Retiring successfully can feel more like a maze than a road because it is a maze. The retirement maze is a combination of investing, saving, contributions to retirement plans, career, company benefits, maybe a part-time job in retirement, managing government benefits such as Medicare and Social Security, inheritance, education, supporting children, supporting or helping aging parents, family businesses, making a difference in our communities, life insurance, taxes, buy or lease decisions, and debt management—to name just a few. And not to add any pressure, but a mistake in just a few of these items can derail a good retirement plan.
Navigating the retirement maze starts with accounting basics, such as income statements and balance sheets. As investors, we expect the companies we invest in to have a viable income statement over a period of years and a balance sheet that can survive all the unknowns such as a recession, government regulations, new competitors and more. An individual should do the same things they expect a company they invest in to do when they plan for retirement. They should have solid income statements, as well as balance sheets that can endure many of the variables a retiree will face over a 20- or 30-year period.
As an accounting refresher, an income statement shows income - expenses = excess or deficit income. A balance sheet shows a person’s assets - liabilities = net worth. Both are important and need to be managed. (For related reading, see: Evaluating Your Personal Financial Statement.)
Okay, so now that I have laid out at a high level a few of the variables that go into the maze and touched on a person’s income statement and balance sheet, let’s look at three strategies you might consider when it comes to managing that retirement maze.
Don't Plan for Retirement Alone
I know, I know. Over 50% of you, according to an Aite Group survey, are do-it-yourselfers, and although this is admired as a core American virtue, it might not be the best idea when it comes to managing the retirement maze. If you invested in a company, even a small one, you fully expect good governance. Good governance means the company has checks and balances in place to hold the leaders who are running the company accountable. A common denominator among well-run companies is that most of them have CEOs, which would be the retiree in this example. But they also have CFOs, general counsel, COOs, and if these leaders are not doing their jobs, the CEO needs to address the lack of performance!
A person preparing for retirement should also hire attorneys to help with estate planning, tax professionals to help with their taxes, financial advisors to collaborate with on retirement decisions and insurance professionals to help you understand and make insurance decisions. Just as in the example above, the retiree needs to hold these professionals accountable, and if they are not doing the job, they should take action. That does not necessarily mean the investor does the job themselves; they may need to hire someone else who is qualified to get the job done.
Track Your Retirement Planning Progress
Keeping score is an important part of managing the retirement maze. Back to the investor analogy—most of us would not even consider investing in a company that does not have reports that show how they are doing, trends and whether a strategy is working or not. This also holds true for a retirement plan. A person needs to track how they are doing in order to make informed decisions as they work their way through the maze. Sometimes a decision with one of the variables will have an impact on one of the other variables, and the only way to even be aware of this is to keep records and have a way to review reports accordingly. There are some very good planning tools to help investors with this strategy. I will say it again though: in my opinion, an investor should not do this alone. Some of the tools can take as much as a 100 hours or more to really learn, so it makes sense to work with someone who uses the tools regularly. It might cost you some money in dollars and cents but it will likely give you a favorable return in terms of time, missed information and lost opportunity. (For more from this author, see: 6 Risks to Your Retirement Plan.)
This does not mean an investor needs to be an expert in any one of the variables they might be working on. The person building or working on the retirement plan wants to be knowledgeable enough to understand what their options and costs are. Almost all strategies present more than one good way to achieve something. When I say "costs" here, I am referring to the real costs, i.e. what does a decision cost you in dollars and cents, and I am also referring to what the opportunity costs are, i.e. the potential costs of not doing something. The first part of the cost equation is typically easy, the second part is more subjective and harder to measure. Lastly, my suggestion is to work with a professional who educates versus sells.
In summary, the retirement maze is real. And it can seem so overwhelming that some people make decisions when they are required to and then put that decision on autopilot. An example of this is when a new employee decides how much he/she is contributing to their 401(k) and how it is invested. It is surprising how many times this is a one-time decision not revisited for years. My suggestion is to not go it alone. Track your progress and become knowledgeable along the way. I am confident these three strategies will make navigating the retirement maze less stressful, provide you with more confidence in the decision-making process, and will likely increase your chances of successfully making it through!
(For more from this author, see: How to Diversify With a Style-Based Approach.)