In last week’s post we discussed an example of generating $10k a month in retirement income beginning at age 62 and lasting for 30 years (and more). This may seem like significant monthly income and it is. Retiring (in a metropolitan area or not) requires a fair bit of capital to generate the necessary cashflow to maintain your current standard of living. I have yet to meet a couple who wants to radically shift their current standard of living down simply to retire now. Property taxes, income taxes, health insurance, and ongoing home maintenance may easily consume a large chuck of the above mentioned $10k. This of course is before you address other discretionary spending such as travel and future fun.
We quantified $10k a month in today’s dollars as actually $12,500 a month in the future due to the ever-present rising cost of life. So how large of a reservoir of monies do you need to accumulate to accomplish this income goal? The direct answer may be $3,000,000 +/- but that doesn’t tell the whole story. What’s missing and most important is the individuality of each family’s priorities when it comes to defining “retirement” as they see it. Financial planning must take into account your current consumption habits, your views on debt, and your career trajectory both from a time and monetary perspective.
Personalizing your goals increases your probability of success when planning for retirement. What you most hope to achieve is unique to you and is often shaped by your past. This customization and possibility planning should be explored first before analyzing your portfolio. Most have this backwards and start with their portfolio. These dollars do matter, though they are not as important as your beliefs and habits. Goals, planning, and then your portfolio in that order makes a positive difference. What exactly are you working towards? What’s your vision of retirement? Understand everyone has a different viewpoint, including spouses, and there are no right or wrong answers.
Financial planning is an ongoing discovery process that allows you to explore all possibilities and add color to your life canvas. Overtime goals become clearer and life events reshape your opinions on what you think you want and what you’re working towards. What’s seen as a priority in your 30s may quickly be sidelined or exchanged for another priority in your 40s or 50s. That’s how planning works, it evolves overtime as you do. It’s less about creating a plan and putting it on the shelf and more about revisiting the plan overtime so you may refine your inputs.
The earlier you begin to consider how you may repurpose your time one day the more choices available. Retirements today are more active and engaging then those in the past from what I see. Having the ability to control your time and spend it in enjoyable activities creates a new chapter. This may take patience and perhaps some trial-and-error overtime but it’s worth it. What it definitely takes is a plan and ongoing dialogue with a skilled financial professional who knows the right questions to ask. Having an accountability coach to keep you focused allows you to enjoy the journey. Challenges and personal growth are an outcome of good planning.
From my perspective, the most important aspect of financial planning is time. Knowing how much it will take financially is helpful, but time allows monies to compound to make retirement a reality. Starting a conversation earlier than necessary on your possibility planning provides direction. Recognizing this path may change is helpful, it’s about a raised awareness on where you are now and where you are headed. Time allows you to think clearly, consider alternatives, and keeps you from reacting. This reflection may lead to changing your current approach with investments and may present different viewpoints that have not been considered. It all begins with a conversation, the sooner the better.