The following is adapted from Income for Life.
When we dream of retirement, many of us have visions of days spent enjoying the sun and sand, having endless hours to indulge our hobbies, and enjoying a life free from the stresses of day-to-day work.
That’s all well and good, but very few people have actually stopped to think about what they really want out of retirement. Yogi Berra, the baseball player, famously said, “You’ve got to be very careful if you don’t know where you’re going, because you might not get there.” When it comes to retirement, trust us—you want to get there. You must plan, and in order to do that planning well, you must set your goals.
The best way to establish concrete, attainable goals is to visualize your retirement. If you want to set clear goals, you have to know what—exactly—you want out of retirement. What will your life look like? What matters to you? Once you know the answers to these questions, it will be that much easier to set goals and create a strategy that will get you there.
What Do You Need?
It’s rare for us to meet a new client who has already accurately assessed what they currently spend and has undergone a thoughtful review of what future spending will look like. In addition, rarely have they given further thought to how the costs of their goods and services will increase through the years. As a result, a common error of retirees is to underestimate how much money they’ll need in retirement.
“Needs” are relative, but everyone begins with the same basic set of needs: housing, food, transportation, and health care. These essential living expenses are the first thing that must be planned in any retirement budget.
Once those needs are budgeted, a higher order of needs can be considered. These needs include feeling independent, maintaining one’s lifestyle, feeling fulfilled, and pursuing passions. These aspects of retirement are deeply important, but the monetary cost inherent in fulfilling these needs can easily be underestimated by retirees. Prioritizing your goals is crucial to making sure you’re creating goals that can be met.
What Do You Want?
During their working decades, most people often sacrifice for the needs of their spouses, children, and jobs or businesses. Once they begin nearing retirement, however, it begins to dawn on a retiree that they’ll have the energy to focus on the things they want to do, the person they want to be, and the influence they hope to have on the world around them.
Without the 9-to-5 grind, retirees are often liberated by the prospect of focusing on their passions, or they feel free to indulge in activities and organizations that inspire a higher level of personal fulfillment.
They’re free to spend their time with the people they love, and they have the ability to foster deep, meaningful relationships in a way that they may not have been able to during their careers.
When it comes to retirement, your first step in planning should be to consider what kind of freedoms are most important to you. What does your ideal retirement look like? Carefully visualize the day-to-day realities of retired life, and think beyond your current situation. Contemplate where you want to focus your attention in your retirement years. What areas of life are not currently receiving focus and attention? How will you be able to redistribute that attention during your retirement years?
Setting Constructive Goals to Get There
Once you’ve visualized your retirement, you can start setting goals that will help you meet your needs and wants. Constructive goals are dollar-specific, time- and frequency-specific, prioritized, and flexible.
We recently met with a client of ours to help him clarify, prioritize, and assign costs to his important retirement goals. Through some discussion, he was able to articulate the following:
“I’m 58 right now and want to retire by the time I’m 62. I have calculated that I’ll need an income of $85,000 per year after taxes to maintain my current lifestyle. I would also like to travel while I am still healthy, so I’ll budget in an additional $10,000 per year for ten years to account for travel. I have two children to whom I would like to gift $25,000 each. If I can’t achieve these goals at 62, I’m willing to work longer in order to accomplish them.”
After running the numbers, it became clear that, while all of this client’s goals would be possible were he to retire at age 66, it would not be possible at 62. Our client had the option to either pare down or omit some of his goals, or to continue working for an additional four years, which would provide him with the best chance of the retirement he envisioned.
He ultimately prioritized his specific goals, making the decision to continue to work until age 66, with the knowledge that four additional years in the workforce would earn him a retirement that looks the way he wants it.
Establishing priorities and working through what different scenarios will realistically look like empowers retirees. It allows them to make decisions with a clear understanding of how they will impact their future income, lifestyle, and flexibility.
Notice that within our client’s example goal, he included several important factors: the annual income necessary to maintain his current lifestyle, additional annual income for visionary pursuits, and significant one-time expenses. These represent several important elements that should be included in every constructive goal:
- They should be prioritized
- Frequency of expenditures
- Specific timeline
- Specific dollar amounts
- A back-up plan
Another critical component of our client’s goal is that he included goals that were immediate (cost of lifestyle maintenance), short- to mid-term (travel), and long-term (gifting children $25,000). Increasingly, retirement can represent a large portion of your life. Short sighted visioning and goal setting may very well not account for the reality of retirement.
Have a Clear Vision
Organized goal setting is not an optional part of retirement income planning. It’s essential. People often fail to set retirement goals as a result of their lack of confidence or knowledge regarding personal finance. This is not unusual; in fact, we see it all the time.
Lack of a clear understanding around what your retirement income could look like means you don’t have the baseline necessary to even begin thinking about other retirement goals. Therefore, you lack a clear vision of what life will look like once they leave the workforce.
The first step toward setting up a fulfilling retirement is determining what you want. Visualize what your day-to-day life as a retiree will look like. Consider the ways in which your daily life will be different in retirement than it is today, and how your life, needs, and preferences will likely evolve over the next couple of decades. Then, spend the time to develop a plan that will set you on the course to achieve those goals.
For more advice on visualizing your retirement, you can find Income for Life on Amazon.
Joseph DiSalvo, ChFC, AIF and Marie L. Madarasz, AIF of Quest Capital & Risk Management, Inc. are committed to bringing their clients the clarity that will promote and enhance confidence in the future. For more than two decades they have used a proven process that helps clients think through how best to structure and manage their resources in order to produce a growing stream of retirement income for life. As experts specializing in all aspects of Retirement Income Planning, they are passionate about the coordination and integration of their clients’ income, investment, and tax planning strategies in order to help clients live the life they’ve worked hard for. Joseph and Marie are strong advocates of financial education, seeking to teach others how to achieve sustained success and lifelong prosperity.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.