Too many people think retirement planning is simple. Then years later, they find they don’t have enough money to retire on. How did that happen?
They think you just throw some money into a savings account, with little regard for the account’s tax status, and put little thought into the investments. After all, the market always goes up, right? They assume if they save X amount of dollars today, then they should be fine 10 or 30 years down the road.
Studies show that many Americans plan this way. An article in the New York Times by Teresa Ghilarducci, an economics professor at the New School for Social Research, points out that “75% of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts.”
But how could this be? They must have been saving a portion of their paychecks each year and trying to put in at least something into a 401(k) or individual retirement account most years. What went wrong?
The problem: Many Americans – and their financial advisors – never address the factors that are critical to planning for retirement, Naïvely, they assume that some simple math on the back of an envelope is sufficient to come up with the final account size necessary to survive in retirement in say 30 years. They think they did their job and can cross off retirement planning from the to-do list.
To make that kind of calculation, you need a crystal ball to tell what inflation (or deflation) will be each year leading up to and during retirement. The crystal ball must also be political savvy, able to foresee future tax bracket and retirement account changes. No one, of course, can augur what lies ahead.
There’s a reason, according to Ghilarducci, that 49% of middle class workers will be living on a food budget of nearly $5 a day during retirement. What makes this looming disaster unfortunate is that it is so preventable.
Retirement planning is a process that you must review continuously during the journey to retirement. Part of it is preparing for the unknown. Potential roadblocks abound. You may have a health issue, which impedes your working and saps your earnings power. A son or daughter may lose a job and need to move back with you, or require a chunk of money to get out of a jam. The result: You must move back the age at which you can retire.
Everyone should be prepared for retirement. Don’t let poor planning lack of planning, be what destroy your retirement dreams.
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Joseph “Big Joe” Clark, CFP, is the managing partner of the Financial Enhancement Group LLC, an SEC Registered Investment Advisory firm in Indiana. He teaches financial planning at Purdue University and is the host of Consider This with Big Joe Clark, found on WQME and iTunes. He is a Registered Principal offering Securities and Registered Investment Advisory Services through World Equity Group, Inc, member FINRA/SIPC. Big Joe can be reached at [email protected], or (765) 640-1524. Follow him on Twitter at @Big Joe_Clark and on Facebook at http://www.facebook.com/FinancialEnhancementGroup.
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