For the past 25 years, the most enjoyable and gratifying part of my career has been helping folks plan and prepare for retirement and then, ultimately seeing them live out their retirement dreams and goals.During that same period, I’ve seen the world change and I have noticed how busy and preoccupied (distracted) these same clients have become. What with constantly checking email, text messages, Facebook postings, Twitter streams, and so many TV shows to binge-watch, how does anybody find the time to plan out a dignified retirement? Now that people’s attention spans have been reduced to roughly 9 seconds, I’ve found myself having to truncate my retirement message.
I’ve had to distill my message to the most elemental concept for each of my audiences, of which there are three: (1) young people just starting their careers (in their 20s and 30s); (2) slightly more mature folks who are advanced in their career (40s and 50s); and (3) those who are winding down their career and are looking forward to retirement (late 50s to early 70s).
Step #1: Automate for Accumulation (A.A.M.M.O.O.)
To the youngest group, I would give one bit of advice: Automate your savings, preferably into your employer’s 401(k) Plan*. Said differently, I’m encouraging you to get started in your 401(k). Start with just 1% (of pay), if that is all you can spare, but you’ll be much happier and thank me later if you start somewhere north of 3% of salary.
Don’t worry too much about the funds (investments) at this point, there will be time to adjust all that later. At this point, your one-and-only mandate is to GET STARTED! That’s right, just get started, that will be the most significant action you could possibly take at this stage of your life.
*If your employer doesn’t have a 401(k) Plan, then open a Roth IRA (Individual Retirement Account) and set-up a systematic deduction from your checking account. You can do most of this online.
Step #2: Motivate to Maximize (A.A.M.M.O.O.)
For those in their late 30s to early 50s, you have a more complex mandate (of course, this assumes you have achieved Step #1 above and have been saving toward your retirement plan or IRA for some years now). You are busy, I mean crazy busy — we might even say overwhelmed. You’re likely raising kids, running a household, paying down debt, and maybe even taking care of Mom and/or Dad. You’re tired and perhaps even exhausted, so you might not like what I have to say to you.
Your mission (if you choose to accept it) is to motivate yourself to make the extra effort to maximize your retirement savings. What do I mean by that? I’m not suggesting that you must contribute the statutory maximum of $18,500 (or $24,500 if you’re age 50 and older). That might be the case, but what I’m really saying here is that maybe you started your 401(k) or 403(b) savings a decade or more ago and nothing has changed much since then. Maybe back then you signed up for $100 deduction per pay period; and while that was a great start, today it might not be cutting it. Let’s face it, you’re not a kid anymore and the choices you made back then might not suit you and your family any longer.
So, what I mean by “maximizing” is that you actually calculate (not guess!) and determine how much you should (or need to) be contributing to have a decent chance at retiring sometime before death! You need to understand ALL the benefits your employer offers, and you need to be sure you’re taking full advantage of all these perks. You might need to meet with an advisor or someone that can help you figure this out. (Note: There is no shame in that — this is complicated stuff).
This is a very worthwhile exercise because these are usually your peak earning years and you need to take advantage of them to divert some of these earnings toward the future. In fact, this is the time in your life when you can really move the needle and make a huge impact 10 to 20 years down the road. It is highly advisable that you make an annual check-in to see if you’re moving forward and making progress towards your goals. So, get with someone and figure it out: “How much should I be saving for retirement?” Dawg, you need to get this done. Yesterday! Otherwise, you’re gonna end up in the Dog House! Is that motivation enough?
Step #3: Organize and Optimize (A.A.M.M.O.O.)
With retirement in the cross-hairs for those in their mid-50s and older, you are going to need to “get your ducks in a row,” as they say. You are about to make a series of very important decisions that will have significant consequences for the rest of your life.
You need to decide: (1) when to stop working (or better phrased – when to stop earning); (2) when to start collecting Social Security; (3) when to start drawing from your savings and investments (which have taken you a lifetime to accumulate); and (4) possibly how to pay for health care. These are four separate decision points and, if you are married, they might even be eight decision points.
There is a common misconception that the day you stop working is the day you mosey on down to the local Social Security office to ask for your benefits — and, oh by the way, the Little Misses is coming down with you too to file for hers. That is a very outmoded retirement model and it is broken.
Today, it’s not out of the question to retire from work at age 62, start drawing from your 401(k) or IRA at age 65, and start collecting social security at age 70. But this is only one example. Each individual or couple might have an entirely different game plan. The reason this is done is because the average American household will receive just under $1 million in Social Security benefits. If, however, Social Security is taken too early or too late, you could be leaving tens or hundreds of thousands of dollars on the table. You need to optimize (carefully evaluate the timing of) your Social Security and retirement benefits.
Chances are you are currently working with an advisor. But not all advisors are created equally. Make sure your investment advisor is also a financial planning advisor who can create a report for you that shows you at least a couple of different scenarios. The report should also show the impact that timing decisions will have on your monthly retirement benefit and, most importantly, your overall net worth.
Make sure this report or study is 100% personalized and customized to your situation. The study must look across all your different sources of retirement income (pension, annuities, bank savings, etc.) and should take into consideration your current and future needs, as well as your goals and aspirations. Be sure you are aware of the difference it makes in your (future) life to collect benefits at age 62, 65 or 70 so you can make an informed decision.
It goes without saying, but I’ll say it just the same: You should perform this study at least a year or two BEFORE you start receiving benefits, or drawing income from a retirement account or an annuity. If you have not done this type of study or financial planning before, it is going to take some effort on your part to collect and collate all this information. A professional can help you make sense of it all. Get organized and optimize your benefits — it’s worth about $100,000 or more if you do!
Perhaps next time I tell you about the part of my career I’ve enjoyed the least: Saving for College.