Why You Might Be Planning For Retirement All Wrong
Hey everyone! Let’s chat about a common mistake people make when planning for retirement. Often, folks approach retirement savings like a simple algebra problem: “If I save X amount of dollars, then I’ll be ready to retire.” But here’s the catch—most people are solving for the wrong thing. They’re focused on an arbitrary number or age, not on what they actually want their retirement to look like.
The Common Misstep: A Magical Number
Imagine this scenario: You’ve been saving diligently for retirement. You’ve heard that a million dollars, or two million dollars, is the magic number you need to retire comfortably. So, you set that as your goal, and you work really hard to get there. You might think that if you can just get to a million dollars you'll be all set to retire. The problem is, retirement planning isn’t just about hitting a specific number or waiting until you hit a certain age. It's more about understanding what you want your retirement to be and making sure your finances align with that vision.
What it's really like
Let me share a story that happens all too often. A client comes to me, nearing retirement, and we sit down to create a plan. We look at their current savings, their expected retirement income, and their goals. Sometimes, we find they can actually retire immediately! They’re surprised, maybe even a bit skeptical, and so they say something like - "That's great Antonio, but I'm okay with working a little longer, so I'm going to stick to my plan. After all, if I just work a little longer I can get closer to that $2 million!"
Here’s where things get interesting: a few months later, I'll get a call from them saying, “Hey, Antonio, remember when you said I could retire? Is that still true?” What happens is, once they know they can retire, the little annoyances at work start to grate on them more. Bob from purchasing, and his endless cat stories lose some of their luster, or Janet’s report mishaps start to wear them down. They realize they don’t need to put up with these hassles anymore and decide to retire earlier than planned.
Why This Happens
The issue is they were working from the wrong side of the equation. They had set a target age or savings goal without considering what their retirement life would actually be like. Once they realized they were already financially prepared, the motivation to stick with an outdated plan vanished. We tell ourselves lots of stories to allow ourselves to put up with lots of things we don't actually want to put up with. In this case they were doing that because they didn't think they had a choice... because they hadn't achieved their magical number yet. But once they realized that they didn't need to put up with it anymore - it changed everything.
Begin With the End in Mind
To avoid this, you need to start with the end in mind. Think about what you want your retirement to look like:
- Will you travel extensively?
- Do you want to buy a second home or a boat?
- Are you looking forward to relaxing hobbies or spending more time with family?
Understanding your retirement goals will help you figure out how much money you really need. It’s not just about reaching a dollar amount; it’s about supporting the lifestyle you envision.
Why Age and Numbers Aren’t Everything
Think about what a successful retirement is. Imagine your own retirement. What would each day look like? What would special events, trips, or occasions look like? If you really stopped right now to think about it - I bet no part of it contained a thought about what your IRA balance was. That's where so many miss what this is all about. The investments, the savings, the Roth conversions, all of the things - are a means to an end. None of them are the actual purpose of retirement, they are there to support your retirement. Once you understand that, you can start planning the right way - about what really matters, not about a magic number.
If you haven’t done in-depth retirement planning, the perfect time to start is right now. Who knows - you might be ready to retire much sooner than you think. If you're looking for a little help in the process - set up a time to chat with us right here.
And stay tuned for more tips on making your retirement dreams a reality!
Happy planning! 🚀
