Planning is the Key to Retiring

One of my favorite shows to watch is Caribbean Life - a novel program that helps you imagine what living on an island might be like. You watch individuals, couples and even families look at real estate on beautiful islands in the Bahamas, Virgin Islands, and beyond. Their home-buying budgets range from less than $100,000 to over a million dollars. I’m not sure I’m cut out to leave all of my family, friends, and neighbors to live on an island, as beautiful and lush as it may be. But it is fun to dream and imagine!

So let’s start there - with dreaming and imagination. When you think about retirement, what do you dream of? Yours may be as simple as mine was in my early years - I just wanted to get to the point where I didn’t “have to” go to work every day. Well, I achieved that goal pretty early in my career - and I am super grateful for that! I can tell you from experience, you would be wise to dig deeper into your dreaming and imagining. 

A goal of simply not working is not very fulfilling, in my opinion. Sure, when I finally quit working - it was nice to be able to rest. And I did rest for about a year. But after that first year of retirement, I reflected on the previous year and asked myself if I was honoring God with my life. I’m kind of a nerd - I like color-coded calendars and lots of organization. So I went back over how I had spent the past year. I remembered some fun times. We had traveled with friends, had some big adventures, and made some cool memories. I spent more time with family and friends. But what about the other 10 months or so?  

What I realized was that I was not investing in other people. I knew the Lord had blessed me with gifts, talents, and skills that had been honed over a full career. I was concerned that I may be wasting these things that I had learned if I failed to share them with other people. This realization is what led me to begin leading Financial Peace University at my local church, serve with my friends in CrossPoint Ministry, and eventually launch Watkins Money Coaching. All of these have been life-giving for me.

Why the back-story, you may be wondering? Because I want to encourage you to think hard about your retirement dreams. Dream of more than not working. Maybe your dream is to live on a small Caribbean Island - or maybe it’s to launch your own business as a second career - or maybe it’s as simple as enjoying a rocking chair on the front porch with those closest to you. Whatever your dream, take time to imagine it! This is the fun part!

The more difficult part is often transforming our dreams into reality. We must morph the dream into a goal and the goal into a plan. Here’s what I mean. Let’s say you’re 30 years old and your dream is to retire on beautiful Lake Cumberland by the time you’re 50. Let’s assume a home in the neighborhood where you’d like to live currently goes for $300K. We can easily turn that dream into a goal of saving $300K. You also want to be able to eat and pay the bills without working - only 20 years from now! So we can’t stop there.

We need to do some forecasting. Let’s think about what a $300K home will cost 20 years from now. What will the cost of living (food, clothing, utilities, etc.) be 20 years from now? What will inflation do to your buying power another 40 years after that! (You’ll probably live a long time in a beautiful place like this!) Doing this work changes your savings goal - a lot! But we still don’t have a plan to achieve our goal.

Let’s say for the sake of argument that we determine you need to build up savings of $2 million to make your retirement plan work. We’re getting closer to a plan, but not quite there yet. We have to determine how we will get that $2 million in the bank in the next 20 years.  

Where do we start? We start with Baby Step 1 - getting $1,000 in your emergency fund. Then we move on to Baby Step 2 where you pay off all your debt other than the house (if you have a mortgage). Next comes Baby Step 3, where you save up 3-6 months of expenses in your money market account. Only after you knock all three of these steps out do you even begin to think about retirement savings. But if you push hard on these first three steps, it makes the next ones so much more fun and exciting!

Let’s say you’ve completed all three of these steps at age 30, and you’re ready for Baby Step 4. First, let me say, “Well done! You are not normal. You are doing way better than most Americans from a financial perspective!” The normal approach with this step is to invest 15% of your take-home pay in a tax-sheltered retirement account - whether that is a 401k with your employer or an IRA with your broker or financial advisor. To have confidence in the plan, though, we need to assess whether a 15% investment will allow you to achieve your $2 million savings goal or not. I’d help you with that forecasting to build confidence, and you could dial-up or -down your monthly savings as needed.

To be sure, building up $2 million of savings in 20 years, will require that you are making good money! If we were to look at this scenario and determine that your goal is not realistic, I would help you think about what is possible. Maybe we determine that if you worked another five years, the plan would work - or maybe we determine that you would be satisfied retiring to a smaller lake house. The key is putting legs under your dreams and goals by building a plan to make them a reality!

Whatever your retirement goal, your retirement saving becomes one key component of your monthly budget, where you remember to pay yourself every month by funding your dream! It’s a budget item just like paying your utility bill. We build a plan and then work the plan!

Drop me an email or comment on my Facebook page and let me know about your retirement dreams!