Importance of Retirement Planning for Reaching Your Goals
Perspective On Retirement Goals
I came across an article from AARP recently which caught my attention. I’m not retired myself, but I’ve been planning towards it more vigorously in the past few years than before. I’m aware I’ve waited later than I should have to get serious about achieving financial independence by way of preparation. Sure, I’m mostly out of debt... but I’d be in a world of hurt if my income dropped substantially, or worse, vanished.
The piece is titled “10 Things No One Tells You About Early Retirement” and it’s well worth a read (once you’re done here, of course – don't go clicking away right now. We just got started! Rude.) What struck me as I read was that the advice wasn’t just for folks considering early retirement. It’s pretty good perspective for almost any of us planning to retire one day, whether that day is a few years away or a few decades.
For example, “You’ll spend more money than you think.” Isn’t that kinda how EVERYTHING works? It’s so easy to tell ourselves, though, that once we’re home all day with nothing to do, we’ll somehow spend LESS than we do now when we’re at work most of the time. Because THAT makes sense.
Or this one: “Housing expenses don’t retire when you do.” Even if your home is paid off, it will still need repairs and normal maintenance from time to time. So will your car, if you’re still driving at that point. And your appliances. And your furnishings. And your electronics. You get the idea.
One more then I’ll get to my point and let you save the rest of the “10 Things” for later. “You may have a long, long life ahead of you.” That’s a good thing, right? Probably. It’s just that being alive is so much more expensive than being, well... not alive. Plus there’s the whole health care and making the years meaningful thing to think about...
The Question You Should Answer For Yourself
One of the most terrifying things my doctor ever said to me was in response to a comment I made about how I no longer worried so much about losing weight or watching my cholesterol because “probably be dead in ten years either way so I might was well enjoy it.”
He was normally a pretty funny guy – that was part of why we got along and I let him talk me into all those unpleasant medical things we do after a certain age. This time, however, he very calmly stopped and looked me in the eye before responding. Even scarier, he called me by my first name. “Blaine,” he said,” with medical technology advancing as quickly as it is, chances are very good you’re going to live to be at least 100 years old – maybe quite a bit older. The question you need to answer for yourself starting NOW is... what do you want that last 30 or so years to look like?”
Remember the scene in This Is Spinal Tap where the band is visiting Graceland? They’re standing around Elvis Presley’s grave when Nigel comments, “It really puts perspective on things, doesn’t it?” David instantly replies, “Too much. There’s too much $%#*@ perspective now.” That question from my doctor was my “too much perspective” moment. I started exercising and eating better the next day. I even got one of those fitness tracker things with a setting that lets it be verbally rude to me if I’m not moving around enough during the day.
We should hold onto a similar urgency when it comes to our financial planning for retirement. It’s not about staying worried or anxious – quite the opposite. It’s about controlling the parts we can control and planning for the things we can plan for. We don’t want to live in fear, but the alternative isn’t denial - it’s open, honest conversations and considerations.
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Why We Ignore The Importance Of Retirement Planning?
If you work for a living now, there are really only two options in your future. You'll either work until you die, or you’ll retire at some point. Sure, a handful will win the lottery and not have to worry about it so much – but that’s not really a plan. A few of us may end up being cared for long-term by the state – but that usually involves bars and orange jumpers and very small rooms. The rest of us are either going to die or retire. It’s foolish not to prepare for both.
The Scary Truth
If that sounds awkward or inappropriate, the way I’m just kinda throwing your mortality in your face like that, you’ve just hit on the number one reason we don’t like to talk about retirement or set specific retirement goals earlier in our adult lives. We’re humans, and humans don’t like to think about uncomfortable things in the future. Deep down inside, we’re all kinda thinking that while everyone else will no doubt grow old and die, we’ll probably be fine. As long as we don’t say it out loud – even to ourselves – this can be a surprisingly effective little cubbyhole of denial.
Planning is boring?
This fits nicely with another tendency of human nature, although this one may be more specific to modern American culture. We don’t like to plan. We have it in our heads on some level that planning is either unnecessary, or limiting, or pointless because the world is so crazy anyway, but also unnecessary because doesn’t everything usually somehow work out in the end? Like the “but I’ll live forever in youth and health” approach, this one doesn’t hold up to close scrutiny – or any scrutiny at all, really. But... that’s all the more reason we don’t think about it too closely, right?
And yet, the reality is that not everyone dies before reaching retirement. Sorry, kids. You should probably make a few plans just in case you live that long. Not everyone gets to cut out early.
I’m not going to try to scare you into thinking about the future or badger you about the importance of retirement planning. You’ve read this far, so you must be thinking about it at least a little. Also, I think you totally have it in you to start thinking through a reasonable plan for achieving financial independence, setting some practical retirement goals, and begin focusing on ways to save money now so you can live a bit more comfortably then.
If you’ve ever planned a vacation, or saved up money for a special occasion, or simply remembered to take the chicken out of the freezer before you leave for work so it’s thawed out in time for dinner tonight, you’re already a master planner! (OK, you’re at least a planner of some sort.) This is the same idea. Just, you know... bigger.
Getting Started
Wealthry has tons of tips and insights on the specifics of planning for retirement. You can find articles breaking down the pros and cons of 401(k) plans, stocks, bonds, and other common investment mechanisms. We even explain the basics of cryptocurrency (Bitcoin, Dogecoin, etc.), although we’re not exactly enthused about that line of investment unless you’re into very high risks and unpredictable rewards.
If you have a general idea of how investments work and just need a little help with the differences between mutual funds, money market funds, exchange-traded funds, and girls-just-wanna-have funds, we can help with that. If you’re not even sure whether or not you even have a 401(k) and thought an IRA had something to do with opposing British Rule in Dublin, we can walk you through that process as well. We also help you learn how savings work. Below you have a list of some of our favorite savings account options on the market, you just need to pick one that works best for you:
We actually have a release coming up of an app that will make it way easier to keep track of whatever investments or savings you have, compare them to your other options, and move stuff around as you see fit. Technology is a wonderful thing when used properly. We don’t promote using it to make your decisions for you, but the right tech can be so very good at helping you make more informed decisions, and more efficiently.
Do you know there are apps that will let you set up your general retirement priorities, your investment strategy preferences, and how much you want to devote towards savings and retirement, then manage the process for you? You can even begin with micro-investing – dedicating a few dollars a month or having your purchases rounded up to the nearest dollar and the difference invested for you based on current market trends. It’s a great way to get your financial feet wet and helps dispel any intimidation you may feel at the process.
The point is, you don’t need to be an expert to understand the importance of retirement planning. You don’t have to be obsessed with money to start looking for better ways to save money. What you do need is a willingness to start thinking about it now. Whether you’re 28, 47, or 60, you really need a plan. You know, just in case you don’t die before you hit retirement age.
Retirement Planning Overview
- Set a Little Time Each Week to Educate Yourself
This can be spent digging out the paperwork explaining your retirement plan at work or figuring out how you might be able to pay off those high interest credit cards even a few months earlier than planned. Read the Wealthry blogs, but also check out other valid financial planning sites. Stear clear of any site with more pop-ups than helpful information. More learning, less linking.
- Estimate How Much You'll Need to Retire
Most experts recommend a starting figure around 80% of your current income, although this can vary widely depending on your circumstances. If you plan on paying off your home before you retire, for example, that removes one major financial obligation (although you’ll still have to maintain it, obviously). Or, if you hope to travel or do things you don’t have the time to do currently, that may require more money than puttering around in the garden and finally organizing those old photos.
- What Income Can You Reasonably Count On?
Assuming Social Security is still a thing and that your company retirement package remains solvent, what sort of monthly income will you have if you retire at 65? At 70? This one can take a little poking around the small print, but it’s time we’ll spent. Much better to make a few phone calls now trying to figure out how something works than to discover three weeks into retirement that you should have held off another seven months in order to receive full benefits or that you overestimated how much you could actually count on each month
- Take a Good Honest Look at Your Current Savings and Debt
There are different schools of thought on whether it’s better to start saving for retirement even while still paying off credit card debt or financing a vehicle, but personally I’m a fan of starting with something in savings and investments just to establish the principle - in both senses of the word. That said, it probably makes sense to devote more of your current resources towards eliminating high interest debt and making sure you don’t incur more of it so you can properly focus on saving and investing toward retirement. Earning 2% on your investments while paying 19% on your debt just doesn't make mathematical sense.
- Pay Down That Debt
Make it a top priority. Remember that building credit and eliminating debt isn’t about money being the most important thing in your life. It’s not – or at least, it shouldn’t be. Reducing debt and improving your credit allows you to do the things which are important to you, with and for the people who do matter the most. Plus, the lower your debt and the better your credit, the less future financing will cost you. Folks in debt pay more for everything. Folks with resources pay less for everything. The impact is cumulative.
- Develop an Investment Strategy and Start Doing It
This doesn’t have to be complicated or involve huge sums of money. The important thing is to start; you can adjust it annually as you go. DON’T WAIT UNTIL YOU FEEL READY TO BEGIN INVESTING. That’s like waiting until you have your entire life all figured out to fall in love or have kids. A little responsible planning and timing? Yes, good. Waiting until some fictional “perfect” moment or situation arrives to take essential steps forward? No, delusional. It will never happen that way. You’ll swim better once you’ve been in the water awhile.
For many people, the best place to start is with a 401(k) offered through your workplace– particularly if your employer matches some of your contributions. The other popular option is an IRA, which you open yourself. If you’re not sure where to start, explore these two investment mechanisms, then build from there.
Once you’re ready to move beyond IRAs or 401(k) plans, common wisdom suggests diversifying your investments to allow for more risk while you’re young (meaning at least part of your money has the potential to secure greater payoffs) then becoming more conservative as you approach retirement (when you have less time to adjust to market changes or unexpected developments). You don’t have to monitor your investments every day in most cases. The more conservative your investments, the more you can focus on long-term trends rather than daily fluctuations. - Don't Give Up
Lots of people not nearly as smart or hard-working as you have stumbled through the process just fine. Let all this free advice and insights on the internet be a resource, not a burden. Focus on what you can learn and do better, not on all the things you’re doing “wrong” or which someone else thinks you should be doing differently.
Finally,
We can’t make it completely painless for you to figure out. No one can (and if they promise otherwise, they’re fibbing to you). But it doesn’t have to be as hard as it might sound when you first begin. The information is readily available. The technology is the best it’s ever been. And we’ll gladly help walk you through getting going, or with specific questions you might have along the way.
So, take a breath and let’s get started. You know, just in case you accidentally live a long time.