If you’re like me, you grew up hearing about the “American Dream”. That dream can sound like finishing K-12 and going off to college to learn the skills you need for your lifetime career. Likewise, your American Dream could’ve sound like, the one I hear often, joining the military and earning a pension.
Maybe your dream sounded differently? Please share it in the comments.
Whatever your dream sounded like, I think that it carried a similar message as the ones I shared. That message is to commit to a singular career path, company, or industry and give it the next 20-40 years of your life and secure a pension. Although that plan has and will work for many of us, others are inclined to take a different path.
Many people that I talk to about retirement seem to have misconceptions about, not only when they’ll be able to retire, but how much they’ll need to have saved. That disparity will only lead to a whole generation of people in their 70s still stressing about making a living.
Is that the fate that we’re all destined to? I don’t think it has to be.
On the other hand, I have spoken to people who are planning on working forever (no judgement here). However, what happens when that is not possible? If your plan is to work forever, I’m not discouraging you from doing so. I just want you to consider that health and other complications may not allow you to work forever.
I recently read an article that stated only 28 percent of millennials plan to stay at their current job beyond 5 years. Many of us will probably have several careers in our lifetime, which is much different from the path our parents and grandparents chose to take.
If our career pathways are not the same, what does that say about our retirement planning? We can’t and aren’t counting on stable social security. We aren’t staying at one company long enough for a defined benefit plan (if they even offer it, because many organizations are not).
A defined benefit plan is a company pension calculated based on length of service and salary at retirement. For many companies, it based on an employee working a minimum amount of years (that 20-40 we talked about).
So, without a defined benefit, what is the plan for us?
We must start rethinking retirement.
First things first, we need to take our retirement into our own hands. Do not base your retirement plan on social security, because it may not be there to lean on. Do not completely base your retirement plan on a defined pension plan, because that is betting your livelihood on staying at one organization (which many of us are not). Keep those retirement plans in mind to contribute to your personal retirement planning, but don’t rely on them.
Second, you need to consider two numbers. At what age would you like to stop “working for a living”? Now, that doesn’t mean you CAN’T or WON’T work. This is the age where you would like all your contributions to be enough to fund your necessities of living until you pass. Keep in mind that in the U.S, on average, we are living to about 76 years old.
The second number that you need to consider is your retirement fund goal. So, if you would like to “retire” at 45 and you are 25 now, you need to find out how much money you need to have saved at 45. The goal is to have that number cover your basic living costs for the rest of your life, if you cannot continue adding to it. Search on the web for a retirement calculator to find out how much that might be for you.
After you have figured out your age and fund goal, your next step will be to find the right tools to get you there. We will cover different funds and tools you can use to build your retirement in part two of this blog.
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As always, with love,