Lillian Turner
Planning for retirement can seem like a daunting task. We live in a fast-paced world of uncertainty where the daily grind easily detracts from our focus on the future. For some of us, it may be difficult to picture that next phase of life – especially if you’re just getting started in your career. To ease the anguish of planning for retirement, I like to think of the journey as one (very) long road trip. The ride of a lifetime, one could say. Buckle up and let’s get started!
Step One: Pick your destination
Arguably one of the best parts of planning a road trip is deciding where you want to go. Start by asking yourself the following questions:
- What age do you see yourself retiring?
- Where would you like to live?
- What kind of lifestyle would you like to maintain?
Some dream about travel, while others would rather enjoy time at home with family, or perhaps learning a new hobby. Eventually, you’ll want to start thinking about your destination as a dollar amount. Do you estimate having larger expenses? Or do you envision a more modest lifestyle than you currently live? An exact amount is unnecessary, but it’s useful to come up with a general ballpark in regard to annual spending.
It may also prove valuable to consider the other passengers in your car. Will you be responsible for the provisions of another during your retirement (such as elderly parents, disabled children, or pets)? Will these expenses continue indefinitely or end during retirement?
Step Two: Choose your vehicle (and fill it up with gas)
Which type of car (or investment account) do you plan to use? How would you like to invest the dollars inside this account? A large key to this decision is determining your risk tolerance – or the degree of variability in investment returns that you’ll be able to comfortably withstand.
It may be tempting to choose the fastest car on the market but beware of the risks. You don’t want to crash and burn before you leave the lot! A reliable old minivan may be enticing as well – slow and steady wins the race, right? But be careful not to prolong your journey unnecessarily. It can be good to catch some wind on the open road.
The best option will most often be a car with both a decent safety feature and the ability to pick up speed (i.e., a diversified portfolio). Your exact vehicle and ratio of fast to safe will depend on your unique situation.
Risk capacity may also play a part, however. If you are beginning your road trip at a later age in life, it may be necessary to take a bit more risk than you typically would in order to reach your destination on time.
If possible, contribute annually to your retirement accounts – a little goes a long way. Once you turn the magic age of 50, your contribution limits will rise and you can pick up speed.
Step Three: Map it out
How do you plan to reach your destination? Where are you getting your directions from? Some may prefer to pull out a road map and plan it all themselves, while others will want to seek the guidance of professional planners. It’s never a bad idea to start out on your own and ask for help along the way. In addition, make sure to schedule an oil change or maintenance check every so often. It’s important to review our progress and make sure that we are still on track to reach our goal.
In addition to the steps above, there are a few rules which hold true for both long car rides and saving for retirement:
- Stick to your plan (or you might veer off the road) – bouncing between different investments can cause unnecessary expenses and hinder your progress in the long run
- Budget for toll booths (taxes) and plan your route accordingly – maximize the use of tax-efficient vehicles when possible and explore strategies that can minimize your tax bill when taking distributions
- Fuel up often (even if you think you don’t need to) – the exact duration of our retirement will never be certain and it doesn’t hurt to save more than you think you’ll need
- Stay in your own lane – don’t get caught up comparing your speed (or returns) to others on the road
It’s great to plan as much as possible but keep in mind that a portion of your journey to retirement will always be outside of your control. Just like any road trip, there will surely be obstacles along the way. But stay the course and you’ll be handsomely rewarded!
If you aren’t fond of long road trips, it may be tempting to bank on that one-way ticket (such as an inheritance or last-minute cash influx) to carry you through your remaining days – but this approach can be detrimental. The best way to plan for retirement is to start early and invest often.
Last, but not least – don’t forget to enjoy the journey! It’s easy to get so focused on the destination that we don’t take time to sit back and enjoy the ride. Celebrate each landmark you pass, and don’t get too concerned with minor bumps (or market downturns) you may experience on the way.
Whether you’re in the home stretch or just getting started, I hope this perspective sheds some light on the road ahead. Please feel free to reach out if you need help getting road trip ready!