Retirement Planning

“Retirement planning” is an active phrase. It implies you’re doing something and that you either have goals or you’re setting goals. What those goals are and the distance between you are and where you want to be are the important questions.

Before we discuss goals, let’s talk briefly about economics. Economists speak of rational choice. Rationality means that when you make a choice (and life is all about making choices), you will choose what you like best. For some that means having a huge pile of money, but for most it means comfort, peace, relationships, faith, happiness, safety or some similar desired circumstance. Money is simply a tool you use to achieve your goals. With that in mind, our first suggestion regarding retirement planning is: Reflect on what’s most important to you. Consider your values.

Another factor to consider as you move toward retirement is the amount of debt you carry. As Morgan Housel said, debt defines your future and the number of outcomes you can endure. Click here for other financial advice from Morgan Housel.

In Principles Based Planning: A Better Approach to Financial Planning, Kyle J. Christensen, CFP, states “a good principle is one that never fails. It is like an accurate map and compass. With a map and compass, I can find my way safely to my destination.” Principles such as hard work and honesty will guide you toward your ultimate goals. So, if your goal is to retire to the beach, what will it take to accomplish that dream? What will you need to give up to get there? Retirement planning, for most, means delayed gratification.

Christensen believes that most financial planners use the wrong approach when planning. Most use Accumulation Theory. This involves a “needs analysis” and calculates the amount of money a software program thinks you need to save for retirement. Christensen argues this is wrong for numerous reasons. First, you don’t know what your needs will be five, ten, twenty or more years down the road. No one knows the future – that’s not how life works. Second, “needs” implies minimization. “The word ‘need’ is synonymous with the word minimum, or the amount that is absolutely necessary in order to survive. To have only what you need is to have the minimum you need.” Most people want more than the minimum.

Most planners begin by asking “what’s your number,” meaning how much income will you need to live on when you retire. They plug your current income, expenses, debt and age into a software program which spits out what you need to invest and the number of years you stay invested to reach “your number.” A plan like that leave no room for error, no room for chaos (e.g., Covid 19), and no room for detours like helping out an aging loved one. Instead, wouldn’t you be more motivated to work toward a plan that maximizes wealth so you can weather the unexpected instead of working toward meeting future minimum needs? A plan like that provides incentive to accept the cost of delayed gratification (two basic principles of economics).

To begin, you need to know where you are. If retirement planning is a process, or a journey, there must be a beginning point. So, … do you have a budget? [Click here for a Personal Monthly Budget form]. Do you have a personal financial statement? [Click here for a Personal Financial Statement form]. If you have a business, is it earning a profit? [Click here for a Profit-Loss Statement form].

Once you know where you are, you can begin the planning process. But, again, we go back to values. Do you intend to change how you live during retirement and, if so (or if not), how much is enough? How much money would will it take to buy the things that make you happy? One reason for asking this question is because many people worry that they won’t have enough for retirement without realizing that many of the things that make us happy are free (or at least within your normal budget). Family. Long walks. Dinner conversations. Blue Skies. Reading a good book. My point is, don’t rob today’s happiness with unnecessary worries about tomorrow. Hard work and a good plan should get you where you want to go without unnecessary worry. (“It’s not just how much you have, it’s how much you spend.” See R. Hartman, What Net Worth Do You Need to Retire? (U.S. News & World Report 7/28/2021).

Planning and hard work are wise, but unnecessary worry will cause you to make unbalanced choices. Everything comes at a cost. Unnecessary worry might cause you to miss your child’s softball game. Unnecessary worry might cause you to skip holidays or vacations where you could make priceless memories for yourself and your loved ones. Tomorrow isn’t promised. You could drop dead before you ever spend a dime of your retirement savings. [Parable of the Rich Fool]. So, we ask again, how much is enough? Although no one can truly answer this question as it relates to the future, you should ask it now as you consider the opportunity cost of your next dime.

Full Video | Transcript

So, what are some things you can do to maximize happiness in retirement? Well, for beginners, let’s eliminate worries we can guard against like protecting your family after your gone. Do you have enough life insurance? Most Americans don’t. [Click here for a quote on life insurance]. How much debt do you have? Do you have a plan to pay off your debt paid before retirement? Do you have long-term care insurance to protect you and your family if you develop a chronic condition? [Most people don’t know until it’s too late, but health insurance and Medicare don’t cover most long-term care]. Do you have an estate plan to protect your family, including any family members with special needs?

Next, protect your health. Yes, protecting your health is part of retirement planning. If you’re not healthy enough to enjoy your retirement, then what was the point of delayed gratification. Eat healthy. Exercise. Avoid things that are harmful like tobacco and excess alcohol. Avoid high-risk behavior. See your doctor. You can find tips for health living on sites on MedicineNet.com, eMedicineHealth.com or WebMD.com.

• NCOA’s AgeWell Planner

Next, let’s consider financial efficiency. If you had unlimited resources, you wouldn’t be reading this page. Most people need to maximize efficient use of limited resources. That probably means taking a close look at current spending and eliminating waste. [Does anyone really need multiple video streaming accounts]. It’s not enough to make more money if you spend it as fast as it comes in. Christensen says “a focus on reducing, eliminating, and recapuring money that would otherwise be wasted should be one of our main objectives as advisors.” The Ascent surveyed 1,015 people regarding spending waste, and while the occasional splurge is fine, concluded “Using your money wisely isn’t complicated, but it does take some work. Create a reasonable budget that includes putting money into some type of savings account, keep an eye on your discretionary spending, and allocate as much as possible to tax-free retirement funds.”

The funds you protect for retirement need to be put to work. For most people, that means investing. But will you invest in yourself like Rich Dad Poor Dad, or will you invest in the market? Rich Dad says be careful with your investments. While everyone needs a place to live, a house is not an asset. “An asset is anything that puts money in your pocket and a liability is anything that takes money out of your pocket.” Regardless, seek wise counsel. Unless you have experience investing, speak with a Certified Financial Planner. Then, … be patient and give your plan time to work. Don’t look at your portfolio every day and make panic moves. Money grows if you let it, but it takes time. Benjamin Franklin proved the power of time and compound interest when he left $5,000 each to the cities of Boston and Philadelphia on the condition that it be invested and could only be paid out at two specific dates, the first being 100 years after the original investment, and the second being two hundred years after the initial investment. After the first 100 years, aech city received $500,000. After the second 100 years, each city received $20 million. Use the compound interest calculator at Investor.gov to see what your investment might do it you’re patient and leave it alone until you retire.

Never stop educating yourself. Your financial literacy is an essential component of a successful retirement plan.

There is nothing sinful about being rich. The Bible does not condemn wealth. It condemns coveting. In the Bible, God specifically promised wealth to numerous individuals including Abraham and Solomon. The love of money is the problem because it transforms possessions into idols, which violates rule one. The love of money is why Jesus said it’s easier for a camel to go through the eye of a needle than it is to get to enter the Kingdom of God. Often, rich people want “just a little more.”

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