From the time I started working, I wanted to stop. I didn’t dislike working itself, just the thought of working for someone else - for 40 years. The bright idea that could have led to entrepreneurship never came to me, so I toughed it out, but I really wish that someone had explained to me just how financially important the first 20 years of my working life were going to 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, rather than be in the beginning stages. The term “retirement planning” misled me since you’re not planning as much for what happens in retirement, as much as you’re planning for how to achieve retirement.
Evidently, I’m not the only one with this issue. Almost every day I see articles commenting on how little 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 are working full time, 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 what you do today, directly, and significantly, affects your outcome in the future. If it were just called Personal Financial Planning, maybe people would pay attention sooner.
In any case, creating a personal financial plan - one that you can really rely on - requires an acute understanding of how money will come to you, the choices and decisions that will cause it to flow through your hands, and the many outside influences (expenses, taxes, fees, etc.) that will try to take it away from you. It involves a lot of math, and a lot of, "if this, then that, otherwise something else" type of considerations. There are seemingly endless variables, and everyone will need some type of help to figure it all out.
The desire to find these answers quickly and easily, which isn't possible, is exactly why retirement calculators are so popular. The problem is, they’re worthless. Putting any degree of trust in these toys is not advised. If you think that 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 yield an accurate answer to anything, you shouldn't be attempting the quest for financial security on your own. Hire a professional before someone else steals all of your money. 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.
Perhaps a more in depth financial planning tool might help. If only you can find one that will account for the essential financial variables that will lead you through decades of options, twists and turns, and, eventually, to financial security. You would think that a quick search on the internet would yield plenty of choices, as it does for almost everything else. But you would be wrong. There are no more than a handful of retirement planning tools (not calculators) out there, and they're harder to find than you would think. When (if?) you do find them, a little research about how they operate will quickly show you their limitations in scope, and their lack of user friendliness. Then you will notice their relatively high cost, which will give you even more pause, and eventually dissuade you from taking a chance on whether it will perform up to your expectations. In the end, you will be frustrated, and still in need of a way to create a trustworthy financial plan.
But you can always seek out some good advice, right? It seems that anyone with a WiFi connection has decided that they can/should write some type of article/blog about planning for retirement. Some of that "advice" (most of which is just regurgitated, generic rules of thumb) should get you headed in the right direction, and some of it should be avoided at all costs (always consider the source, and, even then, question it). Still, people seem to read all of that advice, regardless of who’s writing it, otherwise it wouldn’t be so prevalent (if it gets clicks, it gets published). So why don’t those people actually act on that advice? 1) Because no amount of advice will help you to create a retirement plan if you don't have the proper tools. Knowing what to do, and knowing how to do it, are two different things. 2) Because it’s about retirement, which, you know, is somewhere in the future, which means there’s no urgency because it doesn’t apply to “now”. 3) Because they couldn’t if they wanted to, since there are no financial planning tools to help them use it. Internet calculators are worthless, and a comprehensive, user friendly, planning tool is virtually impossible to find. This is why 26% of households hire a professional to do it for them.
What’s a potential retiree to do?
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 do now, not about later. Then it’s time to get real. Realize that whatever your age, you should have started paying attention to all of this in your 20’s. Make sure that your kids know this. 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 realize that there is a very fine line between retiring comfortably, and struggling all through the final 20-25 years of your life. Please do what you can to avoid struggling through it, it’s not pretty. However much you dislike doing it, the most important step you can take is to create a written retirement plan. A real one. Today. If you don’t know what that entails, read through the website for The Complete Retirement Planner. You don’t have to buy it, but there’s enough information there to show you what needs to be considered. If you can spare $49.99, buy it. It’s far more thorough than anything else, and it will also save you from the agony of mathematical paralysis from trying to figure it all out on your own (trust me, to do it right will drive you nuts). If you don’t like it, find a different method. But whatever you choose, create that plan. It 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.
When used properly, a retirement personal financial plan is all about what happens well before retirement. Yes, you want your money to last as long as you need it to in retirement, but if you plan properly to start with, that shouldn't be a problem. That’s the point. When your plan is all done, it will involve a lot of discipline to stick with it, 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. A financial plan is a fluid activity that requires continuous adjustments and monitoring. 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. View your plan as a living document that requires an annual review.
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 share that knowledge with others. That’s what it’s all about.