Why do I need a retirement plan?

Why do I need a retirement plan, retirement planning

I know, it seems kind of obvious. We have vacation plans, we have career plans, we have plans for our children’s education. We even have dinner plans. But often, when we ask someone in the last decade of their nine-to-five workdays what their plans are for retirement, they just shrug their shoulders.

“I’ve got my 401k plan,” they say.
Or “I’ve got my IRA.”
Or “I’ve got my savings.”
And, of course, “I’ll get my Social Security.”

But are these enough to have a comfortable retirement? Retirement planning today requires more than just saving for retirement. It requires understanding the comprehensive retirement planning process and defining your unique goals for retirement. Knowing where you are and your current financial well-being is crucial to ensure self-sufficiency in retirement and making sure you are able to provide for emergencies and unplanned expenditures in retirement.

Everyone Needs a Retirement Plan

I hate to break it to you, but all those things are merely tools in the toolbox—parts and materials—not a plan.

Without a good plan, the parts and materials might not fit together correctly, and you may not have the right tools to complete the assembly, costing you tens and sometimes hundreds of thousands of dollars in unnecessary taxes, fees, and missed opportunities. You may be risking financial dire straits at the time in your life when you’ve most earned the right to peace of mind.

A decade may seem like a long time. It’s not. Just look at your kids or your friends’ kids. Remember changing their diapers? Remember when they learned to ride a bike? How about their high school graduations? How long ago were those? That all seems like yesterday, doesn’t it? It wasn’t. Most likely, all of these things occurred much longer ago than you’ve got left until retirement. And we all know that the older we get, the faster time flies. Time’s annoying like that.

Top Five Reasons People Avoid Retirement Planning

There’s an old saying: “Failing to plan is planning to fail.” I can’t think of anything this adage applies to more than retirement planning. Okay, maybe skydiving. Still close, though. So let’s look at some of the most common reasons people avoid taking the crucial step of financially securing their golden years with the help of a qualified fiduciary (preferably a CERTIFIED FINANCIAL PLANNER™). Any one of these may or may not apply to you. The fact that you’re reading this blog post means you’ve already taken a huge step closer to not avoiding it!

Reason 5: I Can Do It Myself/Want It for Free

Top Five Reasons People Avoid Retirement Planning

I’m not going to kid you: You could create your own retirement savings plan. You could get it for free. The information you need to create one has all been available online for years and years now. You know what else is available online? How to give your grandchild a tonsillectomy. I’m no doctor, but I would strongly advise you don’t go that route. You really need someone who has done it before. Preferably a lot. Someone who has spent hundreds or even thousands of hours immersed in it. This principle also applies to airline pilots. And usually to a CFP®. Another great reason to not fly solo is simple human nature: when we have a professional (or a whole team of professionals) working with us, we’re just more likely to take it seriously—and maybe not procrastinate. Ask your fitness trainer. They’ll tell you. As we discussed earlier, a lot of folks think their individual retirement account - Roth IRA, IRA, 401(k), certificate of deposit (CD), or retirement savings account—in addition to their Social Security—is their “retirement plan.” Most likely, those retirement accounts are just a piece of the puzzle.

In fact, just the question “Do I have enough money to retire?” has a huge set of variables. It raises its own universe of questions about the amount of money you actually need to retire and what is your actual retirement age. It’s a whole new kettle of fish, as my grandmother used to say. The answers won’t be found in an online app, in an 80 Percent Rule or 4 Percent Rule, or in any of the other various rules and formulas you’ll find in your Google search. I had a guy come into my office one day. He told me he wanted to talk about retirement planning. “I’m pretty sure I got it all figured out,” he said. He seemed pretty happy with himself. “Really?” I asked. “Yeah, I made a spreadsheet and everything.” He took it out of his pocket and unfolded it on my desk. “That’s awesome!” I looked over it quickly. “Did you account for income tax?” He looked at me with a blank stare for a moment. “Well, you know . . . I kind of just did that part in my head.” “Ah.” I nodded. “Well, just so you know—once you’re taking a retirement income from other sources, the amount of your Social Security subject to tax could be up to 85 percent.” “What the—?!” He seemed downright glum now. I felt bad to disappoint him, but also knew he would be so grateful later. “Looks like you did your spreadsheet in ink,” I told him. “Yeah,” he said. “I’ll pick up some pencils on my way home.” “Don’t feel bad,” I said. “There are a lot of variables at play with successful retirement planning. And each of those creates its own variables.” “Wow.” He seemed shocked. I nodded. “It’s amazingly complex.” “I’m going to need a bigger spreadsheet.” I gave him a pencil from my desk. “On the house,” I told him. He’s still a client.

Reason 4: It’s Boring/Monotonous

retirement financial planner, retirement planning, why do I need a retirement plan

Firstly—speaking as a guy who has made retirement planning his life and as kind of a nerd—planning for retirement is not boring or monotonous if you’re doing it right. It’s a bit like golf that way. Secondly—the only excitement you should get regarding your money after retirement is the peace of mind you get knowing how safe it is. Which isn’t really excitement, I guess, but you know what I mean. Save the excitement for your cruises or adventures with grandkids. Your financial life can be divided into two distinct phases: Before Retirement and After Retirement. You can also call these the Accumulation Phase and the Distribution Phase. That’s what we financial planning nerds call them. The first phase spans from the time you earn your first paycheck to the time you earn your last. During most of these years, you can afford to take risks with your money: downturns are always followed by upturns, and you’ve got the precious luxury of time. You can always earn back whatever you lose. There’s a good chance you’ll repeat that cycle many times over the course of your working life. Not so with the second phase. You don’t have that regular paycheck coming in. Your Social Security and investments are all there are to see you through. Your money is the breadwinner now. This second phase may seem like it’s going to last for a relatively short period of time, but—health and God willing—you may wind up being retired for nearly as long as you worked. Putting your money in stocks or other high-yield/high-risk investments is like entering the car you drive for Uber in a stock car race: you could win the prize, but you could also total your work vehicle. In nerd-speak: Volatility is awesome during the accumulation phase. During the distribution phase, not so much.

Reason 3: Too Many “Experts”

retirement planner, why you need a retirement planner

Sometimes there are just too many choices when it comes to finding help with your retirement plans. It’s easier to put the task off for another day. “There’s always tomorrow,” you tell yourself. Whether you Google “retirement planner” or “financial advisor” or “fiduciary,” you’re going to get a bunch of results and even more ads. We talked about that. Anyone can call themselves any of those. Some have great credentials. Some have actually studied the subject. Some do very popular radio shows and YouTube videos. I won’t say they’re not qualified. I won’t say they don’t have their clients’, listeners’, or viewers’ best interests at heart. As we discussed earlier, many work solely on commission. Some completely avoid commissions, calling themselves “fee-based” or “asset-based,” which leaves the consumer in the dark about commission-based solutions that could actually be the best thing for them. Seems silly that someone can call themselves a fiduciary in one breath and then in the next breath say nobody should ever buy a commission-based product. That’s absurd; in certain situations, a commission-based product may very well be the absolute best solution. As far as the radio and YouTube financial experts go, I don’t deny they know a lot about finances and retirement planning. But keep in mind that they’re giving the same advice to millions of people. You’ve so far learned just a few of the variables involved. How can the same advice work for so many? It can’t. You have a smaller margin of error predicting the outcome of a coin toss.

Reason 2: Once Bitten/Twice Shy

financial advisor, retirement advisor, why you need a retirement planner

Over the years, you’ve probably received “surefire” financial advice from a stockbroker or other financial professional that turned out to be a dud. Somebody made money, but it wasn’t you. The only upside was that you had one less card to buy at Christmas. You swore, “Never again.” If I may channel Donny Osmond for a moment: “One bad apple don’t spoil the whole bunch, girl (or guy).” There are those you can trust to keep your investments safe. There are those who are certified and subject to the rigorous oversight of the Certified Financial Planner Board of Standards. You can spot us by the all-caps and registered trademark of CERTIFIED FINANCIAL PLANNER™ and/or CFP®. Seriously—we’re required to do that. The Board of Standards doesn’t mess around. The key here is to make sure when you hire a CFP® that you do so under a financial planning contract with the retirement professional. A CFP® may hold the certification but not actually use it, so get the CFP® engagement in writing with a contract. And finally, let’s look at the number one reason people avoid retirement planning.

Reason 1: Lack of Awareness/Fear of Looking Silly

why do i need a retirement plan, retirement planning tips

Often, people don’t plan for retirement because they’re unaware of where their current approach might be falling short or because they “just don’t want to look dumb.” Okay, those are really two different reasons. But they’re both common. Some people truly believe their nest egg and Social Security will do it. They’re simply not aware that anything else is required. They think those commercials are aimed only at the mega-wealthy. Others know they should talk to somebody but are afraid their own lack of knowledge about retirement planning will get them laughed at. Some fear being told, “What, are you nuts?! You’re not mega-wealthy!” As a CFP®, it’s not my job to judge you. It’s my job to look at your specific situation and determine the best course of action to help you safely reach your retirement goals. That’s it. I always tell people, “It doesn’t matter whether you have ten dollars, twenty million dollars, or nothing. I’ll talk to you.” And if I can’t help you, I’ll tell you who can.

If you are unsure about your retirement savings plan or have investment questions contact our team to discuss how you can retire with confidence.

Working with Silvertree can help you determine how much you need to save for retirement and take advantage of opportunities available to you to minimize your taxes, increase your wealth, and take care of the people and the causes you care about.