The fear of running out of money during retirement is a real beast for many Americans. How about yourself? Have you saved enough money for a comfortable retirement? How about your social security benefits? Can you wait until age 67 or maybe even later to claim the highest possible amount? Or are you forced into applying for social security benefits early – having to take a lower payout rate?
I always approached retirement as something very far away. I followed the standard advice to put some money into the 401K plan, but other than that there was no retirement specific action I took for the longest time. It was one of the biggest financial mistakes I have ever made.
Of course, my wife and I saved additional monies, we built up an emergency fund that would cover us for about 8 months now. We saved enough money to be able to buy our cars in cash, but we also drove them for an above average time. We were financially responsible. But retirement was still so far away, we never had an idea what to expect and I think that is where the system in the United States fails its citizens.
Last year, 2018 – we finally took ownership of our finances and started running number scenarios with the idea to identify when we could actually retire. I had very big concerns that we would have to work until age 67 or longer, but also realized that we were flying blind. It was a suspicion, a fear – but nothing based on numbers. This year, 2019 – we took it a step further and modified our savings approach and optimized our investments. I am also spending a lot of time educating myself about financial independence and what it takes to reach that goal.
But to reach that goal of retirement or maybe even early retirement decisions must be made. In the past this was easy because “financial consequences” were not necessarily showing an impact regarding retirement – or so we thought at least.
Anyway, we are not skimping around. Decisions need to be made, but I know not every decision will be 100% correct in what we are trying to achieve. We will make mistakes, but I am also certain that I would rather make a decision that turns out to be less optimal or bad compared to making no decision at all. “Not optimal or bad” really means we might not see the anticipated return on investment in the amount expected. I am not talking about, throwing money carelessly at crazy stupid investment types that promise unbelievable returns.
Any type of decision requires to be monitored and allow for adjustment as we progress down the path to financial independence.
But this applies to everything in life. If you fail to make decisions or always try to make that perfect decision you are making a big mistake. Decisions need to be made and in many cases, you do not want to mess around. You need to be able to make fast decisions and carry on. If you fail to do so the consequences can be very dramatic. Making no decisions or prolonging the process can even be irreversible.
Let’s take saving money for retirement. You failed to sign up for your company’s 401K plan when you started working there. Years go by and not a single dollar goes into your 401K account even though your employer offers a 50 cents on the dollar match for the first 5 percent. The stock market continues to soar, and you feel it is not worth investing into your 401K because what if the stock market crashes the next day.
So, what are the two options that you have? Option #1: You start investing into your 401K plan with 5 percent to get the employer match. Three months later the stock market crashes and your 401K plan balance – low of course – loses 25 percent. But you continue contributing to your 401K plan and 15 months later the stock market has recovered to previous highs. Your balance is nicely growing because you were able to buy stock funds at a “discount” during that downturn. In addition, your employer’s match is helping as well to grow the balance.
Option #2: You are afraid the stock market will crash, and it is too late in your life anyway to save a significant amount of money that would be meaningful for your retirement. Or you rather wait until the market crashes and then you start investing. You are not making the decision to invest (or do you want to say you purposely decided to sit out the next market downturn and then you will look at it again). So, let’s assume the market does not crash a few months later and keeps going up by 15 percent for the next two years. You are still on the sideline and have not saved a single dollar for your retirement.
I think it is obvious what the right thing to do is. You must make a decision and in this case the decision would be a no-brainer anyway because no matter how close you are to retirement, having even a few thousand dollars more compared to an empty bank account will make a significant difference. You should choose option #1 and simply stick it out if needed.
Don’t be afraid to make decisions. Take a look at the 100-year chart of the Dow Jones. No matter how big a potential drop has been in the past, stocks will always go up. A decision to enter the market would always work out – assuming that you enter the market with a long-term vision (which you should). The decision to invest into your company’s 401K should be such a long-term decision and you will end better off for sure.
Do not be afraid to make decisions. Spend appropriate time to research your decisions but avoid falling victim to paralysis by analysis. Make a decision, monitor the outcome and do not be afraid to make a correcting decision if needed. But you can only make that correction because you made a decision in the first place.