Saving for retirement can be a daunting and intimidating task. Various formulas abound, are everywhere, and readily provided by financial planners, advisers, and websites. They allow you to plug in your information to account for your goals, time left to save, assumed rate of return, and inflation.
Those formulas also can have a way of being quite depressing by showing you how far off you really are. It may even seem hopeless for many; so why bother even trying?
As the saying goes, “It’s better to have half of something than all of nothing.” You’ll never be as young as you are today, so you might as well get started.
In my 23-plus years in the business as an insurance and financial adviser, I’ve seen this a lot, so I came up with a simple, get-real formula that a lot of people seem to like. It resonates with them and helps them to start. I call it my “Scale of 1 to 10” plan.
It goes like this:
I draw a horizontal line on a sheet of paper—or on my screen when doing a web meeting. I put arrows and a block at each end to depict a scale, a range of measurement. I put a “10” at the right and a “1” at the left.
I then tell people to forget about all those formulas that tell you what you are supposed to do, how much you have to save, and ask them to think differently for a moment. Instead, I tell them to think of things more in terms of a pressure gauge, of how things feel.
Good financial planning involving things like saving for retirement and buying life or disability insurance should feel good, not stressful. The right number you’re setting aside each month should make you feel responsible and good about yourself. It should bring you peace of mind and confidence that you’re doing the right thing.
Think of the “10” as way too big, too much, buyer’s remorse, stress, nothing left over for anything else, not sustainable or doable, no room for error. Think of the “1” as the opposite extreme—a no-brainer, super easy, unnoticeable, don’t even miss it.
Neither a “10” nor a “1” will work. The “10” will stress you out and no one can maintain that kind of pace; it’s just not realistic and you’ll hate it. But a “1” is terrible too. You won’t be mad at your insurance or financial adviser someday when you don’t have anything—you’ll be mad at yourself for having not been more serious and disciplined to really save more.
So what’s the answer? I tell my clients to think of a monthly or annual amount they can set aside that will feel like a maximum of a “7” or “8.” I then write this number near the right end of the line towards the “10.” Their number should definitely feel like it’s coming out of their checkbook, so they know they’re taking things seriously and getting real with themselves, but not so high there is no room for error or literally nothing left over for short-term emergencies like home or auto repairs, other savings, night out for dinner, or a birthday gift here and there. Most people know what this number is, so it at least gives them something realistic to think about.
I also tell my clients to look for savings plans or policies that have some flexibility in them when it comes to the amount they set aside so if they do get in a jam, they can back off their planning to what feels like a “2” or “3.”
Some plans even allow you to temporarily suspend all funding, allowing you to get past a spot you might be in. Then you can pay extra to catch up and try to get back on track.
The important part is to get started, and I find thinking of things in terms of a pressure gauge, rather than some unrealistic, intimidating mathematical formula, is the better way to go for many.
Todd Radwick, president of Radwick Financial Group LLC, of Winthrop, Wash., is an insurance and financial adviser and a 23-year industry veteran. He can be reached at 509-996-3425 or through his website at www.radwickfinancial.com firstname.lastname@example.org
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