Begin with the end in mind.
That sounds obvious enough, doesn’t it?
When I finish writing this column, I’m planning to drive for four hours. But not just anywhere. I want to arrive in Baton Rouge at the conclusion of my drive. I’m not going to just get in my car and drive. I intend to point it in a southerly direction with the full intention of passing by the state capitol building late this afternoon.
I’m not just driving. I’m going somewhere. Driving is the means to my end.
Americans will put billions into various kinds of retirement plans this year: 401(k) plans, 403(b) plans, 457 plans, IRAs, Roth IRAs, SIMPLE IRAs, SEP IRAs. It’s like an explosion at the alphabet factory.
If I asked the average retirement plan participant, “Why are you delaying your enjoyment of all that money and putting it into your retirement plan?” they might look at me like I was nuts.
“That’s why they call it a RETIREMENT plan, dummy. I’m planning to use that money to retire on,” they might say.
But supposed I pressed the point further? What if I asked, “How exactly do you intend to do that?” most would be stuck.
As their mind began to comprehend the complexity of the problem, most future retirees would initially offer something like, “Well, I supposed I plan to take a little out each year to live on, after I quit work and no longer get a paycheck.”
So far so good.
“Will you be able to pull enough out each month to maintain your current lifestyle? And how long will your money last?”
Silence.
“I’m…not exactly sure…what the answer to either of those questions is…”
It’s not much different than someone suggesting they plan to drive to Baton Rouge, a place they’ve never been, and they have no map, GPS or idea of how to get there.
But their car is full of gas and it drives really, really fast.
I think it is unfortunate that we’ve decided to call 401(k)s and the like “retirement plans.” By my definition, they are not plans. They are accounts, which hold money. Perhaps the originators of the legislation behind such plans designed them to be used by people who one day wished to retire. Great.
But they are not plans. A retirement PLAN is just that – a plan. A strategy of how one will move from one’s present circumstances into a future circumstance of one’s choosing.
A retirement plan is not only a strategy of fund a future retirement, but also a strategy of how those funds will be spent. In fact, the strategy of how funds will be spent will determine both how and where money should be saved on the journey to retirement.
Next week, we’ll explore the four strategic functions of money in retirement. Once you understand those, you’ll know what you need to work towards.
You’ll be clearer about the end goal.
And you can begin with that end in mind.
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