Discover a Flexible Framework for a Fulfilling Retirement
When it comes to retirement, many of us have been conditioned to believe that hitting a specific savings target—like $1 million or $2 million—is the key to success. But what if I told you that this number might not matter as much as you think? Just like a basketball team that fixates on scoring a certain number of points by halftime, focusing solely on a savings target can lead to unnecessary stress and missed opportunities.
In this post, we’ll explore a three-step framework that can help you build a retirement plan that’s not only realistic but also adaptable to your changing needs. Let’s dive in!
The Problem with Retirement Targets
The Pressure of Numbers: For decades, the media has pushed the idea that you need a specific amount saved to retire comfortably. This can create anxiety, especially for those who feel they haven’t reached that magic number.
A False Sense of Security: Many people believe that if they just hit that target, everything will be fine. But retirement isn’t a one-size-fits-all scenario. Life is unpredictable, and so are your expenses.
The Reality of Spending: Research shows that spending often declines over time. In the early years of retirement, you might spend more on travel and hobbies, but as you age, your expenses may shift toward healthcare and basic living costs.
Step 1: Document Your True Expenses
Know Your Numbers: Start by writing down what you actually spend each month. Don’t rely on averages or someone else’s budget.
Categorize Your Spending: Break your expenses into three categories:
Essentials: Housing, groceries, utilities, and insurance.
Go-Go Years: Travel, dining out, and hobbies.
Getting Older Years: Consider what your spending might look like in your late 80s.
Be Realistic: This isn’t about creating a perfect budget; it’s about understanding your unique financial landscape.
Step 2: Understand Your Income Sources
Social Security: This is often the cornerstone of retirement income. Know how much you can expect to receive and when to claim it. For example, if you wait until age 70, your benefits could be significantly higher.
Other Income Streams: Consider any pensions, rental income, or other sources of revenue.
Calculate the Gap: If your essentials cost $100,000 a year and Social Security covers half, you’ll know how much pressure is taken off your portfolio.
Step 3: Build Flexibility into Your Plan
Withdrawal Strategy: How you pull from your savings is crucial. A solid plan can help you manage your portfolio effectively.
Diversify Your Withdrawals: Consider withdrawing from different accounts—some from your IRA, some from your brokerage account, and maybe even some from cash reserves.
Stay Adaptable: Life changes, and so will your needs. A flexible plan allows you to adjust as necessary.
The Takeaway: Focus on the Process, Not the Number
Retirement shouldn’t be about chasing a mythical savings target. Instead, it’s about creating a process that works for you. Just like a basketball game, where each quarter presents new challenges and opportunities, your retirement journey will have its own unique ebbs and flows.
Time is the one thing you can’t earn back. The years spent fixating on a number could cost you valuable experiences—like travel, energy, and freedom.
If you want to learn more about building a retirement plan that lasts, check out our full video where we dive deeper into this framework.
Education only, not advice. Consult your professional(s).