Get your head out of the sand and create a retirement plan (From MarketWatch)
~ Monday, November 27, 2023 Blog Post ~
By Chuck Cavanaugh, November 24, 2023
To be financially secure later in life, the “ignorance is bliss” approach simply won’t work
If ignorance is bliss, then ostriches — famous for burying their heads in the sand when stressed — might be the happiest birds in the animal kingdom.
There’s just one problem with that theory: ostriches don’t actually bury their heads in the sand.
Instead, when overwhelmed or afraid, ostriches run away or hide — reactions I’ve also seen from clients when it comes time to discuss their retirement plans. However, to be financially secure later in life, the “ignorance is bliss” approach simply won’t work. Whether we like it or not, retirement is an area that we must address head-on, sooner rather than later.
Reasons behind the avoidant approach
The “why” behind avoidance is different for every person, but it’s a simple fact of life that people tend to put things off when they believe the process may be unpleasant, the outcome may be negative or the matter doesn’t seem to be urgent. In fact, research shows that procrastination is a prevalent problem associated with an avoidance of negative outcomes, driven by a desire to safeguard our emotions, even if it’s just in the short-term.
With retirement savings, this avoidant approach can manifest in many ways. For example, you may be choosing to rarely (if at all) check in on the performance of your 401(k) investments, or you might be neglecting to create or update your financial plan because you don’t think you’ll like what you learn, especially considering the rising cost of living. But these decisions will do more harm than good in the long run.
Additionally, there are many personal circumstances that can come into play here. Unexpected life changes like divorce, layoffs and preretirement health issues can have a big impact on your overall savings; forcing you to re-evaluate the future you once had planned. I know from experience that changes like these can be overwhelming, and facing the financial implications of them can be painful.
However, as the old saying goes, “successful people do what unsuccessful people don’t feel like doing,” and digging your head in the sand will not solve your problems.
Digging yourself out of the sand
While you can’t plan for all the unhappy news you will receive in life, doing what you can to prepare for the future will help make it all more manageable. The secret is to just take baby steps.
Once you’re ready to take action, consider these key three steps:
Step one: Evaluate how much money you need to retire. Ask yourself, what is the average income I need to support the lifestyle I want to live in retirement? And remember, the cost of different goods and services will rise over time due to inflation.
Step two: Determine whether you’ll have the necessary income to support that lifestyle, while maintaining an emergency fund for both positive and negative “what if” scenarios.
For some, seeing the amount they need versus the amount they have can feel overwhelming, especially those who didn’t start saving early enough, lost significant assets in a divorce or had to pay off costly medical bills; but don’t shut down. Work with a financial adviser to evaluate the best path forward.
Step three: If your income is falling short on what you need for retirement, take time to review your budget; are there any areas where you can cut back on spending? This includes eliminating monthly subscriptions, eating out less or going to less expensive restaurants, reducing travel, downsizing your home or decreasing spending on other luxuries. The changes needed vary per person, but creating and sticking to a strategic budget is a great way to help you get back on track.
You may also want to consider delaying retirement and/or working part time in retirement to help bridge the income gap.
Keeping your head above the sand
At the end of the day, there are certain things that some of us never want to hear. But sometimes, the things we don’t want to hear are the things we need to pay attention to the most. When it comes to saving for retirement, the reality is this: the more you know, and the sooner you know it, the better.
By developing a holistic financial plan that outlines how you’ll fund your retirement, the future (and your finances) becomes a lot less intimidating. Don’t underestimate the power of a professional perspective. Your financial adviser can help coach you through the planning process.
Chuck Cavanaugh is head of Financial Planning, Citi Personal Wealth Management.
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