“A journey of 1,000 miles begins with a single step.” This may be the best-known quote about goals. When I work with clients on their financial goals, this one often rings true. Long-term goals can seem especially daunting, and the younger you are, the more daunting they seem, understandably. After all, when it comes to planning a retirement, the younger you are, the more assumptions that must be made. Paradoxically, however, the younger you start saving for retirement, the easier it is to make it happen.
Thinking about retirement is so difficult for younger clients because it is just so far away. Today I am 37 years old. When I try to visualize my own retirement, I often get a proverbial bucket of cold water dumped on my head by my two children, both under the age of 9. Even in 10 years when my oldest is graduating high school, it feels like the bucket will only get bigger and the water colder.
Imagine you are aiming a rifle at a target 50 yards away. Let’s also assume that if you move the scope an inch to the left you will miss the target by a foot. Now push the target back another 50 yards and move the scope an inch off the target again. How far do you miss the target now? Much more than a foot. Assumptions in a financial plan can act very similarly. For example, if we assume an inflation rate of 3% and it turns out to be 4%, that could be a problem. But its far more of a problem if 20 years of your calculations are based on 3% as opposed to, 10 or less.
Inflation is just one assumption you must make when planning for retirement. What kind of returns can we expect from your investments? What will your income needs be? What about taxes? Planning for retirement in your 30’s can feel like cutting your lawn with a weedwhacker while blindfolded. That is why I always stress the importance of short and mid-term goals. The shorter the time frame, the easier the goal is to visualize. And being on track to achieve short term goals can help us determine how much you should be contributing to your 401(k). In almost all cases you should maximize your employer match within your retirement account. But anything beyond that is going to be determined by other factors, like your ability to meet your shorter-term goals.
Financial planning is not always just about retirement. It can be about anything that is important to you that requires a bill. Planning is also anything but static. Because our lives and the world around us will always change, updating your plan every few years will be necessary. And the sooner you start planning the easier it will be. So, speak with a CERTIFIED FINANCIAL PLANNER™ today and set some goals!