Planning for Retirement? Slow Down!
Recently, as I meet with clients, I’m seeing a common problem: People need to slow down their financial preparations for retirement.
I believe this is at least partly due to today’s culture of instantaneous information, action and reaction—think texting, Twitter, and Instant Messaging.
Our world is moving faster, and that’s making us prone to make decisions (and take action) in the time it takes to hit the “send” key.
We live in a world where you can deposit a check, purchase a plane ticket, or cash out a CD in the blink of an eye.
However, when it comes to preparing for retirement, I argue that we should slow down and take baby steps.
Adults Taking Baby Steps
For most of us, retirement will be the shortest, most challenging period of our lives. If you’re lucky enough to retire at age 65, you’re looking at an average of 20 years of post-work (and post-earning) life. Emancipation into adulthood takes place at 21—and let’s face it: many of today’s 21-year-olds are not yet living adult lives.
Your retirement years will be challenging physically, as you deal with aging, medical issues, and even keeping your meds straight. (The average senior takes more than five pills a day.) You may be mentally challenged as you deal with the stresses of life changes and even facing your mortality. And of course financial challenges will be endless for most of us. Your savings and investments have to last over an unpredictable period with unforeseen obstacles—and that’s not easy. How much thought and planning have you put into making these years as easy and comfortable as possible?
When I train for marathons, I know the distance and research the terrain and weather forecast. But even with all of this information and specific training, the race experience is always unpredictable. Compare that to retirement—how long will your retirement journey be? What health issues and other major expenses will you face? There is no way to get answers to these essential questions—which is why careful consideration should go into every step of planning for, and living, a long and comfortable retirement.
And yet many rush into this multiple-decade experience with reckless abandon. They pick up and move to destinations partially unknown, in search of a friendly climate or proximity to grandchildren. They sell their homes in exchange for new ones without thinking of the big picture, and buy investment products that may not meet their needs.
Here’s a sobering statisticto get you thinking about your retirement plan: The standard rule of thumb has been for retirees to spend 4% of their nest egg each year to ensure enough funds throughout their lives; today’s experts are saying this should really be just 2%.
Walk, Don’t Run, Towards Retirement
To ensure your retirement is as financially secure, and pleasurable, as possible, here is some basic advice—some baby steps, if you will. The following are based on best practices recommended by the Certified Financial Planner Board.
1. Take time to set measurable goals. Consider you want to achieve and the time frame for achieving it. How much money will you need per year to support your desired retirement lifestyle? How much does that mean you’ll need before you retire?
2. Understand that your financial decisions affect other financial issues. Each financial decision you make may impact other areas of your life. For example, a decision to make a specific investment may have income tax consequences that are harmful to your estate plans.
3. Periodically re-evaluate your financial plan. Your situation as well as your financial goals are likely to change over the years. (Think inheritance, marriage or divorce, or change in job status.) When you regularly review and revise your financial plan, you can adjust it to these changes so that you stay on track with your long-term goals.
4. Start planning now. Financial planning, and even retirement planning, is not just for those in their 50s and 60s. People who save or invest small amounts of money early and often tend to do better than those who wait until later in life. Similarly, when you develop good habits early—such as saving, budgeting, investing and regularly reviewing your finances—you’ll be better prepared to meet challenges and changes.
5. Go with what you’ve got. Similarly to #4, don’t wait until you’ve accumulated a certain amount of wealth. It doesn’t matter how much you’ve saved to start good financial habits and practices.
6. Take charge. If you’re working with a financial planner, remember that you are in control of the engagement. Ask questions about recommendations offered to you, and play an active role in decision-making.
7. Be realistic. Financial planning is a common sense approach to managing your finances to reach your life goals. It cannot change your situation overnight; it is a lifelong process.
These basic baby steps will set you on the right path to planning for retirement. Just remember: take it slow!
Jeffrey Christakos is President of Westfield Wealth Management. His firm helps individuals and families achieve their lifelong financial goals. Their customized services include strategic planning for tax sensitive clients and diligent investment management. Their website is www.westfieldwealth.com.