The (Sad) State of Retirement Planning

The state of retirement planning in the U.S., per the 2021 Northwestern Mutual Planning & Progress Study
and the 2021 Schwab Modern Wealth Survey:

The Good - 91% of those with a financial plan are confident about reaching their retirement goals.
The Bad - Only 22% will make the effort to create a financial plan. 67% of those without a plan are uncertain about reaching their retirement goals.
The Ugly - Of the 78% without a financial plan, 60% think creating a plan is too complicated or they don't have the time to create one, 56% don't know how much to save for retirement, and 18% will never seek any type of planning help at all.

In this day and age, when so much information is so easily available, the importance of financial planning should not be delayed and/or dismissed by so many. When you are growing up and you want to be able to go places on your own and be more independent you learn how to ride a bike. Then you learn how to drive a car. Then you learn how to travel by train, plane, or other modes of long-distance transportation. You have a goal in mind, and you pursue it. When you want to be financially independent, you get a job, open a checking/savings account, and learn something about investing or are at least aware of financial markets. Why then is it too hard for 80% of households to dig into the details of their finances to be sure that they are adequately prepared for their financial future (whatever that time frame may be)? No matter how far away retirement may be, planning for it now is at least as important as planning for a wedding, having children, buying a house, college tuition, or any other financial concerns. To be clear, "planning for it" doesn't mean that you already have what you will need, it means that you know, with reasonable certainty, how much you will need, and you have a plan in place for attaining that amount before you actually retire. The earlier you start saving, the lower the amount that you need to save each year, thanks to time and compound interest. The later you start, the larger the amount that you need to save each year, increasing the degree of difficulty. In either case, knowing what you will need in the first place is the key component, and you can't really know that amount without a financial plan.

Back-of-the-napkin scribbling, guessing, hoping, and/or reading financial advice articles that only present broad generalizations is not sufficient in any way. You need to know the details of your specific situation, what you want to achieve, and a realistic way to get there. If you have a map, you can always figure out how to get where you want to go, but without one you may find your way, or you may not. Why take the chance of failing financially (especially in your later years when financial security is needed the most) when a financial plan can act as your map to financial security? Yes, there can be complex decisions to be made, but personal finance is not rocket science, it's not endlessly time consuming, and there's no need for it to be intimidating. It may be a bit of a struggle in the beginning, like learning how to ride a bike, but once you understand what is needed you never forget, and you are on your way! I implore you to make the effort, just as you did with anything else that you wanted to achieve in your life.

When I created my first financial plan, I was astounded by what I learned. I already had a solid understanding of personal finance and investing, but even so, I was caught off-guard by the huge impact that small changes could have over time. Increasing the planned inflation rate by only .25% decreased my total result by $200k. Using a lower life expectancy for myself decreased the total result by $550k due to my wife's tax status changing to single and eliminating my Social Security income thereby increasing her needed savings withdrawals. Your mileage will vary and there are lots of other possibilities (positive and negative) but knowing what could happen changes the way that you think and offers the ability to be better prepared for different scenarios. I can guarantee you that those without a financial plan have no good way to see the specific effects of a variety of decisions and their possible outcomes. Having a comprehensive financial plan to refer to, and to guide to you, gives you greater confidence and control in reaching your goals. As Thomas Hobbes wrote in 1668, "Knowledge is power"!

Make the effort to understand your finances as well as you can, prepare for a successful future, and ask for help when needed. If you can make a list of your current monthly expenses, and how they might change as you age, that's the nucleus of a financial plan and the perfect place to start. Then use a good planning tool, or hire an adviser, to create the rest of your plan. Don't make it harder than it needs to be, and don't worry about accurately predicting the future, you just need a starting point and then you can adjust as you go. As Ben Franklin said, "If you fail to plan, you are planning to fail", and there's no need for that!


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