Retirement Planning Is Easy. Pre-Retirement Planning Is The Problem.

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. In theory, I could have stopped saving for retirement at age 45, let those savings grow for another 20 years, and still had a sufficient retirement fund. But the term “retirement planning” didn't come into focus soon enough since it was a little misleading at face value -    it’s not as much about planning for what happens during retirement, as it is about planning for what happens before retirement.

Evidently, this is a long-standing issue that shows little signs of being resolved. Articles are written every day commenting on how little money people have saved for retirement, retirement planning missteps, how people are unaware of the amount of savings 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 farther from the truth. Retirement planning, or, more accurately, pre-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 compound 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 your later years. If it were just called, “Personal Financial Planning”, maybe people would pay more attention at an earlier age and create a solid financial plan for their future.

The fact is that everyone can benefit from creating a financial plan, especially at a young age, and regardless of how much money they 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 to visualize where you stand, what you want to achieve, and how different aspects of your finances impact each other. It’s a crucial 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. Even if your best forecast turns out to be imprecise (it will), having a plan to start with will help you to understand how all facets of your finances are interrelated, and how to adapt your plan as life changes. Knowing the final destination for a trip isn't enough, you have to know how to get there, and that's what a plan is for. A comprehensive financial plan will show you how to reach your goals, and how long it will take to achieve them.

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, younger relatives, or friends with younger family members know this. Every financial decision that you make from now on, whatever your age, will make being financially prepared for retirement 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. 

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 - how, exactly, do you do that, and what information is needed to constitute a reliable plan? 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. Calculators, budgeting apps, and generic benchmarks/rules of thumb are not even mildly adequate for helping to create a comprehensive, individualized financial plan that will be able to guide you well into the future. Your situation, wants, needs, and goals are unique, and the answers you need will be unique as well. For those looking for quick and easy answers - spoiler alert - there are none. The good news - creating a financial plan doesn't have to be an arduous task, it just takes a little due diligence.

Arguably the nucleus of any financial plan is an itemized budget of every last expense that you have, and ever expect to have, including all “wants” and “needs”. Knowing how much you currently spend, and how those expenses may change in the future (think it through, and when in doubt, add a little more), will help you to set realistic short and long term goals, show you what you can/should do to achieve them, and serve as a reminder when you need to stay on track. Once you have all the details of your expenses, the rest of the plan consists of making reasonable, preferably conservative, predictions - How much income do/will you have? What rate of return do you expect to make on your investments? At what age would you like to retire?, etc. It's okay if your predictions are imprecise. The intent is to give you direction, purpose, and a path to follow. The bigger issue is that accurately calculating all of this information is complex because there are so many variables over such a long period of time. Very few will want, or be able, to do all the math on their own, which is a primary reason why 82% of households don't have a financial plan. Fortunately, you don't have to do this on your own. A financial adviser has the tools to create a plan for you (~26% of households use an adviser), or you can do it yourself (quite easily and for very little cost) with a capable financial planning tool designed just for this task (calculators or apps will not help). With the right tool for the job, there's no reason to let the mechanics of creating a financial plan deter you, and it can be completed in 1-2 hours. That's a small amount of effort to have your entire financial future laid out in black and white, in detail, year by year.

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.

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