For a successful retirement, don’t follow the crowd

For a successful retirement, don’t follow the crowd

As youngsters in school, we were greatly influenced by our peer group.  We listened to the same music, wore the same clothes, played the same sports, and generally liked the same things.  We wanted to be accepted and popular so we tried to be like others so they would like us.  Being different took courage and often led to loneliness.  Adults are a more diverse and tolerant group, but the same principle applies within many subcategories of interests, such as careers, families, sports, entertainment, politics, and other interests.  Why is that?  The easy answer is that birds of a feather flock together.  I don’t disagree with this reality because there is a comfort associating with others who share my values and interests.  With multiple interests, different peer groups of friends or associates may be required.   When I was young, I had several groups of friends who were interested in school, gymnastics, jazz, clubs and fraternities, politics, investments, and law.  My friends were very different from each other and I liked them all for different reasons. 

The above strategy of “go along to get along” works fine in school and business but not for retirement planning.  It also tends to explain one reason why pre-retirees follow the crowd and fail to achieve their objectives.  Unfortunately, it you do what everyone else does, you likely will get what they get.  The facts are that a large percentage of older Americans are financially ill-prepared for retirement.

Of course, they don’t plan to fail, but they fail to plan.  They wait too long to get started and don’t benefit from the power of compounding.  They don’t learn basic economic and investment principles, but instead seek stock tips and advice from well-meaning but unqualified friends or advisors or “rules of thumb” from popular financial magazines.  Many have 401(k) plans at work with 3-5% employer matching contributions, but they pass on this free money by not participating.  I understand that family expenses, poor health, and spotty work histories interfere with the need to save at an early age.  Often this pattern of disregarding the future continues when things stabilize. 

Unfortunately, in the United States many seniors did not or could not save for retirement.  They must rely on Social Security and employment, if available.  This is a national crisis.  Previously, corporate America provided pensions for their employees with guaranteed lifetime income.  Today, only government employers and labor unions provide pensions, and most are seriously underfunded.  Unless future market returns are extraordinary or government revenues are high enough to pay billions of dollars to restore the pension plan’s financial stability, this crisis will get worse.  Is it likely that politicians will redirect their spending to shore up the pension funds or terminate them in favor or only offering 401(k) plan?  Will voters approve higher taxes to help seniors with inadequate retirement incomes?  Will Americans spend less today to have a greater nest egg tomorrow?  Will politicians make hard but responsible choices if it jeopardizes their re-election success?  I suggest the answer to these questions is “no”.  Everyone will follow the crowd, do what they have done before, but still expect or hope for a different result.  As a country, the problem is huge and sad.  For each potential retiree, it’s a disaster.

Realistically, there are either people at work or money at work. In theory, we can work forever and not need a retirement plan.  This may be a lifestyle choice for those who are financially independent, but a disaster for most who face the inability to continue working because of layoffs, age, poor health, and no backup plan.  Excluding lottery winners, inheritors, and those willing to live on social security, we need a pool of funds sufficient to provide the desired monthly income for our entire lifetime. 

There may be no perfect solution but following the crowd and doing nothing is not the right answer because it will only magnify the problem over time.  There are unpopular financial solutions to reduce the government/employer risk but they will also reduce the employee benefit.  Ultimately, the employee will have to take more responsibility for his or her future retirement.  This responsibility may lead to learning some financial principles, actively creating a plan, and opening bigger future possibilities by creating retirement income not merely sufficient to fund your needs, but also your wants for a happier, more fulfilling future.

So what should you do differently than following the crowd?  You are not a generic person like everyone else, but a complex individual with unique interests, needs, and wants.  I suggest that you start from the bottom up.  Review your current lifestyle, reflect on how happy you are with your current level of spending, and whether you can afford the things you enjoy.  Ask what more you would like, what positive difference it would make for your family, and what you are willing to give up to achieve it.  Once you understand the likes and dislikes for your spouse and yourself, and how important they are to you, commit to what changes you are willing to make so that your future could be better than the present.  Only you know what makes you happy.  Your dreams are different than those of your friends.  Yes, dream, envision the possibilities, and then select an experienced Certified Financial Planner® who you trust, respect, and with whom you would feel comfortable sharing your personal feelings, so her or she could help you strategize and develop a realistic plan for you to achieve and live your dream.  Your CFP® will have the skills to solve financial issues and provide viable alternative solutions. 

As part of a series of retirement strategies, my last blog discussed the power of compounding.  Upcoming blogs will discuss some financial planning tips to make smart decisions with your money, and investment strategies to implement your plan to achieve increasing assets so that you ultimately will have sufficient wealth to fund your successful retirement. 

Marv Kaye, J.D., CFP®                                                                                                                         President and CEO                                                                                                                             Kaye Capital Management