What we can learn about retirement planning from past experiences.Submitted by KWB Wealth Managers on October 23rd, 2019
Remember when you learned to ride a bike? You likely started with training wheels fully touching the ground and with lots of practice, feeling a sense of accomplishment the day the training wheels were removed. Ultimately you mastered the art of bike riding through practice.
There are events in life that will only happen once, making them difficult to learn through practice. Bigger life events, like retirement planning and its intended outcome is one of those single life events. However, what if we could connect previous learning experiences to retirement planning? We could then compile and extract the successes and failures of those previous experiences when we tackle the big planning events in our lives.
Just a couple of months ago my wife and I had our first child. For those of you who have had a child, you understand the nine-month challenge of planning for the arrival of your baby boy or girl. Seeing the ultrasounds and feeling your baby kick for the first time is fun and exciting, but the overall thought of preparing for your new one’s arrival can be daunting. Nine months may seem like plenty of time to get the nursery setup, buy diapers, and look into life insurance. Despite your diligent preparation, time flies. Before you know it you are looking down at your new baby crying in your arms and thinking, I’m glad I tried to prepare for this!
What does having a child have to do with retirement planning? Well after going through the nine-month preparation myself, I think the experience was not only relatable for most people, but an experience that involves planning for a life changing event. Just as there’s more to setting up a room and buying some clothes for a new baby, there’s more to retirement than simply not having to show up at work anymore. Like planning for our baby’s arrival, we must plan for retirement. In both cases, the earlier you start, the better off you will be.
Getting an early start doesn’t mean jumping in full steam and dumping money into your retirement plan, just as you don’t run to the store and buy every baby related item the day after you see that positive sign on the pregnancy test. First, you start with creating a detailed plan for getting to the ultimate destination, whether that destination be your desired retirement date or the baby’s due date. You should outline all the details and items that need to be addressed between now and the date you want to say goodbye to work and hello to the leisure life. For my wife and I this meant figuring out what items we definitely needed for our new family member, when we wanted to have them by, and finally deciding where they would all go. This also included strategic planning around details like a new family budget, determining how much time my wife would take off work, and what we would do to make ends meet while she did so.
Retirement planning has similarities to planning for the arrival of a baby. There’s a time restraint. Though longer than nine months, it is still important to start early and get a plan together. Part of this plan includes setting a general due date for when you want to retire. The next part is to think about your expenses and the potential income sources you will rely on during retirement. This will tell you how much you need to save in order to maintain the same lifestyle you became accustomed to while working.
The planning my wife and I did to prepare for the arrival of our son was only as good as its execution. As many people can relate to, we didn’t really keep to our schedule and ended up being ready later than we had planned for, but we executed our plan overall. Because of our preparation, we felt ready when our son came along. Among the other essentials, we had the crib assembled, the diaper changing station in place, and the car seat our new family member would ride home in. We had a few hiccups along the way and still loose ends to tie up after we got our son home, but overall we were in good shape. The shape of your retirement plan will not only be derived from the plan you put together in the beginning, but also by your execution.
Looking back on your life experiences you will likely be able to think of a few times you planned for a new life event. Some of those events probably had struggles, while others went off flawlessly. We can use those experiences to alter how we approach retirement planning. When you planned your last vacation, you evaluated costs for various places you wanted to visit, came up with a budget, and how you would pay for the trip. Getting your retirement plan in order is similar. If you haven’t already, look into what, if any, retirement plans offered by your employer. If they don’t have anything, explore opening an Individual Retirement Account (IRA) with an online advisor or with a financial advisor in your area. If your company offers a 401(k) plan make sure you are at least contributing as much as company match, because you don’t want to leave free money on the table. Then setup your deferrals in your 401(k) to increase by a percentage point or two every year automatically. This puts your retirement planning on autopilot. Once you’ve taken these steps, revisit your retirement plan yearly to make sure you are on track. Reassess how your retirement needs may have changed and adjust accordingly.
By executing these simple planning steps early on, your retirement savings will grow even as you execute other life plans, whether that be having a baby or taking a trip. Learn from your past experiences. Consider the process of planning for that experience and what the end result was. Then review what you are doing with your retirement plan. Are you executing it well? Are you on track? If you have questions about where to start, how much you should be adding to your 401(k), and what your investment choices are, ask friends and family who may also be contributing to a plan, or even work with a financial advisor. In the end, you will be happy that you spent the time to develop a plan and that you stuck to its execution. Just as my wife and I were happy with how we went about planning for our son’s arrival, you will also be happy with how you went about planning for your retirement.
- Quentin Bubb