How long did you spend planning your last vacation? Maybe 10-15 hours? Compare that with financial planning — when was the last time you took that much time to review your retirement strategy and options in your 401k?
You’re not alone. The average American spends more time planning a family vacation or buying a car than planning their retirement, according to a 2014 study by Charles Schwab. As a financial planner, that sounds like nails on a chalkboard. Painful! I guess that’s why so many people are woefully underprepared for retirement — nobody even thinks about it.
Well, it’s your lucky day because I’m going to teach you how to overcome some mental blocks you might have toward planning your retirement.
Let’s Rename It
Retirement connotes a sense of finality — arbitrarily stopping the vocation you’ve been employed at for years. Then doing something else. But what else will you do? This tends to be the harder thing to think about. The answer is — anything you want! You have the autonomy to decide day in and day out.
It doesn’t mean “doing nothing” and it probably doesn’t mean living a complete “life of leisure” either. Chances are you’re going to remain healthy, spritely, and engaged a lot longer than previous generations. You’ll probably do things a bit different as a result.
Here’s some ways more autonomy may come into play over time. You may love your job but perhaps it takes up too much of your time and you’ll want the flexibility to downshift at some point. Maybe you’ll work part time or just when you want.
Or you may hate your job and you’re either looking for something new already or planning for a big career change. That’s great! Maybe you’ll need to take break to figure out what’s next.
Life is too short do something you hate with people you don’t like. –Mitch Anthony
Perhaps you’re somewhere in the middle (very common) — you’d like to retire one day but you don’t really know what you’d do if you retired. You may also not believe it’s possible.
Even if all that is uncertain for you, I’m sure you can say confidently that you want to get to a place where you have more freedom to choose how you spend your time. Non of us want to be reliant on having to do one job day in and day out.
So let’s rename retirement! Let’s call it an autonomy fund rather than a retirement fund. Let’s think about ways you can incorporate more financial freedom in your life as you age. That’s much more fun to plan than boring old “retirement.”
Dream A Little
What would you do if you didn’t have to work starting tomorrow? That’s one of my favorite questions to ask my clients. The answers range from, “I have no idea” to “I’d probably spend more time on my hobbies,” or “I’d pursue xyz passion project I love.”
What drives your passions? Retirement doesn’t have to be about blue plate specials and daytime TV. This can be about anything you want. You have the autonomy to decide!
I’ve been spending a lot of time at conferences recently and the discussion often focuses on integrating life planning into financial planning. It makes sense, financial planning can be scary, difficult, and nerve wracking. Sometimes, there’s fear — “If I work with a financial planner I might find out I can’t retire.” In reality, financial planning is about working through some very important questions such as:
How do you want to spend your time?
How might your values and focus change in retirement?
Where will you be? Who do you want spend time with?
Then you can figure out how much it will all cost, and what your trajectory looks like. Even when the financial part is set, a lot of people entering retirement struggle with the transition.
Here’s some thoughts about how to have a fulfilling life once you’ve entered the financial autonomy phase:
The EPIC retirement, according to Mitch Anthony
- Engagement: If you don’t use you your body or your brain, you lose them.
- Purpose: Money can fund purpose, but it cannot create purpose. You need a purpose to retire well.
- Integration: There needs to be a balance between vacation and vocation.
- Challenge: Physical, intellectual, and spiritual challenges are the hallmarks of those who continue to thrive as they age. Engage/Challenge as many of these areas as you can.
Then Figure Out What Tools You Need
I like to help my clients think of money as a tool rather than something to spend. We all want financial freedom and the autonomy to, at some point, no longer be reliant on the same day job for financial support. The question is how bad do you want it? Are you willing to sacrifice now to have that later? Do you want it more than getting a new car every few years or always having the latest gadgets? In other words, would you be willing to set aside a few extra dollars to live the life you want in the future?
The only way to get there is to prioritize saving instead of spending. You can get to financial autonomy very quickly if you decide to save 40-50% of your income. That may not be realistic for right now. But spending every dollar that you earn each month isn’t going to leave money for a “financial autonomy fund” in the future. Thinking of it as an autonomy fund rather than some unknown event called retirement that will happen far in the future could help you focus. Full financial autonomy is expensive, though, especially when you consider costs that rise as you age, such as health care. So, it’s important to deploy the right tool for your goals now, and think deliberately.
Start off getting the match with your employer, then bump up the percentage you contribute each year when you get raises (increase by maybe 1-2% annually). Eventually you want to save 15% of your income for retirement through an employer sponsored plan — up to the current federal maximum $18,000 per year. You can also set aside money for a ROTH or regular IRA too — up to $5,500 per year.
Financial autonomy is going to be expensive, and it’s completely worth it. The good news is, starting earlier is much cheaper than starting later. So, go ahead, dream up what you’d like to do with your financial freedom, and figure out a way to meet your targets!