“Do you want to retire one day?” That’s a question I ask new clients.
The answers I get are fairly predictable. Older workers or people with jobs they hate say, “You bet! How about yesterday?!”
People who enjoy their work say things like, “I might want to slow down one day, but I can’t imagine retiring.”
My younger clients look puzzled, “I guess I’ll retire one day. But I have no idea what that might look like or how I’ll ever get there.”
Then I ask a harder question. “So, when you think about retiring, what does that mean to you? Retire to what?”
Blank stares. Pursed lips. Narrowed eyes. “Oh…hmmm…well now, THAT’S a good question…”
Too often our thoughts about retirement center on what we’re leaving behind (i.e., work, alarm clocks, meetings). Little consideration is given to what we’re moving towards.
It’s like building or buying a house. Beyond the 10,000 details it really comes down to two questions: “What kind of house do I want?” and “What kind of house can I afford?”
Retirement decisions are like that. What kind of life do I want in retirement? What kind of life can I afford in retirement?
Here’s the problem: You won’t know what kind of retirement lifestyle you can afford until you know what your retirement income will be.
And another problem: Much of what passes for “retirement planning” is actually “savings and investment planning.” Nothing wrong with that, but that won’t get you an efficient retirement income strategy.
In my experience, many people have some sort of savings/investment plan: making regular contributions to a 401(k) or accumulating other assets. Most, however, don’t have a plan to turn those assets into regular retirement income that will meet their retirement needs and wants.
That’s the beauty of a retirement plan. It takes your desired retirement age and helps you figure how much income you’ll need/want in retirement. Once you know that, you can start answering questions like “How much should I be saving?” and “Where should I put it?”
Mistaking a “savings and investment” plan for a “retirement income” plan is like watching a big tree fall in your yard and announcing, “Honey, we’ve got fire wood for the winter!”
Actually, you don’t. Not yet. You (or some lucky person) will first have to chop that very large tree into small enough logs to fit into your fireplace. Only then will you have wood to burn.
Okay, but during your retirement years, couldn’t you just withdraw the living expenses you need each month from your savings and investment accounts? Yes, you could.
But that prompts a flurry of questions: Will those accumulated assets last? Will you spend only the interest they earn, or will you dip into your principal? With interest rates historically low, will you invest those funds? If so, what if markets fluctuate (as they do about 100% of the time!). Could a prolonged economic downturn cause you to run out of money? Or will you get scared and simply reduce your lifestyle – no more vacations, no helping the kids, fewer trips to see the grandkids…
We’re back to what are you planning to retire to? Is it the lifestyle you want…or the lifestyle you can afford?
My friend, if you don’t have one yet, you need a retirement plan. A great first step would be to read my free PDF: Retirement: Begin with the End in Mind. You can get your free copy by emailing me at firstname.lastname@example.org.
Retirement isn’t the finish line. It’s actually the starting line for the next phase of your life.
Make sure it’s a phase you can afford.
Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.