Start With the End

The Pension Geeks |

Have you heard the story about the couple going on vacation? One day they rolled up to the airport, hopped out at the first terminal, walked up to the counter and asked of the agent, “Two tickets, please.”

The agent was taken back, “Um... Do you have a destination in mind?”

To which they replied “No, not really. We’re on vacation. We just know we want to go


The agent responded. “Well, this is a little out of the ordinary, but I’ll work with you. Do you know how long you’d like to be away?”

“Nope, No idea. Haven’t even given it a thought, to be honest. Just figured we’d go and come back when we’re done.”

All joking aside, nobody would ever go on vacation that way. If you’re going to spend your hard-earned money on a trip, you bet you’re going to fully research where you’re going, where you’ll stay, how you’ll be getting around, and for how long. For all of us, vacations are special, calling for careful planning for every possible situation.

I wish more people would look at their retirement this way. You only get one. And you only have a limited number of working years to save for one. Retirement is so much more than not working anymore, yet I have seen too many people regard it so.

Planning a trip is exciting because you know vacations are so much fun. You should feel the same excitement for your retirement. In retirement, every day is a Saturday! It’s wide open and full of potential. The question I ask all my clients is, “What do you want your retirement to look like?” To have any chance of answering that question, you must begin at the end.

Beginning at the end simply means calculating how much money you are going to need to live the retirement you want. Experts in the industry generally agree that aiming for seventy to eighty percent of your pre-retirement income is good starting point. If you’re a school employee, a significant portion of that number will come from your pension, the remainder will come from having a fully funded retirement.

Nobody can predict how the world will be in 25-30 years. What the value of a dollar today will be in 2040, how inflation will affect the cost of food and housing... you can go right down the line.

Equally hard to predict is the course of your life. Will you have kids? A dozen grandkids? Will your parents leave you money, or will they need your help in their later years? And what about yourself? Will you embark on a second career or a thirty-year vacation?

A fully funded retirement provides you with options.

A brief word of warning: I’ve seen too many school employees over the years assume their pensions are going to fully cover their retirements. They put off saving for retirement until they really start doing the math in their 50’s. At this point the employee’s contribution needs to be substantial to make up for lost time. Here’s the bottom line - If you start early enough, the monthly amount you’ll need to contribute toward a successful retirement is much less than you imagine. I base this on the hundreds of retirement analysis’ I’ve done for school employees over the course of my career. A fully funded retirement is within your reach.

So, we start at the end. A lot of what a retirement planner does is just simple math. I know that “math” is a four-letter word for many of you. Try not to be intimidated. Your retirement planner should be able to explain to you in simple terms how the contributions you make to your retirement will add up over the short, medium and long terms.

Think about the amount of time you spend looking for the best deal on a car or the best interest rates and terms for a mortgage. Those are two of the largest purchases that an individual is likely making in their lifetime. Of course, I’m completely biased, but I feel researching and planning for your retirement is equally as important as those other big decisions.

Now that we’ve started at the end, and we’ve created a clear picture of what you want your retirement to look like, we have a better direction for our investment decisions. Are you five years away from retirement or thirty? Just this one item can have a big impact on the design of your retirement portfolio.