Benjamin Franklin said “If you fail to plan, you’re planning to fail.” I am very much a planner in all aspects of my life but have learned that not everyone is. However, when it comes to money, YOU MUST PLAN. You should have a monthly budget plan, a long-term financial plan AND a retirement plan.
If you’re not saving for retirement, ask yourself why. Here are some excuses I’ve heard:
1) I’m too young to think about retirement. Wake up! Have you heard of compound interest? This is the BEST time to save for retirement! Why work hard for your money if you’re not going to invest in your future? Start early and let your money make more money. It’s that simple.
2) I don’t make enough money to save for retirement. I understand you may be trying to get back on your feet due to a life emergency such as a job loss or unexpected medical event and can’t invest 15% of your pay towards retirement. However, you need to start somewhere. If you have a budget and FOLLOW it, you should be able to work your way up to 15%. Read my article on how you don’t have to earn a high income to become a millionaire. Maybe once you realize it’s possible, you’ll be more motivated to get started.
3) I don’t think I’ll want to retire. You may be one of those people who can’t imagine NOT going to work everyday. I understand that because I always feel like I have to be doing something. However, you may change your mind at some point in your life. Maybe you’ll get a hobby you enjoy so much that you’d prefer to do that instead of working all the time? Or you may lose your job and have a hard time finding another one or finding one you enjoy as much as the last one. You may become disabled and unable to work. Call me Negative Nellie but life happens and some of these things are out of your control. What if you didn’t plan for retirement but you’re more or less forced into it?
4) Isn’t that what Social Security is for? Based on the most recent Social Security Administration’s report, “the trust is on track to be depleted in 2034, at which point the system will be able to pay 79% of benefits from ongoing tax revenue.” Not to mention even 100% of social security would not be enough to live on. If you use this excuse, look at your expected social security benefits and see how that would work out for your current lifestyle. What would you have to change and are you willing to do that?
If you’re NOT one of those people who want to work forever, what DO you plan to do when you retire? Most people don’t think through the qualitative piece of their retirement. They’re focused on careers and family life while they’re working, which is normal and expected. However, I’d encourage you to start thinking about the answer to that question right now.
For example, if you plan to travel extensively, you may need to save significantly more money. Family vacations and cruises are common for retirees. This could cost an additional $10K to $30K per year, depending on the amount of travel and lifestyle.
Should you start thinking about developing some hobbies and interests so you’re not bored in retirement? Maybe you want to drive a bus in the morning or volunteer your time for a cause that you’re passionate about. Maybe you’d like to spend time helping your children with their kids.
The key is to make the answer of what retirement looks like for you an integral part of your planning so you can understand how this may impact you financially.
HOW MUCH SHOULD YOU SAVE?
When you take the time to figure out the qualitative piece, the quantitative piece is easier. Chris Hogan has a great online tool called the R:IQ. You only need to enter four numbers: your current income (including your spouse), how much money you’ll need each month which includes necessities plus your “wants” or “dreams”, how much you currently have saved and how many years until you would like to retire. Give this tool a try and see if this will motivate you to start saving or save even more. I also encourage you to read Chris Hogan’s book Retire Inspired: It’s Not an Age, It’s a Financial Number.
The key with the quantitative piece is understanding that we’re always dealing with some level of uncertainty, whether it’s unknown future portfolio returns, rising health care costs, or the possibility of changes to income taxes or government programs such as Social Security. Having a plan and monitoring changing variables is critical so that you can make adjustments to your plan to ensure a successful retirement. But as long as you keep your eye on the qualitative parts of your retirement plan, what you want to do with your time, you can stay focused on saving what you need.
You often hear the saying, “It’s about the journey, not the destination.” Well, that may be true, but if you don’t have a destination, you’ll never get to where you want to go.