Saving Won’t Get You to Your Retirement Goals

TIAA-CREFF just released a survey on retirement saving.  This survey and how it is presented is illustrative of the problem with the financial services industry.  The compartmentalize retirement planning by leading the reader to believe if you just save enough you will retire well.

Let me explain – This article starts off by giving an example of an individual who was saving for retirement.  The article shows that by saving a certain amount he would have over $700,000 for retirement.  Then they add this:

“That’s a tidy sum to be sure. But look how much more he could have with a more diligent savings effort. By stashing away just two additional percentage points of pay each year—12% vs. 10%—his nest egg at retirement would total just under $890,000. That’s an extra $150,000. And if he can pushes himself to save 15%—the target recommended by many pros—he would be sitting on a nest egg of roughly $1.1 million, fully $360,000 more than its value with a 10% savings rate.”

Is the formula that easy?  Just save money for retirement and you reach your goals?  Of course not – however, that is how all of these articles are written.  The concern is that the average reader walks away with a savings only mentality and that in itself has a low probability of getting you to your dream retirement.

Saving alone will not get you to retirement. Successfully reaching your retirement goals requires a 4 step process.

1)   Saving – obviously you have to commit to saving money.  There is no question.  That is the fuel that makes the engine go.

2)   Invest – More importantly, you have to appropriately invest that money in order for it to grow. 

3)   Manage – Unfortunately, we don’t have the luxury (as the financial services industry would have you believe) to just save money and make sure it is invested.  You have to manage those investments for growth AND risk.  Being a long-term investor (another popular myth told by the financial services industry) is not a strategy that protects you from risk.

4)   Plan – You can save, invest, and manage and still not know whether or not you are on track.  Do you want to know what separates out those who are successful and those are not?  It is this one step.  Doing steps 1 through 3 and leaving out 4 is much like deciding to travel to another city and state, jumping in the car, and just start driving.  You have no idea if you are on track or traveling in the right direction.  What’s worse, you have no idea when you will reach your destination.

To be successful, you have to employ all 4 to insure a successful retirement.  If you want more information on how to make all 4 work let’s have a conversation – bob@prudentmoney.com

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