Financial advisers spend a lot of time talking about the importance of building a retirement plan. Still, every day I meet people who have no idea what they want to do, what they have and what they’ll need to truly enjoy this time in their lives.
It always reminds me of motivational speaker Zig Ziglar’s story about the famous archer Howard Hill, who won every one of the 267 contests he entered. He could hit a bull’s-eye at 50 feet, then split the first arrow with the second.
“Would it be possible for you to shoot better than him?” Ziglar would ask his audience. “Yes! If he were blindfolded! How can you hit a target you can’t see? Even worse, how can you hit a target you don’t even have? You need to have goals in your life!”
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I share that story with clients often, because I see them getting caught up in the day-to-day busyness of life without setting any goals for their future. (Saving, quitting and going fishing doesn’t count as a plan.)
I recently met with a couple who already had decided they were going to retire in about three years. The husband had even told his supervisor that was his plan. But what neither of them had done — ever — was take the time to determine if that date was even feasible given their finances. They hadn’t put together a budget or an income plan to see if they could handle life without paychecks.
Fortunately, he will get a pension; many people don’t anymore. But the couple can only save so much in the next three years. If they decide they made the wrong decision, the husband may have a hard time convincing his company they still need him as much as he needs them.
In an even more extreme example, I had a woman come in this past spring who said wanted to retire in August. So I grabbed a pen and said, “OK, let’s talk about what assets you have.”
“Well, I have $43,000 in my 401(k),” she replied. And that was it. She was about three months away from retiring — she was already training her replacement — and she had no idea how she was going to pay herself from one month to the next, other than with Social Security. And there was another problem: Because she was filing before her full retirement age, her benefits would be reduced.
She can’t go back in time to save her job, but she may end up working somewhere else for a few years to make ends meet.
Even the best savers can struggle in retirement without a plan.
Many are stuffing money into tax-deferred investment accounts at work, but that’s all they’ve done. They haven’t given any thought to what they’ll face when they have to pay taxes on the cash they withdraw from those accounts. Or they might know it would be smart to convert some of that money to a Roth IRA, but they just don’t get around to it.
Others struggle with portfolio management. Sometimes I see people who have way too much tied up in ultra-conservative investments that aren’t producing nearly enough money for them to retire comfortably and keep pace with inflation. And then there are those who are taking on far too much risk for their time horizon.
I just met with a gentleman who has plenty of money to live the lifestyle he wants in retirement. He’s in what I call “don’t screw up” mode. If he doesn’t make any big mistakes, he should be OK, but every one of his accounts is as risky — if not riskier — than the S&P 500.
He doesn’t need to take that gamble to make his income goals, but no one ever sat down and talked to him about rebalancing his portfolio. He has a mix that’s meant for accumulation and growth — not preservation and distribution. With a little tweaking, however, he should be able to receive the income he desires without unnecessary market risk.
When I hold a seminar for pre-retirees and retirees, which is about once a month, I always ask if the people there have written retirement plans. Rarely is even one hand raised.
Sometimes, people come in feeling very confident. They’ve decided how much they’ll need to withdraw every month, and they think they have that money in place. But they’ve overlooked health care, long-term care, taxes, inflation, market risk, estate planning and other issues that could take down their retirement.
I know it takes time and money to pull together a comprehensive written plan with the help of a financial adviser. It’s not a pleasant way to spend your free time, and the topics we cover may make even the best savers anxious.
But if you want to hit your retirement goals, you must decide what they are. You’ll have a much better chance at success if you’re not shooting at a target you can’t see — or one that doesn’t even exist.
Kim Franke-Folstad contributed to this article.
Investment advisory services offered through Wall Street Financial Group, Inc and AE Wealth Management, LLC (AEWM). Wall Street Financial Group, Inc and AEWM are not affiliated companies. AW09173995
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). Rooted Wealth Retirement and AEWM are not affiliated companies.
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