The following is adapted from Keep It Simple, Make It Big.
What is the best way to save for retirement?
This is the question I am asked time and time again, but there’s no simple, one-size-fits-all answer. Your answer to this question will be unique to you.
Before you can answer this question, you need to create a picture of your ideal financial future. Only after you determine where you want to go, can you begin thinking about how to get there.
To create a picture of your ideal financial future, you need to ask yourself two different, important questions.
#1: What Does Money Mean to You?
This is an important question, yet one that few people ask themselves. It’s the first question I ask participants in a retirement-oriented class I teach.
I’ve been helping people build, protect, use, and transfer wealth for nearly twenty years. I know that there are many answers and that each answer has important implications for how one designs a financial plan, an approach to life, and ultimately financial independence.
Here are some common answers and approaches, although some may not be readily admitted.
Freedom
Security
Time with family
Power
Control
Each of these is legitimate and each of them will lead to a slightly different approach to work, leisure, investing, and protecting wealth.
A person who values freedom, for example, may place a premium on the spending side of financial life, keep a close eye on expenses, and invest a high proportion of after-tax income. This enables them to quit a job temporarily or even permanently, and not get boxed into bad situations.
This is quite popular these days as the Financial Independence Retire Early (FIRE) movement demonstrates. How they invest their savings will depend on their overall risk preferences and ability to tolerate the downs of ownership investments. But they better have a plan to stay independent and therefore free.
A person who values the power that money provides—and it can provide a lot—will have a different relationship to work, spending, and investing. For most, work is the source of at least some power and plenty of income that facilitates spending, which itself provides both real and perceived power.
Someone who values the power of money will likely work longer, save and invest much less, and consume a higher portion of income. These choices will drive a need to work longer to support the lifestyle. How this person saves and invests will again be driven by many factors, but the need for consumption will require a commensurate need for near-term liquidity to pay the bills.
#2: What is Your Ideal Retirement?
This second question I ask is simple, yet it often elicits some blank stares, so I follow it up with specifics that assist people in moving through their checklists.
Where are you living?
Your current home
Condo in Florida
Trailer in Mexico
Hacienda in Spain
House in California
Apartment in Greenwich Village
What are you doing?
Working at Walmart
Volunteering at church, temple, or synagogue
Tending your garden
Surfing in San Diego
Taking care of grandchildren
Traveling the country in a motor coach
Where is your money coming from?
Social Security
Employer-sponsored pension
IRA
Tax-deferred annuity
Personal investments
Part-time income
Children
This last bullet produces laughter and rolling eyes. I know this as I have been one of those children who at times caused the money to move in the wrong direction—from parent to child.
Setting aside us deadbeat children for a moment, the answers to these big questions are exactly what you need to flesh out to create a picture of your ideal financial future.
Preparing for Your Ideal Financial Future
By answering these two questions, you can begin preparing for not just retirement, but your ideal financial future.
So set aside time with your spouse, loved ones, or just yourself to brainstorm your future. Bring yellow pads and ask yourself and each other these questions. Don’t prejudge. Big goals motivate. Don’t ask, “Why?” Ask, “Why not?”
Begin the process of dreaming the big dreams and defining your retirement goals, and you can begin moving toward your ideal financial future.
For more advice on creating a picture of your ideal financial future, you can find Keep It Simple, Make It Big on Amazon.
Michael Lynch is a CERTIFIED FINANCIAL PLANNERTM professional with nearly twenty years of experience working with American families to craft plans that fund their dreams, educate their children, and finance their retirement. Michael has contributed to the Wall Street Journal and Investor’s Business Daily, and hosted Smart Money Radio for a decade. He’s served as an adjunct faculty member at Fairfield University and currently teaches financial planning to employees of corporations like Madison Square Garden and Yale New Haven Health Systems. Michael is a five-time Financial Planner of the Year for MetLife and a 2019 inductee to the Barnum Financial Group Hall of Fame. You can enjoy his latest articles and videos at www.michaelwlynch.com.
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