I really wish that someone had explained to me just how financially important the first 20 years of my working life would be to my final 20-25 years on this earth. I’m pretty sure that I would have made some different decisions and paid a little more attention to the possibilities. At least on paper, I could have stopped saving for retirement by age 45 (and let those savings grow for another 20 years), rather than be in the beginning stages. The term “retirement planning” can be misleading since it’s not as much about planning for what happens during retirement, as it is about how to achieve a financially secure retirement in the first place.
Evidently, I’m not the only one with this issue. Every day I see articles commenting on how little money people have saved for retirement, retirement planning “missteps”, how many people have no idea how much they will need for retirement, and on, and on. The problem must be in the name. Retirement Planning. It sounds like something that you should do as you get close to actually retiring. Like packing a suitcase for a trip, you only do it right before the trip to make sure that you have everything that you'll need on the journey. But that couldn't be further from the truth. Retirement planning should really be started as soon as you start working, so that you can take full advantage of the gift of time (and compounding interest). Most people don't do this, of course, because “retirement” always sounds like something that can be taken care of in the future. There’s no sense of urgency, despite that fact that the decisions that you make very early on in your working life can directly, and significantly, affect your financial well-being in the future. If it were just called, “Personal Financial Planning”, maybe people would pay more attention at an earlier age.
Everyone can benefit from having a financial plan, no matter your age, or how much money you have. It’s not just a tool for the wealthy, it’s about controlling your destiny – whatever you want that to be. It helps you visualize where you stand, what you want to achieve, and how different aspects of your finances impact each other. It’s a critical step in becoming financially secure, and the earlier you start planning the easier your goals can be to accomplish. At the very least, knowing your options, and the levers you can pull to influence the outcome, is important information to have.
Planning earlier rather than later is one issue, but there’s also an “elephant in the room” when it comes to doing the actual planning - a serious lack of effective planning tools. Accounting for decades of personal variables, a variety of tax laws, and plenty of, “if this, then that, otherwise something else”, considerations can get quite complex. Most people will need some help with a method for figuring everything out, but there are very few options.
Those looking for quick and easy answers (spoiler alert - there are none) are attracted to free retirement calculators. The problem is, they’re all worthless. Supplying 4 or 5 numbers on your part, combined with erroneous assumptions and a complete lack of pertinent information on the calculator’s part, will never yield an accurate answer to anything. They’re only designed to be click-bait. That’s why they’re free. Besides, even if a miracle happened, and the calculators were correct, knowing the lump sum amount that you will need for retirement in no way qualifies as a plan, and does nothing to help you figure out how to achieve that goal. Knowing the final destination for your trip isn't enough, you have to know how to get there.
A more in-depth planning tool would provide better results - if only you could find one. A quick internet search yields plenty of choices for almost everything else, but not for financial planning tools. A few financial sites offer free retirement “planners” (I use that term loosely), but they are only a hair’s breadth better than calculators – still using inadequate personal information, still lacking flexibility, still using assumptions, and still not accounting for essential details. Even paid planners that cost $100 - $300 fall short. It’s an exercise in frustration trying to find a comprehensive financial planning tool that accounts for essential variables (e.g. spouses retiring many years apart, taxes on retirement distributions and Social Security income, varying expenses, income, and health care costs over time, etc.), and that provides a detailed, year by year plan.
If all else fails, good advice might be enough to steer you in the right direction. Maybe. Always consider the source. Anyone with a WiFi connection can author an article about retirement planning, so there’s no shortage of reading material. If the headline will generate clicks, it gets published, seemingly without regard to the content. Most of the "advice" is just vague rules of thumb regurgitated from previous articles. The common theme is, “save more”, “spend less”, “use the 4% rule for savings withdrawals” (pedantic, at best), and don’t forget to, “have a financial plan”. Agghh! How are you supposed to create one?
Even with good advice in hand, most people still aren’t acting on it. 82% of households have no retirement plan. Why? Because it’s about retirement, which, you know, is somewhere in the future, which means that there’s no urgency because it doesn’t apply to “now”. But more importantly, no amount of advice will help you to create a retirement plan if you don't have the proper tools to put it to use. Knowing what to do, and knowing how to do it, are two different things. Internet retirement calculators are worthless, a comprehensive, financial planning tool is impossible to find, and most advice is too vague to be practical. This is why 26% of households spend thousands to hire a professional adviser.
So where do you go from here? First of all, get your priorities straight. Rid the term “retirement planning” from your mind and replace it with “my personal financial plan”. This is about what you need to do now, not later. Realize that whatever your age, you should have started paying attention to all of this in your 20’s. Maybe no one ever told you that, so make sure that your children know this (or your friend’s children, if you don’t have any). Every financial decision that you make from now on, whatever your age, will make retiring either easier, or harder. Your choice. You don’t have to become a miser, or take any ridiculously extreme steps, but you do need to be aware that there is a very fine line between retiring comfortably and struggling through the final 20-25 years of your life. Please do what you can to avoid struggling financially as you age, it’s not pretty.
Regardless of the difficulty, the most important step you can take is to create the illusive written retirement financial plan. A real one. Today. It just takes a little due diligence. Arguably the most important aspect of your plan is an itemized budget of every last expense you have, and ever expect to have, including all “wants” and “needs”. You should be able to adjust each one for any given period of years. Expenses will dictate how much money you will ultimately need, and they are the nucleus of any plan. If you’re not sure how to go about this, or don’t know what else should be included, read through The Complete Retirement Planner website. There’s enough information there to show you what needs to be accounted for and give you suggestions for how to arrange the data. If you’re not a math whiz, and can spare $69.99, buy it. It’s easy to use, very thorough, and has none of the deficiencies of the planners mentioned above. It will also save you a tremendous amount of time and aggravation. At the very least, take advantage of the information the site provides and then make sure to find a different method for creating your plan. A reliable financial plan will help you to set realistic goals, show you what you can/should do to achieve them, and serve as a reminder when you need to stay on track. Seeing your financial future in black and white is eye opening.
A personal financial plan is all about what happens well before retirement, so that you won’t have to worry about will happen during retirement. It will take discipline to stick with the plan, and a willingness to change if the plan doesn't work out as expected - which it won't, because that's how life works, and human beings are really bad at predicting the future. It’s a fluid activity that should be reviewed annually. Changes in employment, spending, marital status, lifestyle, family size, inflation, economic conditions and tax rates are just a few of the issues that will impact the outcome. No matter how often it may need adjusting, that’s much better than not having a plan to follow at all. Guessing and hoping rarely ends well.
In short, take control of your situation before your situation controls you. Learn as much as you can along the way, and it would be nice if you would then share that knowledge with others. That’s what it’s all about. Help yourself to survive, and thrive, and then help others to do the same. Start now. Just don’t call it Retirement Planning.