One of the hardest aspects of working with new retirement plan participants is telling them they can’t retire when they want to, but one of the best aspects is being able to tell plan participants that it is possible to meet their retirement goals.
We work with both types of plan participants—those who are proactive in planning their retirement and those who are not. It’s never fun breaking the news to someone that they did not plan correctly for retirement, but luckily, this can be avoided.
We advise clients that the best time to start planning for retirement or contributing savings to a 401(k) is now. There is no reason to wait.
Let’s take a look at two examples of interactions I have had with plan participants who did not have thorough plans for their retirement:
I was meeting with a new client last week doing one-on-one employee education meetings. In these one-on-one meetings I have the opportunity to talk with plan participants about their retirement expectations, answer questions and provide insight and expert advice to help them achieve their retirement goals.
In this particular instance, the plan participant had an expectation about his retirement we unfortunately hear far too often. I asked him when he wanted to retire and he answered with “Probably at 63 or 64, but I don’t want to talk about it until I am really ready to retire.” He is currently 54 years-old and has done a fairly good job saving and investing his retirement dollars. However, he was under the impression that he had enough of a “plan” to retire (and talk about retirement) when he was ready. I asked him what his response would be if we were sitting in the same chairs roughly 10 years from now and I told him that he would not be able to afford to retire—he gave me a startled look and said he wouldn’t be too happy. I agreed.
We’re getting together again to do some planning so that when he is ready to retire he will have had the right savings plan in place to do so.
Take a look at another example of a plan participant we worked with a few years ago who waited too long to plan for retirement.
Our team was out doing one-on-one employee education meetings and this plan participant came and sat down with me. This was the first time she had ever talked with someone about her 401(k). She came in with a smile and told me she had been thinking a lot about retirement and it might be time for her to call it quits. I said, “That’s great, let’s take a look!”
I pulled up her account balance and her age. She was 63 years old and her account balance was a little more than $6,000. After seeing her balance, I asked “ Do you have any other assets that would contribute to your retirement income?” She replied “No.” Then I asked “How much do you currently earn per year and how much do you expect to get from Social Security?” She had an annual income of $45,000 and expected to receive roughly $1,200 per month from Social Security. I had to break it to her that unless she can live on about $1500 month, she wasn’t going to be able to retire. The look on her face was heartbreaking.
So when is the best time to start planning for retirement? The answer is simple. Start saving for retirement now.
Regardless of your age and what you have saved (or not saved) for retirement, there is never a better time to start saving than now. Don’t wind up in a position like my participants described above who thought retirement just magically happens. Be informed. Even if you can’t make up your gap in retirement saving immediately, understanding where you are at in your retirement savings plan will give you the ability to take small steps and improve your chances to retire on your own terms.
Mark Laughton, Vice President