What is my goal in retirement planning?
I have found many questions suggested about retirement planning. Where will you want to live in retirement (beach, where you call home now, the desert)? Do you intend to continue working? How much will your hobby activities cost each month? Will you be financially assisting children, grandchildren, or other family members? Do you, or your spouse, have health issues requiring treatment available only in certain locales?
These are all very good items for discussion. In fact, these are all musts for every family to answer before the date of retirement, but they are not the main question to be answered in the beginning of planning your golden years. “The most important thing for baby boomers…is knowing how much income will come in the door every single month.”1 The questions asked above all center on how an individual or family will spend income. Anyone beginning any budgeting process with how much they wish to spend, rather than how much money is available to be spent, is traveling on a road that will deliver them to an unwanted destination.
There are many contributing elements that result in so many avoiding the question, “How much income will we have each month in retirement?” First, is causes us to come face to face with the fact that we have not saved enough. Second, it is simply more enjoyable to talk about retiring at the beach or in the desert than it is to talk about if we can afford our decision. The explosion of personal debt is the result of thinking about what we want rather than thinking about how much money we have. Kevin Kruse has written that one of the most powerful quotes from Stephen Covey is, “The main thing is to keep the main thing the main thing.”2 A sound plan for retirement will be built only when we ask and answer the main question!
A Refreshing Conversation
Less than a week ago, a minister called Christian Churches Pension Plan office to discuss the possibility of early retirement. While we do not provide specific retirement advice, we are willing to discuss such issues, as individuals and families reach their own conclusions. It was refreshing as this man recounted what his income would be from Social Security at 62, 66+, and 70. He spoke in detail about the monthly income that he would derive from the Pension Plan (at age 65), his IRA and a commercial annuity (now), and the potential income from part-time employment.
He and his wife had indeed kept the main thing the main thing. They kept their planning focused on how much income they would have in retirement. While they certainly knew the value of their assets, they did not get lost focusing on the goal of a certain net worth. They had planned their retirement budget in the same way they planned their working budget, beginning with how much money they will have to spend! They arrived at the destination of their choice, because they got a good start.
Burning Away the Fog of Additional Myths
In part one of this series, we wrote about seeing retirement clearly by allowing the light to burn away some myths that had become accepted in life. This week, we add two more that need to be burned away.3
First, you will not spend less in retirement. It is commonly said that you can plan to spend approximately 75% of your working income. According to the Employee Benefit Research Institute more than one-half of Americans spend 95% or more of their pre-retirement income in retirement. Perhaps the problem begins with our propensity to base our spending upon our wants, wishes, and desires rather than the income we have available to us. Unfortunately, this trend means the retirement nest egg may not last as long as planned.
Second, Social Security is not intended to be the primary retirement income resource! This may be psychologically shocking to some, but Social Security was initially intended only to be a supplement to prevent retirees from becoming destitute. Having a sound retirement income available is the personal responsibility of those with a job; it does not ride upon the shoulders of the employer or family members who may leave an inheritance. Begin now to set funds aside, or increase what has been set aside. In so doing, you will have a higher income available, and a more enjoyable retirement than if you wait.
1 Blanton, Kimberly. Pre-Retirement Financial Review is a Must. June 15, 2017. Squared Away Blog.
2 Kruse, Kevin. Stephen Covey: 10 Quotes Than Can Change Your Life. July 16, 2012. Forbes.
3 Swafford, Ali. Debunking the Top 5 Retire-Myths. May 2017. kiplinger.com