Taking Groundhog Day Out of Retirement Planning

Taking Groundhog Day Out of Retirement Planning

January 26, 2022

Is your retirement plan stuck in a time-loop? The better you plan for retirement, the more likely you'll be to enjoy your senior years to the fullest. That's why it's imperative that you don't repeat any of these glaring mistakes when it comes to your retirement outlook. 

If you wake up every morning thinking that you need to get your retirement plan updated, or worse, started, you might feel like Bill Murray in the classic movie “Groundhog Day.” Truth be told, a lot of days in 2021 felt like Groundhog Day: a never-ending time loop of new variants, working from home, eating at home, exercising at home, visiting with friends and family in small groups, etc. But did you know there’s a way to get out of an retirement plan time loop, and it won’t require you to go through endless mornings with a clock radio playing The Beatles’ “Tax Man” song?

A common mistake that people make when planning for retirement is that they focus on their present financial situation or the few years that lie ahead. They don't look beyond the horizon of retirement. By making these mistakes they fall into the mindset of “I'll get to it later” or creating a highly flawed plan.

Money is important, but time is of the essence. A lot of time has been lost due to the pandemic, and the need for getting back on track must be acknowledged. The sooner you can start your quest for retiring at your preferred age, the better. Here’s a couple tips on how to not fall victim to this mindset and how to constantly evaluate and update your retirement plan for years to come.

Having No Plan in Place

Too often there are retirees who don't have their goals and needs laid out. The importance of having these goals and needs in place for when retirement approaches is crucial. Many people forget to update those goals and needs as they change. It’s the people who establish a good plan early on who have the most success.

You shouldn’t wait until your next life stage begins because there is always another life stage inviting you to postpone taking action until tomorrow (more on this below). If people wait to postpone saving and investing until their forties, they may have to save at double the annual rate of people who start investing in their twenties.

As a general rule of thumb, if you save 10–12% of your salary between the ages of 22 and 65, you will have roughly the same ability to cover retirement expenses as an individual who saves 25 percent between 40 and 65. Establishing good habits early pays off. Make a plan and stick to it.

The Imperfect Plan

The second kind of mistake happens when people have a plan but it’s flawed. You think you’re looking ahead but you’re not looking clearly or far enough. Here are the most common investment mistakes we see and the most important ones you should avoid:

  • Not investing properly: This can mean choosing the wrong asset allocation, keeping too much in cash, taking an improper amount of risk, or using expensive investment products.
  • Not planning for your own personal situation: Generally speaking, retired people spend about 20% less than when they were working. Since they no longer commute or entertain business colleagues. However, this can work the other way. Many retirees spend more in retirement than when they were working. They travel more, perhaps eat out more often, attend more cultural events, and take up new hobbies. Your plan should be customized to a realistic appraisal of your own lifestyle and likely future preferences.
  • Not having an estate plan: Putting an estate plan in place is essential and should happen long before retirement. Effective estate management enables you to manage your affairs during your lifetime and control the distribution of your wealth after death. An effective estate strategy ultimately will spell out your wishes and ensure that they're carried out – even if you are unable to communicate.

To combat these imperfections in your plan, try the following: 

  1. Know where you stand. Know your net worth, current income, expenses and savings patterns.
  2. Set concrete, time-bound goals. Periodically check in to make sure that you hit your goals. Some people do a monthly money date to review monthly spending and saving patterns.
  3. Use a retirement calculator to determine how much you need to save each year to reach your goal. Then, you should adjust your spending to make that happen. It may mean something small, like limiting meals out, or something big, like downsizing your home or relocating to a less expensive city.
  4. Put together a disciplined, low-cost investment strategy. If you don’t have the time or expertise to do this, you can always contact the financial advisors at agemy financial for help.
  5. Rebalance your investment portfolio at least annually. Our Investment Section of our website has some great tools that makes this step incredibly easy to evaluate where you stand relative to your goal.

Revsiting Your Retirement Plan with Agemy Financial Strategies 

There's a tendency to see your retirement plan as a static document -- a map that you follow throughout your working life leading you toward the finish line. Even if you presume your retirement plan is up to date, do you really know if that plan still works for you? Will it truly create a lifestyle that will stir your soul in the next chapter? You have to update it periodically to ensure that it's still in alignment with your shifting goals, savings, and priorities. Here are six times you should review it and consider updates with your trusted Fiduciary at Agemy: 

  • Annually: Ideally, you should look over your retirement plan at least once a year. You may not have to make any changes, but if you do, it's easier to make these small adjustments once a year than it is to make larger adjustments as you near retirement and realize you don't have enough savings. 
  • After a major life event: Adding or losing a member of your family, experiencing a major health crisis, or buying a new home can affect how much you need to or are able to save. You might have to divert some of those funds toward new living expenses, requiring a whole new retirement plan.
  • If you're about to retire: Before you exit the workforce for good, look over your plan again to make sure you've met your savings goals and that you're comfortable with your withdrawal strategy. 
  • If you're turning fifty: Adults 50 and older are allowed to make catch-up contributions to their retirement accounts. These can be up to $25,000 to a 401(k) in 2019 and $7,000 to an IRA, compared with $19,000 and $6,000, respectively, for adults under 50. If you weren't able to start saving for retirement as early as you'd hoped, you can make up for it now. 
  • If you're divorcing: When you end your marriage, you may find that your retirement savings take a serious hit. Typically, retirement funds saved during a marriage (including 401ks, pensions and social security) will be considered as part of the marital assets during divorce and subject to some type of division.
  • If you need to rebalance: Your retirement portfolio may be composed of various assets that have different rates of growth. It is a good idea to reevaluate your investments to make sure they are delivering the returns you expect or want. If they are not performing the way you would like, you could consider rebalancing your portfolio. 

Do you fall into any of the above categories? If so, Agemy Financial Strategies is here for you every step of the way to ensure you create healthy retirement planning habits for years to come.

The Bottom Line

Everyone should have a retirement plan. Nobody wants to keep working into their golden years and nobody wants to struggle with financial hardship during that period of time in your life. The sooner you put a plan in place, the higher your chances of succeeding. 

If your retirement plan is stuck in Groundhog Day, call our office at 800.725.7616 and make an appointment to meet with us by phone, video conferencing or in the offices in both Guilford, CT and Denver, CO. We can get your current plan updated, and get you out of the time loop. Eventually, Bill Murray got to tomorrow in “Groundhog Day, and the same can happen for your retirement years. 

For more information on money management and retirement planning, talk to one of our financial advisors here today.