What is being Retirement Ready?
Quite often, when talking with participants of retirement plans, the most common conversation centers around the investment portfolio and how much risk they are taking. While this is an important consideration and should be handled with thought and due diligence of the investment options, its not close to the number one factor that will determine if they are becoming what we call “Retirement Ready”.
As a firm, when we meet with participants, our top priority is to increase their Retirement Readiness score. This is the likelihood they have for success and being able to retire at the age they want with the income they desire. Obviously, these can’t be unrealistic numbers or almost no one would be Retirement Ready! Everyone wants to retire at 40 and spend 200,000 a year, but unless your Power-ball number picking is really good, probably not realistic!
Income Replacement is Key!
On average, you need to save enough to replace 80% of you working income and a realistic retirement age is between 60 and 67. So we figure out what we can do to help that person accomplish these reasonable goals with some variables built in, such as: spouses financial situation, other assets, current savings, etc.
Are investments most important?
Once these goals are determined, the question usually arises, “Well, what portfolio should I be in to meet those goals?” My answer is, “Let’s ask a different question….. How much do you need to be saving???” I usually get a confused look because we are conditioned to believe that investment performance is more important than savings amount, but its quite the opposite. Consistent contributions COMBINED with investment compounding is the KEY to becoming Retirement Ready! Check out this free retirement calculator. As Einstein said, compounding is the 8th Wonder of the World, so the earlier and more consistently you start saving, the more you’ll have at retirement, period!
Save, Save, Save!
So next time you are looking at your retirement plan options, trying to determine what investment you should be in, take a step back and look at the amount you are saving and ask yourself (or better yet a professional) if you are saving the right amount!
Good luck and let us know how we can help!
Ryan Oates, MBA, CPFA
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
