculators all take a one-size-fits all approach. they make a bunch of assumptions, namely that:

• everyone apparently lives paycheck-to-paycheck, and therefore requires their life insurance to equal seven or more years of income (not true!)
• everyone spends every penny that comes in, and therefore retirement calculations are based 100% off of income, and not spending (lies!)

while we don’t share numbers on the blog, we can say that we’re in pretty darn excellent shape, thanks to years of diligence, tackling debt a while back, and saving aggressively:

• we have zero consumer or student debt (now — we certainly did in the past). we use credit cards to get airline miles, and we pay them off in full each month. (hello, 800+ fico scores.)
• our mortgage on our primary home will be paid off in three years, which will be only seven years from when we bought it, and the mortgage on our rental property, a 15-year mortgage, is currently paid entirely by rent from our very reliable tenant. we’re not upside-down on either property, and have significant home equity.
• we have 401(k) savings that are at a point where, if we never contribute another penny, should yield us enough each year by the time we reach 60 years of age to cover all of our living expenses. (we’re actually starting to scale back our 401(k) contributions to contribute more to our early retirement funds — and don’t worry, we’re still getting our full company matches.)
• our early retirement (taxable) investments already have enough in them to pay off both of our mortgages and still have some leftover.
• we are insured to the nines — term life policies both privately and through our employers, good health insurance, long and short-term disability coverage, homeowners and rental property insurance, liability coverage, and several other policies. our respective life insurance policies would cover more than 20 years of living expenses for the surviving spouse, for example.
• we’re putting away serious money each month through automatic investing, and are on target to retire at the end of 2017.

so what, you might ask, does this information yield on a typical financial assessment? here’s the answer:this is from usaa.com, where we do our primary banking and have most of our insurance. despite everything we’re doing right, they’re giving us a B- (or possibly a C, depending on the grading scale). why is that? look at the next steps: they think we’re not saving enough for retirement, and they think we need a lot more life insurance. because they base our “needs” off of our incomes, not what we spend, which is our actual need.

plugging our situation into a retirement calculator yields an equally frustrating result:

this is also from usaa. the only option in the calculator having to do with spending was to say whether we are planning, in retirement, to live on more, the same or less than we live on now — though it didn’t ask what we live on now! it only asked about income. they think we will need $16,000/month, which is so hilarious as to be absurd. what do they think we currently live on?! we’d have to try really hard to spend more than $16K a month.

this post isn’t about hating on usaa. we love them for a bunch of other reasons, and they’re just repeating the same lies that constitute the conventional wisdom of the financial industry. we think these lies are the reason why so many people are terrified to retire, because the party line is that your average person needs $5 million to retire comfortably, presumably in addition to having your home paid off. we won’t speak for you, but we for sure do not need $200,000 a year to be “comfortable” (that’s per the 4% rule).

we love that this incredibly vibrant community of pf/fi/re bloggers has sprung up to counter these myths the financial industry perpetuates, and show that it’s not just possible but actually quite achievable to save enough to retire forever at a pretty early age. either we all know something the big banks and advisers won’t acknowledge, or they recognize that they have to scare people and get them to keep investing more money (ahem, with these same banks and advisers) in order for their businesses to stay profitable. (at least usaa is a mutual company, like vanguard, so we know they aren’t just lining the pockets of shareholders when they push fear-mongering advice.)

have you encountered any other financial industry lies that would have you believe you’re not on track to reach your goals? please share!