Sorry for the delays in the last installment of the Career & Money Series but here she is…
Planning for retirement. It is a phrase that can confound the best of us. Whether you work for yourself or a company, the fact is that you need to plan financially for your later years of life. Unfortunately for so many either you live on the deferred life plan waiting for that utopia (retirement) to truly do the things you want to do or you find yourself woefully underfunded and unable to retire comfortably or both. This is where some conscious decisionmaking along the way comes in very handy.
I’ll state the obvious upfront. I am not a financial planner nor do I pretend to be. To really get a handle on a plan that is right for you, hire a good planner for yourself. He/she should work as a partner with you to assess where you are today and where you want to go in terms of retirement.
The single most important lesson I ever learned about retirement planning came to me when I was 22 years old, recently out of college, and at my first full time job. I was on a special project working with my employer’s external public account auditors. Sitting in a room full of heavy-duty bean counters the talk often migrated to the topic of money. As someone with an accounting degree myself I was more than open to a financial conversation. The person in charge whose name was Lisa gave me a big speech about the importance of saving for retirement. “Retirement!??!?”, I said. “I’m only 22 and just got out of college. I don’t want to think about retirement; it’s not even something I can conceptualize.” She laid down the bottom line for me. Start early and be consistent. If you have a 401K with a company match, you cannot turn down free money for retirement. It was at that point that I started contributing to the company’s 401K at least to the maximum amount of company match and I’ve done so ever since. As I look back on the last 15+ years, I am amazed at how it has added up.
The next most important lesson I learned was less about the financial aspect of retirement as the mental aspect and lifestyle end of it. I’ve watched more than one close family member or friend delay doing the things they would love to do until retirement and then have medical issues (or die), not enough money available, or for some other dumb reason (ex: “too old”) for not being able to do the things they have always dreamed of doing. Nothing pains me more than to watch this. It feels so empty and futile to me. I think Tim Ferris’ (4 Hour Workweek) punchy explanation of this crazy phenomenon of living a “deferred life” as he calls it is about as well said as any I’ve heard. I, personally am determined to not repeat the mistakes I’ve seen of waiting for “someday”. Let’s face it folks… turn to your calendars right now and I dare you to find where on it it says “someday”. Doesn’t exist; not going to happen, unless you make it happen.
I believe deeply it is a balance. Like many financial conundrums, you need to strike a balance between saving for later and spending now. Do you do “xyz” and have a great deal of enjoyment or save the same amount for a rainy day (in this case retirement)? My personal preference is to splurge on experiences because that’s all life is in the long run anyway — a string of experiences. Splurge without shortchanging your ability to provide for your needs and wants at some later date. What makes retirement so tricky are two key variables 1) the amount of time until you “retire” and 2) the ultimate unknown: how long will you live and how healthy will you be.
Given we can’t solve these variables, we need to do the next best thing – plan. So here are my quick tips to make the most of your retirement planning.
If you work for a company:
- Do they have a 401K? If so do they match your funds? Bottom line – you need to contribute at least as much needed to get the maximum match. Otherwise you are throwing money away.
- Do they have a retirement or pension plan? These are going the way of the dinosaur, but if there is one understand how it works and what you’ll be entitled to.
If you work for yourself:
- Do you have retirement accounts in place?
- Are you taking advantage of tax advantaged accounts available to self-employed individuals and small business owners ?
Whether you are an employee or self-employed:
- Save early and often. Time is on your side.
- You are never too young to start.
- Contribute to Roth and Traditional IRAs depending on what is best for your situation.
- Don’t go it alone. Hire a knowledgable professional to help you create a system that works for you and evaluate where you are in relation to your goals.
- Educate yourself. Even with an advisor it pays to have a fundamental knowledge of what’s what.
- Track your progress.
- Get clear on what you really want from your life now and in the future. Living a life aligned with your values is the best recipe for avoiding regret.
- Live fully now and later. skip the deferred living plan and enjoy your present (it is all we really are promised anyway) while also being smart about tomorrow.
- If you have a partner, talk about each of your expectations around retirement. Like any joint financial conversation, what affects one person affects the other .
Retirement planning doesn’t have to be a big elephant in the room. It is simply a fact of life. No one can do it for you, and there are no “personal loans” to cover retirement, so it is imperative that you don’t stick your head in the sand assuming someone else will take care of you when you can no longer/choose to no longer work.