I really think over the next five years the whole notion of retirement planning is going to change. The X and Y generation don't think about retirement the way their parents or grandparents did. Since so many more people are staying active during their golden years, the next couple of generations will be thinking more about making work option than pulling themselves over to the retirement shelf. What still holds true for most us is that since companies don't really often pensions anymore, it's up to you to figure out how you can save enough money to do what you want when you want irrespective of cost. No matter what you calculate your 'work' optional number to be you should remember that you only have four options should you start falling short of hitting those numbers. Here are your four choices:
Extend your time frame - If you planned for your 'retirement' goal to be at the age of 60, one option would be to push back the date of the goal to 62 or 65. This will allow your nest to have more time to potentially grow for your planned age of making work optional.
Reduce your goal - If you originally set a goal of wanting $8,000 per month of retirement income, you can reduce your goal to a lower number. You will really need to assess what your fixed expenses are versus your discretionary expenses to see what you really need in order to be able to live your life the way you desired in 'retirement'. If you carry a big mortgage into retirement, this may not be an easy option.
Get a better rate of return - If you think you are behind on your goals, once option is to shift your asset mix to attempt to get a better rate of return. This means shifting your asset mix in the hopes of raising your rate of return from 4% to 10%. However, as we have seen in the past 10 years, it is also possible that your assets could earn only 1% or 2% rate of return.
Save more - This is the one option that most people don't want to hear because it means changing your lifestyle. It means making sacrifices today to put away dollars for your future goals. If your income and cash flow are increasing, it also can be the most controllable if your lifestyle doesn't outstrip your income.
You'll see all sorts of articles around retirement and making work optional, but in reality it all boils down to some really simple options. Nobody wants to hear the words 'save more'. Especially because it might blow that trip to Europe or the birthday party for your kid that costs more than it should for a 10th birthday. I am here to tell you that with markets and economy being uncertain, it's a habit you are going to want to get into if you really want to make work optional one day. Take 1/3rd of any future bonus or raise and bank it. It's that simple . . . bank it. Unless you've got visions of grandeur of being a Starbucks barista or a Wal-Mart greeter in your 70's, those words of save more may not sound so bad.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder of oXYGen Financial, Inc
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