When I sit down for meetings with people in their late 40s to early 50s, I often hear two questions. How are we doing compared to other families like us? Will we have enough to support our desired retirement? Underlying both of these questions is a general nervousness about the future. Most people in this age bracket have good reason to be nervous. Many of them are still paying down mortgages, have children in college and may even be supporting elderly parents.
If you are facing this situation, I’d like to recommend some strategies to help you move toward your desired future.
How are we doing compared to others?
This is a very deceptive question. I say deceptive based on the old adage that appearances can be deceiving. Here is what I mean. When people are nervous about nearly any situation in their life, they often wonder what others are doing who might be facing the same situation.
But looking at others is usually not a particularly fruitful way to determine what you need. Here are two stories to illustrate the point.
In The Autobiography of Benjamin Franklin, Ben tells a story of how he and his wife practiced frugality far longer than was necessary. It seems he became accustomed to a lifestyle of living beneath his means. For many years Franklin ate a simple breakfast of bread and milk from an inexpensive pottery bowl using a pewter spoon.
He did this for so many years that eventually his wife became tired of it. Without his knowing, she replaced his pottery bowl with a china bowl and his pewter spoon with a silver spoon. He was quite surprised at this luxury, but then his wife reminded him that they could well afford it.
When I was just out of college, I started my career in real estate. In the afternoons, I would handle all walk-ins to our office with a colleague. One afternoon an older man walked into our office. My colleague took one look at him and said “he’s all yours.” You see, this man had dirt under his fingernails, had disheveled hair and wore cut-off jeans that were frayed at the edges.
I respectfully sat down with this man and asked him about his real estate goals. To my great surprise, he was an active real estate investor and owned several properties. This is why he had dirt under his fingernails. He was looking to acquire more properties. Over the course of the next couple of years, I got to know this gentleman quite well. One day, I met him at his house and he showed me the titles to eleven properties that he owned outright.
The fallacy of appearances
So I want to ask you a question. If you had breakfast with Benjamin Franklin when he still ate with pewter spoon and pottery bowl, would you assume he could afford china and silver? If you saw my cut-off-jeans wearing client in the grocery store, would you assume he was owner of eleven properties? The answer to both of these questions is probably – no.
Yet, as human beings, we are often inclined to look at others and make snap judgments. When we see someone driving a nice car, living in a big house, sending their children to expensive private schools and taking lavish vacations, we assume they have wealth. In truth, there is only one conclusion we can draw. They spend a lot of money.
This is why you should never base your confidence about reaching future goals on others. Their goals may not be your goals. Their situation may not be like your situation.
How you can be more confident
When we help clients build a plan for their retirement years, we focus on a few simple questions:
- At what age do you plan to retire?
- What kind of lifestyle do you want to live in retirement and how will this translate into a need for income?
- Where do you stand today in terms of savings, investments and income?
- What expenses do you anticipate between now and retirement? How likely are these to go down over time?
- How much money do you think you can save per year between now and retirement?
The key though is to understand that each individual’s situation and goals are unique and generalizations should be avoided. Specific information pertaining to your unique situation, coupled with long-term strategic planning, should help bring down your level of anxiety. It helps to see things on a more comprehensive basis.
But I’ve noticed that after clients walk away, spend time with peers and maybe watch a bit of investment news, their confidence dwindles. When we sit down together I hear the anxiety in their voice.
How can I help?
If you are in your late 40s to early 50s, some of the best years of your life are just ahead of you. Some amazing experiences are just around the corner. Children will graduate and start new chapters in their lives. They will likely get married. Grandchildren will follow. Retirement will free you from the burden of daily work so you can focus on pursuits that you’ve always dreamed about.
But if you are nervous about the future these precious moments could be diminished. That would indeed be a shame. So I’d like to recommend a couple of options for you.
It’s important to review your plan on an annual basis and even more regularly should a life changing event occur such as the loss of a job. All the pieces should be reviewed together and not in a vacuum. For instance, your investment accounts may have done well in 2013, but those kinds of years should be treated as a gift and not the norm. So it’s important to continue reviewing your expenditures and savings rate.
Planning for retirement should be viewed more as a marathon than a sprint. There will be obstacles along the way. However by working together and keeping the focus on your long-term goals, these obstacles tend to be overcome in the longer-term.
If it’s been a while since you reviewed your financial plan with us, let’s have a conversation. Let’s look at where you are now, where you want to be in the future and the plan that’s in place to get you there. If the numbers add up, then I encourage you to stay the course. But if we need to make changes, let’s do that sooner rather than later.
Time is always on the side of those who are diligent and plan ahead. Who knows? The plan you put in place, or the updates that are made along the way, may be just the thing you need to realize greater peace of mind.
The information contained in this article is provided for informational purposes only. No illustration or content in it should be construed as a substitute for informed professional tax, legal, and/or financial advice.