How will millennials, Gen X and baby boomers approach saving for and living in retirement? The Retirement Reimagined Study from Schwab uses advanced predictive modeling techniques to forecast how each generation will save and live in retirement. Key findings reveal millennials specifically are looking at retirement less as a target date and more like a state of mind.
Here’s what happens once we begin to look at retirement as a target financial state and not a date, plus a few simple ways you can start viewing retirement as a target lifestyle now.
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Thinking About Retirement as a Financial State Is Empowering
The new way to look at one’s money is not through accumulation, said Michael Liersch, Ph.D. in behavioral science and head of advice and planning for Wells Fargo Wealth and Investment Management. It’s about sustainability over all the moments of one’s life.
“When we reframe retirement as simply a way of sustaining our lifestyle, it becomes much more motivating to be deliberate about your saving, spending, investing and giving decisions on a regular basis,” said Liersch.
Set it and forget it isn’t the right answer. Instead, Liersch said you should feel empowered to regularly evaluate whether your money is working hard to accomplish the things that you’d like to get done in your life.
Viewing retirement as a financial state opens doors for other options
Thinking about retirement in terms of a specific age or date increases the potential for the retirement plan to fail in the long-term. However, Paul Swanson, vice president, retirement at Cuna Mutual Group, said when retirement is viewed as a financial state it opens the door to other options.
Swanson uses the example of a situation in which a retiree hasn’t accumulated enough money to leave the workforce entirely and maintain their current lifestyle. One option they may consider is working part-time to keep from drawing down their assets too quickly.
George Nicola — CFP, SVP and chief investment officer at First Bank Wealth Management — said retirement itself is not an end game. This can give hope to those that may have been late planning and saving for retirement as the goal post can be moved a little further to allow for a more comfortable retirement.
One’s human capital does not cease to exist simply because they retired. Rather, this is the beginning of a new chapter of one’s life and a purposeful retirement will be the best job one could have.
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Retirement means different things to different people and will happen at various ages under varying circumstances. Here are a few aspects of the retirement journey you can start thinking about that will increase your chances for a successful and enjoyable retirement.
Start dreaming and set goals
Lacy Garcia, founder and CEO of Willow, recommends using this time to start dreaming and setting goals. Take the first steps now that will help your future self achieve them.
Ask yourself questions like:
Where do you want to live?
What activities or hobbies do you want to have the freedom to pursue?
Do you want to travel?
What are you most passionate about?
What gives you purpose?
As you make a list of things you enjoy doing or would like to explore or learn more about, Swanson said to mentally picture yourself in that scenario. This can help create an emotional connection to your vision that helps you stick to a savings goal.
Never think of retirement as an arbitrary amount of savings
Garcia recommends considering your current finances and future income. Then, think about your goals and dreams for your life in retirement. The amount you need to have saved in order to retire completely depends on how much you plan to spend during retirement, not the other way around.
“Figuring out the best retirement plan and withdrawal strategy should be as unique as you are,” said Garcia.
Create a retirement budget that addresses two scenarios
Once you create a retirement budget highlighting potential expenses and income, Swanson recommends creating two scenarios for this budget.
One budget may be created with very conservative goals while the other is more extravagant and allows for major expenses like vacations, expensive hobbies or new vehicles. While your target lifestyle reality is more than likely to fall between those two scenarios, you’ll have an idea of what it will take to make that happen.
The earlier you save for retirement, the better
While it’s never too late to start saving for retirement, saving now means you’re investing in your future self. Garcia recommends maxing out your employer’s 401(k) plan if you’re employed and your employer matches your contributions.
Those that are married, but not currently employed may consider a spousal IRA. While you and your partner may have individual goals for your retirements, it’s a fantastic idea to have joint goals for retirement that you can both work towards together.
“Write down a dream you both have for your retirements. Revisit that dream often, acknowledge the progress you’ve both made towards it, and remember that every time you can save that extra dollar, you’re one step closer to making that dream a reality for your future selves,” said Garcia.
Our world, and lives, are ever-changing and complex with many new technologies that make it easier to save for retirement. Garcia recommends creating a plan for your retirement finances. Then, revisit it at least once a year and remind yourself that it’s okay to be flexible and make changes along the way.
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This article originally appeared on GOBankingRates.com: Retirement is a financial state, not a date: here’s why, according to experts