Following a recent episode of The Van Wie Financial Hour, a listener hit the nail squarely on the head with his observation that learning about retirement only when it is staring you in the face is not only dysfunctional but can also be discouraging. We wholeheartedly agree. Imagine being within a short number of months or years to retirement, only to find out that you will not be financially capable of actually leaving the workplace on your preferred basis.
Absolute rules about money are simple, they are few, and once stated, they are pretty much obvious. Number One is, “More money is better than less money.” Number Two is, “Money sooner is better than money later.” Together, these two simple rules help provide a framework for Retirement Planning.
In our day jobs as Certified Financial Planners®, we guide new clients through the process of Goal Setting. Retiring Early, or Retiring Comfortably, or Getting Rich are not goals. At least not yet. Initially, they are dreams, desires, or motivators, but they are insufficient to be labeled goals.
Workable goals require actual numbers. Unfortunately, most Americans are weak in understanding pertinent numbers regarding their own future. It is not their fault. Personal finance has long been neglected in our worsening educational system, which is hopefully now reversing course. This is the crux of our listener’s recent inquiry.
Starting with the most basic, and as referenced by our listener, we need to instill in the skeptical public a simple concept: accumulating $1 Million is not insurmountable. That magical number is decades old and used to be beyond the grasp of most Americans. Going to the movies and buying a soft drink with a Quarter (as I did in the 50s) made a $1 Million goal seem impossible. Today, that $1 Million is becoming more of a necessity. Try a movie night out with a $20 bill these days. To the average ticket price of $11.75, add transportation costs, and try to buy popcorn with the remainder. Good luck.
Perceptions have not changed as much as reality. Amassing $1 Million may still seem difficult, but the sheer number of “401(k) Millionaires” indicates that this goal is no longer the hurdle it used to be. According to Fidelity Investments, 401(k) Millionaires recently reached a new high of 497,000 (just at Fidelity) and those are in addition to their $1 Million IRA owners. While that $1 Million number is not magic, and won’t apply to everyone, it is a mental milestone ingrained in most Americans.
Next week, we pick up the basics of amassing your own million(s).
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