Are You Retirement Ready?

Most of the people you know aren’t on track to retire. Are you?

Wells Fargo & Co did a telephone retirement savings survey of 1,000 Americans age 25 to 75 in late 2012. It scared the daylights out of me. Here’s why:

Most respondents estimated that they need $300,000 in order to retire and that they would withdraw 10% a year from that amount.

Those same people said they had only saved $25,000. And of course their 10% withdrawal figure is pie in the sky. If you withdraw that much from your investment accounts you are flirting with retirement disaster. A much more appropriate withdrawal rate is 4%. This isn’t very politically correct to say, but most of these respondents didn’t think their retirement all the way through.

What’s going to happen to these people? Most will end up working all their lives. Worse, they won’t have the life they want because they’ll spend their time living in fear and insecurity. It’s a picture you probably don’t want to put yourself in. But how do you avoid it?

1. Understand

If you want to make sure you are retirement ready, take a little time to understand the relationship between assets, income and expenses. Retirement is a balancing act – pure and simple. Your assets can supplement your retirement income (if invested correctly). And the more you moderate your expenses, the lower your income has to be once you hang it up. It all works together.

What I’m trying to say is that there is no magic “retirement number” that works for everybody. It’s different. Your task is to create your retirement plan using your actual numbers. Understand that if the calculation doesn’t pencil out, you can tweak your income (work longer or part-time), trim expenses and/or save more now/invest differently. You probably don’t need to make drastic changes to your lifestyle. But you may need to change the way you think about your retirement and investing.

You can create your own retirement plan for free of course.  But if you want some help, just let me know.  

2. Execute

Once you work out a plan you’ll know what you have to do in order to achieve your goals. The hard part is over. Now all you have to do is….do it.

When I ran my plan I realized I had to save a fixed amount of money every month for 15 years. Once I understood that, I set up an automatic investment plan every month (at the start of the month before I had a chance to spend the money). I haven’t done this perfectly and there have been times when I’ve had to suspend the savings plan and even dip into it.

But for the most part, I’ve stuck to the program. And even though I haven’t done it perfectly, I’m way better off having executing my plan imperfectly for the last 5 years instead of perfectly doing nothing. Capishe? Stand on it friend. Time to bring it on.

3. Verify

Every year I re-run my plan and I share it with my wife and kids. This has a couple of very important benefits. First, it helps me see if I need to make any adjustments or not. More important, it brings the people most impacted by the plan into the process. That creates buy-in and ownership. It’s a lot easier to make adjustments when they are agreed on rather than imposed.

Are you retirement ready? How do you know?