People often complain to me about how much they’re paying in interest—on their mortgage, car loans, or credit cards. Or, they’ll fret out loud about the future—”How am I EVER going to save enough to live comfortably in retirement?”
Here’s an example:
Joe: I figure I need at least $1 million to be able to retire at age 65.
Me: Well, you’re only 35, so you’ve got 30 years. That’s great! Here’s a thought. Save $10,000 a year for 30 years…and if you earn just 6% annually on your money, you’ll have almost $800,000!
Joe: That’s not enough. I need at least a million
Me: Okay. Then save $15,000 a year, instead of $10,000. At 6% interest, that would give you a little more than a million.
Joe: Save MORE? I don’t know about that.
Me: Well, then…you could work longer. Save $10,000 annually and earn 6%, but do it for 35 years instead of 30. By age 70, that would give you about $1.1 million.
Joe: Work till 70?!
Me: Okay, a third option: You could try to get a better return. Make 12% on your money, and you’ll only have to save $6,000 a year. And you can retire at age 58!
Which option do you think appeals most to Joe? What do most people choose when I say, “You could: (a) save more; (b) work longer; or (c) try to get a higher rate of return?”
You guessed it. They want the higher rate of return. Every single time.
And why? Because that option doesn’t require a change in behavior on their part. Easy peasy, right?
But here’s the truth: We invite risk into our lives when we rely on things beyond our control (e.g., the financial markets) instead of focusing on the things we can control (e.g., actions like resisting the urge to overspend, following a savings plan, etc.).
Jack faces risks if he thinks that because the S&P 500 has historically averaged an annual 10% return, he can count on that for the next 30 years. His safest bet is to modify his behavior.
The good news for you is this: If you don’t like the trajectory of your financial life, you have a bigger say in the matter than you might think.
Do the hard thing. Change what you can control. Create a savings and spending plan. Then live by it.
Could you find a better interest rate? Possibly. But don’t let that be your sole solution. If you really want to change your financial consequences, change your behavior.
I’ll close with this…let’s say you were one of those who DID make needed changes 20 or 30 years ago. You saved faithfully, have a healthy retirement portfolio, and are wondering, “How do I turn this ‘nest egg’ into monthly income?”
If that’s you, I’ve got a free tool that can get you started. It’s called the RISA (i.e., Retirement Income Strategy Assessment). In less than 10 minutes, it can show you what kind of retirement income plan best aligns with your personality, goals, and lifestyle. There’s no obligation, and you can access it by emailing me (bmoore@argentadvisors.com).
Then if you want to discuss your results further, give me a call!
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