Why Is Retirement Planning Important?
Have you ever wanted something so much but not quite known how to make it happen?
For example, 3 months ago my wife gave birth to our second child. And as she’s recovered and gotten back on her feet, she really wanted to lose the baby weight gained during pregnancy.
During the first 6 weeks, my wife waited patiently as she hoped the pounds would start falling off.
She tried fewer sweets and started taking walks and becoming active again.
But as she stepped onto that scale 6 weeks after giving birth - her weight was the same it had been since week 3 (postpartum).
Unchanged - still with an extra 25 pounds staring her back in the face (her words…).
She came to me with her pride swallowed, raised her hand, and simply said - “I need help losing 25-pounds of baby weight… Please help me.”
It’s a long and winding story about our past as it relates to me giving her fitness tips, but essentially - the last time she asked it hadn’t gone so well…
So I treated this situation with as much delicacy as a pastry chef adding the finishing touches on a 7-layer cake.
In a few hours, we had worked together to outline a plan and the following day, my wife began taking calculated and deliberate actions to shed the pounds.
No more hoping and wishing. Her plan was based off my personal experience losing 65-pounds for good and that of many folks I’ve worked with to lose a ton of weight.
My wife took action with a simple, concise, and effective plan, and 1-month later (today) - she’s already lost 35% of the weight. In 2 months time, she’ll be exactly where she needs to be.
My point with this story - you can hope and wish for a wealthy and prosperous retirement all you want… But without a simple, concise, and effective plan - you’re likely to continue hoping and wishing while you’re needing to work through retirement.
Don’t coast toward retirement without a plan, take action to save - and start doing it right now
Much like you don’t want to be the person who wakes up in 20 years with those “extra 30 pounds” you were never able to shake, neither do you want to neglect your retirement planning.
But (as we’ve discussed above) wanting to have a plump retirement account and actually producing one are 2 different things.
Lucky for us - retiring with more than enough is not incredibly complicated. In fact, there are only 3 real traits you need to have as a successful individual investor.
But if you don’t fully master and exercise these three traits, you’re at risk of tightening the old financial belt during the time when you should be letting loose.
Why is Retirement Planning So Important, Anyway...?
Time is the most important factor that you absolutely cannot take for granted.
OK. Before we go any further, stop what you’re doing and make sure you’re taking action on retirement planning right now!
I’m not as concerned with what type of plan you have in place (e.g. 401k, IRA, individual brokerage account, etc.).
My point of contention is that you should be investing some portion of your income toward your retirement. And no matter your age - there are very few exceptions to this rule.
In my day job, I’m the CEO of a small business. As our busines
has grown from nothing to a company with now 7 employees and close to 7-figure income, I’ve pushed hard to expand the range of benefits we offer to our team.
I remember rolling out our 401k program just like it was yesterday. Our staff knew that they should be investing in their retriement, but they either didn’t quite know how to do it or why it was so important that they started investing right away.
I asked them the following question to illustrate the nature of compounding interest, determine why it’s so powerful, and better understand how their investments will grow over time.
What would you rather have - a million dollars cash right now OR a penny doubled every day for 30 days.
My question was met with a few eye-rolls and two, “A million right now sounds pretty good to me...”
After allowing them to ponder for a minute, I showed them this table:
We discussed how this illustration relates to their retirement accounts. Meaning that by doubling $5.12 (like on Day 10, for example), you’re left with a measly $10.24 as a result.
However, when you start doubling tens of thousands of dollars, like on days 20-25, for example, your money is working much harder for you.
And that same percentage increase in your funds - when applied to a much larger dollar amount - yields comparatively huge results.
But, I told them that without the main ingredient - time - you don’t give your money the opportunity to grow to such large dollar amounts that a market increase of 7%, for example, can make a significant impact on your retirement accounts.
7% of $100 = $7
7% of $500,000 = $35,000
And, as I told them in that meeting - the only way an average investor (like ourselves) can get up to that $500,000 total is by starting early.
By starting NOW and using all the precious time we have at our disposal...
But time can only take us so far without:
Invest in your future every single time you get paid.
Just as the sun will rise tomorrow, so too will you contribute toward your retirement every month.
Because you can only realize the benefit of time if you also take advantage of consistent investment into your retirement accounts.
And just like eating the same old low-fat and ‘good for you’ foods can get boring and redundant, continually putting away $100 from your paycheck toward retirement can too, seem insignificant after a while.
But watch what happens when you fall of either wagon…
The pounds will quickly pack on, just as the sporadically-invested-into retirement account will pale in comparison to the one with a constant monthly stream of cash.
For our Team, we established investments into their retirement accounts via an automatic paycheck deduction.
Meaning, they’ll never see the cash in their bank accounts and have the opportunity to spend it. It’ll go straight toward their future selves.
And to take it up to the “pro level” I have encouraged each of them to take advantage of the automatic increasing function that our retirement account allows.
By doing so, their contribution of 2%, for example, can automatically increase to 2.5% or 3% the following year - depending on their desires.
Here are 2 examples of investment accounts, one with a regular contribution of $100/month and the other with no contribution.
Both accounts begin with $50,000 and earn a 7% rate of return. You can begin to see what “small” additions can add up to in 30 years...
These figures are courtesy of Bankrate
Trust the process!
Looking at the table above or either one of these graphs, it’s easy to see that investing takes a long time until you begin to see “significant” results.
That’s why a healthy dose of patience is needed when executing on your retirement planning.
Once you’ve identified the type of account that is right for you and the values you are going to contribute, the most effective strategy is to sit back and just let automation do the job.
Don’t check the account daily, don’t obsess over the market you chose to invest in, and just trust the process.
Because in 10 years, it’ll be difficult to visualize large-scale change. In this scenario, it’s easy to get bogged down and discouraged.
Don’t let that happen.
When I’m working with someone who wants to lose weight, one of my few stipulations is that they take “before” pictures and then hide them for the first few months.
Then, after they’ve worked hard for the first 3 months and hit a plateau (temporarily stop losing weight), I have them take those pictures out of hiding.
Every time, they’re shocked with the former version of themselves and the progress they’ve made. That inspiration restokes the fire and keeps them pushing ahead.
Take this principle and apply it to your investments.
Invest early, invest consistently, and then check the statements at the end of the year, and who knows… you may just be a wealthy investor before you know it!
Mike is a small-business CEO and blogger at MikedUp Blog where he writes about building wealth, achieving a healthier version of yourself, increasing business profits, and more… all in support of a healthier you! There’s always room for one more on the Team if you’re looking to improve.