Retirement is No Time Make a Costly Mistake

Is it time for you to get serious about planning for retirement? After doing your research are you more confused than ever? Does the language of investing seem full of jargon and lots of inside baseball? You are not alone. This process can make you feel powerless because you do not know who to trust. Maybe you want more control? After all, shouldn’t everyone be able to handle their own finances?

As you get closer to retirement, one thing becomes obvious: The decisions you have to make get more and more complex and the consequences of being wrong go up exponentially. It is one thing to make a mistake with $10,000 and quite another to make a mistake with $1,000,000.

It is not just investing that gets more complex. There are a whole bunch of things that you might need to become an expert in real quick.  Like caring for your ailing mother-in-law and figuring out her Medicare and Medicaid.  Do you understand your life insurance policies? Are you paying too much in taxes? What exactly does it cost to keep your financial empire afloat?

I have written before about the financial services industry and how to identify a qualified planner but whether you get help or go it alone, there are some basic steps that will make it a whole lot easier. You need to get organized, set goals and narrow down your choices. Here is how to get started.

Get Organized

The first step would have to be getting all of the bank accounts, investment accounts, insurance policies, credit cards, important papers, basically everything, in one place. The good news is that there is technology available to help. There are websites that will allow you to connect your accounts to see everything in real time. There are some apps that let you monitor spending. There are even legal websites to help you with your important documents. The bad news is that not all of these websites are unbiased, many have an agenda or a product to sell. There is also security to worry about. You do not want someone buying a house in Kentucky on your credit report.

One of the hardest tasks is looking at what you spend every month. Downloading your bank account statements is a good start. Most of the bank downloads leave a lot to be desired in formatting and in the categories they use to identify transactions. I worked with a couple recently and their $300,000 credit line was labeled as an expense for “Pets”. If you don’t know what it costs to be you every month you will not be able to plan for your expenses in retirement. This is tedious but rewarding work. ( Pro tip- learn how to use pivot tables, my wife taught me!)

Make sure every investment or bank account has a beneficiary or transfer on death designation. Your spouse and children will need to access your retirement accounts and your savings, make it easy for them.

Use a password manager and tell your spouse how to find it. Again, make it easy.

Have a secure place to keep all important documents. Wills, trusts, health care directives are great but useless if no one can find them

Ok, do you have everything organized? Great, it’s time to set some goals

Goal Setting

Think of goal setting as going shopping for stuff you really want. First, clearly identify what it is that you want. If your goal is “I want to retire comfortably” that's OK, but “I want to retire with $12,000 per month of income, two meaningful vacations each year, a condo in San Diego and no debt” is better. Remember the acronym SMART- Specific, Measurable, Achievable, Relevant and Time Bound.

Once you identify your goals, you have to look closely at the price tag and assign assets to cover the costs. For example, to get $12,000 per month in income you need to look at what sources of income you already have (social security, pension) and subtract that from your goal. Let's say you and your spouse have $6,000 in social security, that means you need $6,000 from your 401k and other investments. If you want your sayings to last, experts say you should limit your annual withdrawals to 4% or less. You need $1,800,000 to generate $6,000 per month. (Calm down, I know that doesn't include inflation, I am trying to keep this simple.)

This process of assigning assets to goals, looking at price tags and calculating shortfalls will tell if your goals are achievable and give you real numbers to shoot for. Remember you cannot change what you cannot measure.

Once you have clearly defined and priced out your goals you are ready to consider possibilities and narrow down your choices.

Consider Possibilities

Planning is done in reverse. Implementation is done moving forward. When planning you start with the end in mind and work backwards. In our goal-setting example, we started with where we wanted and to go and worked backwards to figure out what we needed to do to get there.

Implementing is done moving forward: setting milestones, projects and tasks. There is always more than one way to skin a cat (my cat hates that expression). It is important to consider each of the possibilities and eliminate the ones that just don’t appeal to you or are not practical. You might consider reducing your monthly spending on things like dining out or betting on college football but cutting your kids tuition or skipping your summer vacation may not be practical.

Narrowing down your options and setting deadlines will help you focus. I like to identify no more than three goals for each 90-day period (I call them 90-day sprints). Remember, your goal needs to be measurable – it should be painfully obvious if you reached your goal or not. Repeat this cycle until all possibilities have been exhausted.

If you go it alone, I wish you all the best. If you would like some help, schedule some time with me here.