Every year the Employee Benefit Research Institute publishes their Retirement Confidence Survey. Any every year one of the keys to overall retirement confidence is having a written goal. But for many of us, a retirement goal that needs million(s) of dollars seems daunting and even impossible to achieve. What if you’re investing as much as you can, but still feel that you’ll never reach your objective? As with many of life’s toughest challenges, it may help to focus less on the big number and more on smaller achievable goals. Here’s some things to consider.
Remember What Your Teacher Said About Assumptions
Whether you use a simple online calculator or run a detailed Monte Carlo analysis, your retirement goal is driven by certain assumptions that will, in all likelihood, change. Inflation, rates of return, life expectancies, salary adjustments, retirement expenses, Social Security benefits–all of these factors are estimates. That’s why it’s so important to review your retirement goal and its underlying assumptions regularly–at least annually and when life events occur. This is a 10, 20 or 30 year journey. Things are expected to change over that much time. In fact, change is the only thing we can really count on.
Pretend You’re Eating an Elephant
Instead of viewing your goal as ONE BIG NUMBER, break it down into bite size pieces. How much do I need a month? What are my sources of income? That way you can view your monthly need alongside your estimated monthly Social Security benefit, income from your retirement savings, and any pension or other income you expect. This can help the planning process seem less daunting, more achievable and more manageable. It can be far less overwhelming to brainstorm ways to close a gap of, say, a few hundred dollars a month than a few hundred thousand dollars over the duration of your retirement.
Make Your Future Self Proud
While every stage of life brings financial challenges, each stage also brings opportunities. Start asking your future self for advice. Afterall, they’re from the future! For example, what would your “future self” want you to do with that tax refund, bonus or inheritance? Pay off that pesky credit card, buy a shiny new car, save for Junior’s college or sock away more in your retirement accounts. Future self knows the right answers.
When people dream about retirement, many picture images of exotic destinations, endless rounds of golf, and five-star dining. Yet a recent study found that the older people get, the more they derive happiness from everyday experiences such as socializing, reading a good book, taking a scenic walk, or playing board games with grandchildren. While your current dream may include days filled with extravagant leisure activities, your retirement reality may turn out much different—by choice.
The Bottom Line
Setting a goal is the critical first step in putting together your retirement strategy, but don’t let the numbers scare you. As long as you have an estimate in mind, break down your monthly needs and review it regularly, you can be confident that you future will be bright.