A Guide to Freaking Out About Retirement Planning

stuart milesSometimes freaking out about something can be a good thing if it sparks us to take action on something we need to give attention to. Take retirement planning, for instance. Some people just coast along, perhaps saving money in an employer’s retirement plan and perhaps not, because retirement is years and years away. It may even be decades away.

So what’s to freak out about?

Well I’m here to suggest that we all freak out just a little bit about our retirement planning. Let’s have a sort of controlled freak out, at least until you’re finished reading this post.

Stop the complacency people! Retirement is coming. At some point we will all retire even if it is as a result of death. I think most of us would prefer to retire at some point before death, and in that case we need to plan even more.

As I’ve written about before, retirement planning involves two ideas that are seemingly opposed but must work together perfectly to ensure a financially stable retirement: wealth accumulation followed by asset drawdown.

With a topic as complicated as this, there could be many things to freak out about and certainly there are mistakes to be made when it comes to saving for retirement. I’m going to focus on four to get this started. Feel free to have your own freak out about other items that concern you!

  1. Am I saving enough for retirement? Certainly if you hope to have something to live off of in retirement you should be saving now. Actually, you should have started saving yesterday. But don’t just save blindly! Use a retirement calculator to get an idea of what your savings will accumulate to by the time you plan on retiring. Don’t like the results? You may want to try to save more. Maybe you can increase your savings annually to coincide with a raise or maybe you can simpliduce some other aspect of your life to find more savings.
  2. What am I investing in anyway? When it comes to retirement planning, some people are confused or overwhelmed when it comes to choosing how to invest their contribution. Don’t let this hold you back from saving for retirement. There’s lots of information online to help with the basics of investing for retirement. Vanguard has some basic information or check out the literature from your employer’s plan sponsor. If they offer consultation services with a financial advisor take advantage of that (just remember to take their advice with a grain of salt – they could be receiving compensation for the funds they recommend). A popular choice these days are Target Date Funds. These “fund of funds” are actively managed and consist of a variety of mutual funds that are re-balanced automatically over time so that your allocation to riskier assets (like stocks) decreases as you approach your target retirement date. These can be a good choice for some who would like a more hands off approach to asset allocation. However, there is some debate as to whether these funds provide the added value for the higher expense ratios that they charge. And again, this is not an excuse to invest blindly. Always read a fund’s prospectus to know what investments it holds and especially for Target Date Funds, how these investment allocations will change over time.
  3. I’m paying how much in fees? You absolutely must be aware of what the fees are for the funds you are invested in. As I pointed out recently in my post about investment fees, over the course of years and decades spent saving for retirement you can easily pay tens of thousands of dollars in fees. It is up to you to do your homework on this and make sure you are keeping more of your own money. Some people use 1% as a rule of thumb for a maximum expense ratio, but you can do better than that with Vanguard index funds. It’s funny how people will shop around to save money on cell phone service or even pizza delivery and all the while they have no idea how much they are paying in fees in their retirement account. If you are not freaking out about this, you really should be.
  4. How do I know what my budget will look like in retirement? Especially for those of us with many years until retirement, we may throw our hands in the air and wonder this question aloud. The best way to get a handle on what your retirement budget might look like is to keep track of your spending now. I am an advocate of taking several months (better to do a full year) to track all the money that is flowing into and out of your household as described in the book Your Money or Your Life. The only way to truly know what you are spending is to actually keep track of what you are spending. Sounds pretty obvious, but most people don’t do this. As part of taking a look at your entire financial picture, you can get an idea of what you would be spending in retirement. Expenses for clothing and commuting costs will likely decline when you are no longer working. Also consider that you may downsize your home which should reduce expenses for property taxes and utilities.

Get going

Sometimes it can be helpful to freak out about something if it helps to get us motivated to take action. With too many workers not saving enough for retirement I tend to think more of us can benefit from a little controlled freak out on this topic. If you are someone who has put off saving for retirement and now feel like you can’t catch up, just remember this wise proverb:

The best time to plant a tree is 20 years ago. The second best time is now.”

So get going.

OK, you can stop freaking out now.

What do you freak out about the most when it comes to retirement planning?

Photo courtesy of Stuart Miles/ Freedigitalphotos.net

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37 Responses to A Guide to Freaking Out About Retirement Planning

  1. Great post! You make such a good point about the fees that folks are paying on their investments. It’s important to know because it can have a big impact on the amount you wind up with!

    By the way, I nominated Green Money Stream for a Liebster Award today! See my post here for details: http://color-me-frugal.com/liebster-award/

    • Green Money Stream says:

      Thanks for stopping by, Dee! Make sure you check the investment fees you are paying.

      And thanks so much for the nomination! That’s so flattering! I’ll do a post with my answers to your questions this weekend.

  2. I like it GSM :o) I agree freaking out can be a good thing…..and very motivating. I’ve never had one of those moments about retirement planning, but other aspects of my life……oh yeah! The latest instance…..our first child was due today. No baby yet, but soon!

    Two of my closest friends just freaked out (this week) about retirement, because they are in their early 30s and don’t have a plan. They each came to me for help. They are both in fine shape financially, but it got me thinking about writing another book (geared specifically for them). Time for me to freak out again…..how am I going to write another book with a newborn :o)

    • Green Money Stream says:

      Has the baby arrived yet? It sure sounds like you will have a lot to freak out about soon, but not retirement planning.

      I do think everyone needs to pay more attention to their retirement accounts and we can probably all benefit from a little freak out.

      Good luck with the baby! How exciting!

  3. The average person should freak out and take action for their retirement. I saw a report that says the average American spends more time doing research for a flat screen than planning than for retirement Sad.

    • Green Money Stream says:

      Thanks Charles. I definitely believe that people spend more time researching a flat screen tv than planning for retirement. What a shame.

  4. I think the most important thing is to get a basic idea of what to do, and then just get started. You can always make adjustments along the way. I think too many people feel like they don’t understand what to do, so they just do nothing, which is basically the worst thing you can do. Take action! Great topic.

    • Green Money Stream says:

      I agree – definitely take action! Some people just get overwhelmed with the choices and put off making any contributions to a retirement plan. That’s a bad choice. Just start saving!

  5. I like the new look on your blog. I know many of my co-workers who don’t have a retirement plan…fortunately for them we work in government so there will be a pension (well hopefully). That seems like the only think they will rely on as they don’t save outside of that. The pension to me is a bit of a golden handcuff…kinda makes me want to stay to reap the benefits. Might be better off if I had a good matching 401k plan where I have more control. And in my current 401k (actually 457) it’s all in low cost Vanguard index funds.

    • Green Money Stream says:

      Thanks for noticing the changes, they were subtle.

      Having a pension plan is a huge help. I understand what you mean about the “golden handcuff”. That’s one downside of defined benefit plans, they usually reward longevity so if you leave employment before reaching full retirement age you leave money on the table. But on the positive side, having a pension provides a secure and reliable lifetime benefit. That’s a great thing to have.

  6. Hopefully no one freaks out about retirement too much! Making decisions in a state of panic can lead to poor outcomes. I know that wasn’t your message here, but if anyone finds themselves coming to the realization that they are super behind, then take action (the steps in the article are good ones to take) and work hard to rectify the situation. Don’t stress yourself out or beat yourself up though, that’ll only make things worse.

  7. Kylie Ofiu says:

    I have a retirement plan and it is well on track, but this has given me the kick in the butt to do something I have put off out of laziness and just not wanting to have to deal with the forms. It’s a bonus of sorts I am entitled to, but since it is not due for a few months, I have been slack. Top of my to do list now :)

  8. Syed says:

    Being young and freaking out about retirement is a good sign. Being 5 years away from retirement and freaking out about it, not so good. Time is probably the most powerful factor in saving enough. More time allows you more money to save and allows it to compound longer. Great post Kay.

  9. I had my retirement freak-out last year and that kicked me into the right gear to do something about it. Thinking about retirement is definitely a time to freak out.

    • Green Money Stream says:

      It helps with motivation to freak out a little. I probably freak out about everything too often though. :)

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  11. I freak out most about not having as much time as I’d like to save (I’m 43), and that being a freelancer, sometimes I can’t always contribute what I want each month. Both those things have me sweating a few bullets.

    • Green Money Stream says:

      Being a freelancer definitely adds a wrinkle to retirement planning. I have to imagine it is a lot harder to save.

  12. With only 9 years to go and almost no money saved until retirement I get a little freaked out some days. I will be saving $10,000 each year for the next 9 years and I hope that will be enough when combined with my teeny tiny work pension ($3,000 per year) and a small pension from the Canadian government.

    Some times I am calm and stick with the plan and some times I just freak out and worry that I will have to work forever.

    • Green Money Stream says:

      We all freak out from time to time. You have devised a good plan and I know you are doing a good job of sticking to it. So you are already doing better than a lot of people. Thanks for stopping by!

  13. Daisy says:

    LOL. Every once in awhile I do freak out about retirement planning, but then I have to remind myself that I’m still in my mid twenties, and I have a defined benefit pension plan, retirement savings account, AND a tax free savings account, all for the purpose of retiring comfortably. When I read some articles about having $200,000 in a retirement savings account by the time you’re 30, like Well Heeled Blog recently wrote about (and I so admire that), I freak out a bit, too.

    • Green Money Stream says:

      Wow, it sounds like you are off to a great start. Keep it up and you won’t have to freak out at all!

  14. MMD says:

    These are all good points to think about. The one that makes me freak out: Will I run out of money? Say things don’t go so well and my retirement investments aren’t able to keep up the way I anticipated they would. I guess I’d be greeting people at the door at Walmart. :)

    • Green Money Stream says:

      Running out of money in retirement is definitely something to freak out about. That is the one I worry about the most as well. It’s tied to the question of “how much is enough to retire”? No one can answer it with certainty and that is what concerns me.

  15. I really like this post. Retirement is most definitely coming, and for many people it will be sooner than preferred due to issues we can’t totally foresee well ahead of time. It’s often how that works, with job loss, ageism, health issues, etc. There is no better time to start planning than now for that inevitable need in life.

    • Green Money Stream says:

      Thanks Ray! You make a good point – retirement does come sooner for many people due to circumstances that they can’t for see, especially health issues. Just like you said, there is no better time to start than now.

  16. debT debS says:

    I am freaking out because I’m trying to get our debt paid off so my husband can retire in about 5 years. He is 7 years older than me. Our investments are not doing too bad but it would be nice to put more in but that’s not gonna happen for now.

    I find the different calculators for retirement planning yield different results. I know that they say use 70% of income as a rule-of-thumb for retirement income needs but I think that is too high. I’m hoping for ours to be 50%. I noticed that Vanguard site will only let me go down to 60%. Who knows what the real number will be but it’s definitely something to start thinking about so all the info I can gather helps!

    Thanks! Good post!

    • Green Money Stream says:

      Thanks! You make a great point about the retirement calculators. It’s a good idea to try a couple of different ones or even create your own spreadsheet. I agree about the replacement ratios – 70% is probably too high for most of us in the PF community. I appreciate the great comment.

  17. Great post Kay. I’m still freaking out a little, and I know exactly how much I save, where I save it, the fees, and my projected budget. I think the thing I worry most about is if I’m saving it in the right place. I know I am, but there is still that unreasonable and irrational fear of the market crashing that will wipe out my 401k. I know I’ve got 30+ years before I touch it, so naturally the market will crash. But it’s hard to ignore that loss aversion.

    • Green Money Stream says:

      I don’t think it’s an irrational fear that the market will crash since we all have 2008 still on our minds. It’ll be in our mass psyche for some time to come now. But it sounds like you are doing a good job to prepare for retirement and since you have a long time horizon, you should be able to recover from any market bumps.

  18. I don’t freak out about it. I know what my expenses will be. I know they won’t be as high as my current living expenses because my house will be paid off plus all the benefits/discounts for seniors etc.
    I plan for the worst, hope for the best.

  19. Great post! I agree that the best time to start is now, no matter how many years into retirement we are. From personal experience, I wish more people start thinking about retirement when they were younger, saves some major headaches.

    • Green Money Stream says:

      I agree, no matter how young someone is they should just start saving something. The compounding effect can have impressive results over time, so you are always better off starting as early as possible.

  20. Peter says:

    As long as freaking out is temporary and its leading to positive action, it’s all good. Just realizing that it’s better late than never and accepting the situation as is and it’s all about being content with what you got now.

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