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What is the Most Important Step in Retirement Financial Planning?
There are a ton of articles highlighting the financial reasons behind saving for retirement. In fact, I read an excellent one this morning entitled “The 3 Money Magic Tricks”, which highlighted the importance of the time value of money, compounding interest and dollar cost averaging. All financial terms you hear regularly when it comes to retirement planning.
Are they important – definitely!
This article isn’t about any of that stuff – just ignore the financial terms for now.
This article is about the personal aspect of saving for retirement – I still recommend reading the article above – it is really good.
I’m 40 years old. In theory, this means I have 25-30 years before I retire. Life isn’t about theory and I want to retire early.
- I want to be able to tour the US in an RV and see all the national parks and historic sites (I’m a history nerd).
- I want to spend time with my kids and grandkids and be around to help them as they transition into adulthood.
- I want to be able to help my parents as they age.
- I want to visit New Zealand, Thailand, and Russia.
- I want to help my neighbors and be more involved with my community and schools.
- I want to do volunteer work and be more involved with my church.
- I want to spend more time writing and publish a book on personal finance.
- I want to take thousands of pictures and share my experiences.
You get the idea – I want to live my retirement.
I want to be young enough to enjoy my time and be able to do all the things I don’t have time to do now. Retirement is my ultimate end goal and something I want to look forward to rather than fear.
For me, retirement is about time, not about money. Money is just the tool I use to give myself time.
When I think of retirement, as time, rather than money it takes a lot of the fear away.
I’m not saying I ignore the numbers. Having enough cash is critical.
What I do is base my current retirement income planning on my future dreams.
It is really hard to put away 10-15% of my income each month for retirement. It is a big sacrifice for something that is years away. There is always something I want in the here and now.
Saving for retirement takes a lot of discipline. Saving for retirement is hard work. It means living on a budget, setting aside money and delaying instant gratification by choosing needs over wants.
What I’m trying to do is create a vision of my future that is stronger than my current desires.
When my vision of the future is stronger than my current spending desires then all of a sudden retirement is possible. I’m willing to make the hard choices and sacrifices because I can picture my end goal.
What do you want to do when you retire?
Until you can answer this simple question you aren’t truly going to be motivated to save for your future.
When most people are asked this questions, they give you a list of what they don’t want to do during retirement.
They don’t want to work!
They may give you a few hobbies they want to pursue, but rarely do they have specific goals and dreams.
You will never retire in style by working towards a goal of “not working”.
I’m not discounting the importance of not wanting to work. What I’m trying to highlight is the fact that for most people it isn’t enough of an incentive to take the difficult steps you need to make today to begin your retirement savings.
So rather than focusing on what you don’t want to be doing in retirement, start focusing on your perfect image of retirement.
For many people, this means focusing on their hobbies. How many times have you heard people say they will golf every day when they retire? This sounds great in theory. Personally, I love my hobbies, but honestly, they aren’t enough to give me purpose and direction.
That is one of the reasons I started this blog. It gives me purpose and direction and I’m hoping it will be a great income source during retirement.
Without a purpose, life is going to get really boring.
To retire successfully you need to find a balance between not working, pursuing your hobbies and incorporating meaningful living.
You need to have a firm unshakeable image of your retirement lifestyle in your head.
Don’t be afraid to dream big. The bigger the better in my opinion.
Dream big and then write out your vision.
Don’t stress about how you are going to accomplish your vision – that step will come later.
The only way you will consistently save for retirement each and every month is if you have an unshakeable vision of what you want your future life to be.
I know it sounds incredibly simple, but I firmly believe that this step is the most important part of your retirement financial planning. You will never do more than basic retirement planning unless you have a purpose and a mission for your retirement lifestyle.
So what do you want out of your retirement?
I’d love to hear about your dreams. Comment below!
Once you have a firm vision of what you want then it is time to take the necessary steps to fund your retirement. If you are a newbie to the retirement game check out these posts to help get you started.
Retirement Planning Resources:
- What is IUL Insurance and How Can You Use It For Retirement Planning?
- 401K vs. IUL Insurance which is better for retirement?
- Introductory Guide to Stock Market Investing
- How to Get Started With Your 401K Accounts
If you have already started working towards retirement you should check out these posts:
Retirement Books You May Enjoy:
- Everyone Ends Up Poor – Curtis Ray – This is seriously a life changing book on retirement planning. If you are going to read one book, this is the one you need to read.
- Retire Inspired: It’s Not an Age, It’s a Financial Number by Chris Hogan
- 101 Fun Things To Do In Retirement by Stella Reingold – This one is just a great motivating book to help you remember the fun stuff you can do.
- What Color is Your Parachute: Planning a Prosperous, Healthy & Happy Future – By John Nelson & Richard Bolles
I was 40 when I decided there was more to life than my career and working until age 65 or older. We then started our 10 year retire at age 50 plan (took me 11 years). With 3 kids and a mortgage, pending college down the road, weddings, and retirement goals it wasn’t easy so we just set on living the frugal and simple lifestyle we enjoyed ourselves living. Never feeling deprived and saving as much as we could without beating ourselves up when a financial crisis hit and just stuck to the plan. What happens is we ended up creating during our FI journey the lifestyle we now live in early retirement. The word “bored” never has entered our vocabulary. We do travel but make family and happiness our focus.
Good for you! It is amazing what you can do when you have a purpose and specific goals. I’m really glad you guys have been so successful.
I almost dismissed this article because of the author’s age compared to mine (55). I assumed there would be nothing that I could get from the piece that I wouldn’t already know what with all my reading. I was wrong. I walk away with not just knowledge nuance, but untapped insight. Young age, old wise soul.
I’m glad you enjoyed it despite my age! Although for the record, I’ll be 40 next years, so I’m feeling it a bit here and there.
I am very much pleased with the contents you have mentioned. I wanted to thank you for this great article.
There are many investment consultants who provide the specialized service of retirement planning. They can suggest various avenues for your investments. And retirement planning is the solution to your misery!
I enjoyed every little bit part of it and I will be waiting for the new updates.
Pearlie,
I’m glad you enjoyed the post. I do a lot of my own investing, but love working with trained professionals as well. They know so much more then I do or ever will. The trick is finding a trained professional that matches your investment goals.
Amy
I love the message of your post – retirement shouldn’t simply be an end of an era, but a new chapter. And setting it up so you can enjoy those years to the fullest is very wise, especially if you weren’t able to afford/had no time to experience the world in earlier years. Thanks for sharing!
I 100% agree. I want my retirement to be some of the best years of my life. PS. Loved your post. Being a financial coach is so critical to financial success.
I agree with the points you laid on this post. Your retirement years should be wonderful and memorable to both you and your family. In addition to planning and saving to what I plan to do in my anticipated Golden years, I also would like to include health planning as one of the important steps in retirement planning. Why? because I don’t want the expenses of health care to burden me or my loved ones. As much and as early as possible, I would like to arrange the Medicare, Medigap, LTCi and other coverage options so that everything is all setup and in place, that I don’t have to worry about health part while I enjoy my retirement activities.
Leandro,
Great points! I just helped my parents set up a LTC policy and am so thankful for their foresight in getting this setup. It takes so much pressure off your adult children and you when you are prepared.
Amy
Hi,
Track your current annual spending to see how much you spend on the basics and how much is discretionary. This way you will know where your money is going.Project your annual spending after you retire by adjusting your current spending for those expenses that will disappear like a mortgage payment and those that will increase, like travel.
Estimate the income required to cover this annual spending and then gross that up for income taxes that you will have to pay on income you receive.
Thanks
Gabriel,
Great advice. It is really important to have a firm number in mind that is based on accurate assumptions rather than just guessing. I want to have plenty of money in retirement since I know that inflation will continue to eat away at my profits.
Thanks,
Amy
The most important step in retirement planning? Get started. Make a plan and start putting money away.
My Dad retired in 1987 and went right back to work for IBM, almost full time. 1997, he said he was going to retire, but started having heart issues. He had a triple bypass in 1987 and had a heart valve failing.
Dad never retired. He died before he could.
Not me. Diagnosed as a heart patient in 1998, I knew that I wasn’t going to follow in Those footsteps.
I’d been planning for retirement since my 20’s.
It paid off. My wife, Selena, retired at 49, and I retired at 54. No regrets.
Get started, make a plan, put money away, have something ready to do when you quit going to the job.
It’s all good.
Life without an alarm? It’s freaking awesome. I highly recommend it.
KS
Keith,
I’m so sorry you had to go through losing your dad at such a young age but am super impressed at your retirement planning skills. I started young, but still feel like I have a long way to go before I’ll be ready to retire. You are right though, you have to take that first step and actually start putting money away in order to make something happen. Hopefully, I’ll join you soon with the alarmless life. 🙂
Amy