The list of technological innovations that changed the course of human history is rather short.  The advent of the compass, printing press, antibiotics, electricity and the microchip are a few examples of true civilization game-changers.  Right at the top of this list was the invention of the combustible steam engine, which galvanized railway transportation and changed the world.

Railroads were the epitome of "high tech" in their day.  Like the internet, it created massive amounts of wealth and transformed the US into a global economic power.  And, of course, like so many things historical, the US transcontinental railroad industry has deep formative roots in York, Pennsylvania.

Like me, Phineas Davis was a York transplant.  Born in New Hampshire, he set out on his own and picked York to settle in 1809 to start his family and career.

Unlike me, however, Davis had a brilliant engineering mind and became renown as a watch / clock maker and inventor.  Davis and his partner built the nation's first iron steamboat in the 1820s in York, then he turned his attention to solving the railway locomotion problem.

In the 1820s, the steam-engine locomotive had been invented but could not generate enough horsepower burning wood to power the railcars.  It was the Commodore 64 computer of its day, exciting but feckless.

The fledgling Baltimore-based B&O Railroad ingeniously sponsored a nationwide contest to spur inventors to design and produce a coal-powered steam locomotive for them.

Working from his foundry shop in downtown York, Davis designed and built the first practical coal-powered steam locomotive in 1831.  He hauled to Baltimore by horse-and-wagon and handily won the B&O contest, reaching wacky speeds of thirty-five miles per hour on its test run.   Davis won the four-thousand-dollar first prize then promptly sold the locomotive and the design to B&O and went to work for the company in Baltimore.

It was Davis's second locomotive machine, built for B&O in 1832 and nicknamed the "Grasshopper", that became a commercial success, helping to spawn rail transportation as an important new chapter in the Industrial Revolution.  

Twenty Grasshopper locomotives were manufactured; the last one was not retired until the 1890s.  Davis was killed in 1835 in a train accident near Washington, D.C. during a test run of his latest locomotive at age of 40.

You can see a replica of the Davis steam locomotive at the York County History Center's Agricultural and Industrial Museum in downtown York.  Wouldn't you know that YCHS is having their annual Oyster Fest on Sunday, October 21st at the museum, so mark the date to come into town to see it and learn even more about the remarkable industrial history of York (and drink excellent local craft beer).

That's was fun, but now it's time to get back to work.  As a seasoned financial planner helping Baby Boomers figure out retirement, one of the hardest tasks is setting the optimal retirement lifestyle income, one that balances fulfillment and limited resources that must last a lifetime or two.

A common legitimate answer to the question "how much money will I need in retirement?" is "more than you think".  

One of the reasons is that more people are retiring sooner than expected.  Morningstar conducted a study that discerned that fifty-percent of people retire sooner than they expected and the average gap is three years sooner than their target retirement date.

Retiring three years sooner than your plan can put a strain your nest egg - and your planner!

For clients unsure about their retirement date, we work up varying retirement scenarios to quantify the financial trade-offs - less spending, reduced travel budget, leaner grandparent budget - should they opt jump off the work train sooner over later.

But retirement age planning, while important, doesn't address the more interesting question as to how much money will bankroll a satisfying retirement?

A too-common simplistic approach is to assume you will spend a certain percentage of your current salary or your retirement assets in retirement.    Pegging 70-75% of compensation or 4% of retirement investment capital as a spending goal are common rule of thumbs - and they're both hogwash!

Retirement income planning is too personalized and complex to default to simple averages. 

We start each retirement plan by calculating the pre-retiree's current disposable household income.  We start with gross household earned income and then back out retirement savings, college expenses, child rearing costs, taxes and other expenses that may disappear at retirement to arrive at disposable income.  That figure is a much better point of reference to craft a retirement spending plan.

Then layer in this reality:  You will actually have time to spend money in retirement that you didn't while working forty-to-sixty hours per week.  Plus, some retirement expenses are subsidized by your employer, like travel and health insurance.

In retirement, every day becomes Saturday, which can easily lead to spendthrift behavior. To this point, a Duke University study asked a pool of pre-retirees to talk about their goals in retirement, assigning a cost based on their responses in seven spending categories:  eating out, digital services, recharge, travel, entertainment, shopping and basic needs.

Based on their responses, the average retirement spending goal ran 130% above pre-retirement earned compensation!  Now, I don't know if that was gross or net comp (sounds like net), but the results are revealing:  retirement eyes are often bigger than the stomach.

We often joke that dying early is a good retirement income plan – but we don't recommend it.  If your initial retirement spending goal comes in 130% over current income and you don't have the resources to support it, get to work making the compromises to realign goals and resources. 

Things like starting Social Security later, delaying retirement, downsizing your home, selling an asset, reducing inheritance goals, finding part-time work are some examples.  And yes, maybe even a spending budget – ew.

The 70% and 4% retirement income rules are as outdated as the Grasshopper steam locomotive, they too are obsolete artifacts, just less interesting.

Until next time, be well…..Tim

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