Are You Willing? The Steps You Take Now Will Determine Your Retirement


USA Today recently published a study, which found that while many Americans with significant savings fear going broke in retirement, they are not willing to cut back on their current lifestyle to save for the future.

About 55% of respondents say that they fear not having enough money in retirement, more than they fear losing their job (37%) or gaining weight (25%), according to the 2014 Bank of America’s Merrill Edge report, which is released twice a year.

These results are based on a national survey of 1,000 people defined as emerging affluent because they have $50,000 to $250,000 in total household investments, including cash, savings, mutual funds, IRAs, stocks, bonds and other investments. About 90% of respondents have retirement savings, and they began saving at the age of 33.

Despite their fear of going broke, 33% are not willing to cut back on entertainment to save more, 30% won’t reduce eating out, and 28% are not willing to forego vacations, the survey found. More respondents (63%) say having money to live “here and now” is more of a priority than those that said saving for the future (48%) is a priority.

So, why the seemingly short-sighted view? Is this a problem?

One might expect that a plan would help. Even a short-term plan, like a budget, would be helpful, right? Well, 89% of the respondents said that they have a household budget, but yet 66% say that they can’t live within it! More women (59%) than men (51%) are worried about outliving their money. Men will likely be surprised to know that women are more apt to cut back on eating out and shopping for clothes! By the way, more divorced individuals (68%) are worried about outliving their money than their single, married or widowed counterparts.

In my opinion, this is a problem. When I work with an individual or couple, one of the first steps I take is to develop a long-term financial retirement projection. It’s a model and there are a lot of factors that can affect it, now and in the future. But, having that starting point is very enlightening for my clients. It takes away the guessing, the supposing, the wishing and the hoping! Remember, hope is not a plan. The model reflects the client’s assumptions and delivers an objective view of the future. It can be updated at any time and rerun to identify progress toward the retirement goals or opportunities to make adjustments. We can and do measure the progress against those assumptions over time.

Whenever I perform this analysis, I lump the outcome into three major categories; well prepared for retirement, borderline prepared for retirement, or not prepared for retirement. Knowing this information allows my clients to take steps to react to the analysis.

Those that are well prepared for retirement may be ironically too conservative in their lifestyle and can consider doing more than they thought they might do in retirement. If they have lived a conservative lifestyle, which is why they are so well prepared for retirement, they may have an estate issue. What are they going to do with all of the money if they don’t spend it?

Those that are borderline prepared may want to take a slightly more conservative posture in their current lifestyle. It is amazing how easy a small change is–if you have time for that change to take effect. Imagine a ship that leaves the shore and the direction is off slightly. If it’s a short trip, it may not make a difference. But, if the ship is heading to a destination 1,000 miles away, a few degrees off course can mean that ship will miss the destination by hundreds of miles. The more time you have, the less sacrifice you have to make in order to improve your future financial success.

For those that are not prepared for retirement, the outcome of this analysis can be very devastating. However, depending on how long the client(s) have to react to the information, the personnel involved can take steps to reduce the gap in their retirement plan. Again, the more time they have, and the greater the current sacrifice, the more progress can be made. In these situations, clients also may choose to adjust their retirement goals. Maybe they were too optimistic about what they could do or maybe they just didn’t know.

I am a great believer in knowing where you stand. Once you are armed with that information, you can react to it. My recommendation is that you focus on your plan. If you have one, update it and follow it. If you don’t have one, now is the time to put one in place.

Finally, the investment strategy for retirement assets ought to be coordinated. They need to work together, in terms of the overall risk. Savings accounts are not earning much right now, but if they are targeted for retirement, they are part of your allocation. They need to be offset by the assets that are exposed to the market. The amount of risk your portfolio is exposed to in the various markets, including US and International stock markets, US and International bond markets, real estate, commodities, etc., is something you can control.

Once you retire, portfolio risk and expenses are really the only things that you have direct control of in your retirement plan. Before you retire, you can also control the amount you save. If you have control of these factors, you can feel free to enjoy the here and now! If you don’t have control or you aren’t sure, you owe it to yourself to find out how well prepared you are for retirement. Give me a call and let’s start this important discussion. It could make the difference between you being well prepared for retirement or potentially hundreds of miles off course.