Why You’re Off Track for Your Retirement (And What to Do About It)

by Jason on December 10, 2009

Perhaps you’re sitting there scratching your head, wondering what happened to your plans!

Whatever grand allusions you had for retirement – whether it was spending more time with family, more time volunteering or simply more time seeing the wonders of the world  - maybe you find yourself thinking “I may never be able to retire.”

Here are five reasons why you’re off track for your retirement goal and what to do about it.

Market Tank

The 2008-09 recession wiped out many a 401k  and along with that many retirement dreams were dashed!  We’ve had a great recovery so far and many people have gotten back some of their losses.

However, not everyone has the luxury of waiting around for the market to recover fully.

What to do:

Consider postponing retirement and/or reducing your lifestyle.  You may need to cut back the dreams of traveling every three months or getting that second home in Florida.

Also, re-evaluate your risk tolerance and time frame and consider making some changes to your portfolios.  If you find you have a longer time frame, you may be able to afford a bit more risk to make up some losses.

You Lack Specific Retirement Goals

Is retirement just a grand dream that has no plan of action around it?  You know the old cheesy saying:

Aim for nothing and you’ll hit it every time

There’s some truth to that.  Those who have a plan, review it regularly – making changes as needed – are more likely to reach their goals!

What to do

Take some time and write down what it is you’d like to accomplish.  If you’re married, I highly suggest getting on the same page with your spouse.

Write down things like:

Compare where you’re at with where you’d like to be at retirement and consider a course of action to help get you there.

You Make Emotional Decisions

“Markets are down – SELL!”,  “Markets are up – BUY!”, “I want a new 50″ TV – BUY IT”

Are you like a yo-yo when it comes to financial decisions.  This is a sure way to get off track for your retirement goals!  Emotional investing and decision making doesn’t work and will lead to some pretty bad choices.

What to do

If you change direction like the wind consider developing a plan you are comfortable with in good times and in bad.  Consider your risks, your goals and your temperment and get a plan and stick to it only making tweaks as needed.

You Don’t Know When to Sell

This can relate to emotions, but on a broader scale it’s fairly easy to know when to buy an investment.  Most people can identify a deal.  Last March when stocks were half off, there were a lot of deals to be had.

The tougher part is knowing when to sell.   Since March, markets are up some 60% – knowing when to sell is hard.  Why? Because we all want to think a rising investment will continue and we don’t want to sell early and have the stock take off

We’d rather hang on too long than give up some growth even though we might be up some 30%!  Perhaps it speaks to our greed.

What to do

Rebalance your accounts regularly.  Rebalancing simply means getting back to your original asset allocation model by selling investments that are high and buying investments that are low.

In other words if you start with a 50% stock; 50% bond portfolio and through market growth you are at 60% stock; 40% bonds – sell 10% of your stocks and reinvest into bonds.

There’s a lot of debate at how often you should do this, but I suggest at least annually and if you’re able to perhaps check the percentages quarterly to see how far from your originals you are.

You Don’t Know How Much You Need for Retirement

This was referenced above, but deserves it’s own point.  It seems like many people have no idea how much they need for retirement!  Many people assume they need a million dollars or some other really high amount and therefore they think “I’ll never be able to get there”.

What to do

Retirement is up to you!  Not the government, not your company – it’s up to you.  Therefore it’s vitally important to sit down and figure out what you want to do, how much it will cost and figure out how much you’ll need for retirement.

Don’t just take these broad “You need 70% of your pre-retirement” figures you find in some financial magazine as truth!

Everyone is different – therefore your goals are different than mine.  Make a personalized plan to figure out what you need.

How about you?

What else would you add to the list – what else have you found helpful in your retirement planning?

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{ 8 comments… read them below or add one }

Debt Free Hispanic December 10, 2009 at 11:08 am

Retirement is one of those topics that people hate discussing, but it’s for obvious reasons, people do not fully understand planning for retirement. I’m in my 20′s and I don’t understand all of it, but my wife and I are putting away 15% of our income into 403B’s and Roth IRA’s for two reasons.

1. Older people wish they could be twenty again so they can save for retirement.
2. I don’t want to be 65 and wish I was twenty again due to my retirement account.

Now I know more than the average person about retiring but thats it in a nutshell. I’m letting all my investment sit until i’m 65-70 then i’m going to really pay myself first. Thanks for the post.
.-= Debt Free Hispanic´s last blog ..JC Penny Sports Coat Deal =-.

Kevin@OutOfYourRut December 10, 2009 at 12:38 pm

The experiences of the past 10 years should convince us all to reign in grand retirement dreams. Let’s face it, we’ve had two major stock market slides and two recessions in less than a decade. So maybe we should focus less on a certain expected standard of living and more on answering the question: what do I want to do in my life.

Retirement planning should be mostly about supporting the answer to that question. For most probably won’t be some magical time when we’ll be flush with money and all of our cares will disappear, and we need to be prepared for that outcome.

From what I’ve seen in current retirees, it’s a life not at all unlike what we experience before retirement. The people who seem to do the best with it are the ones who have some over riding purpose. As Christians we should always have a purpose apart from money.
.-= Kevin@OutOfYourRut´s last blog ..Fast Track to Frequent Flyer Miles =-.

Wojciech Kulicki December 10, 2009 at 4:20 pm

What?? Don’t move down to Florida, say you? Everyone should be moving down to Florida.

Just kidding of course… (wait, not really–my day job depends on it, oops).

Anyway, in all seriousness–I think the key to facing retirement is facing reality. Yes, we’ve had some significant losses, and yes–people have woefully underestimated what they will need for retirement (or in many cases–just didn’t estimate at all).

The reality (if you’re underfunded) is: a. you’ll have to work longer; b. you’ll have to ease into (not “settle”) into a more frugal lifestyle; and c. you can’t blow your stash on that Florida house. Darn…

No amount of ignoring the truth will make more money appear out of thin air. The sooner you make a legitimate plan for retirement that has any chance of working, the sooner you can get cracking at it.

That’s my 2 cents.
.-= Wojciech Kulicki´s last blog ..Pregnancy Expenses in the Third Trimester =-.

Jason December 11, 2009 at 5:08 am

Debt Free – great point about older folks wishing they could start over in their 20′s and begin saving then! I hear that over and over again in my business! Nice job getting starting early.
.-= Jason´s last blog ..How to Alter Your Finances by Becoming a Change Agent =-.

Jason December 11, 2009 at 5:11 am

@Kevin – This is a great point you made:

“The people who seem to do the best with it are the ones who have some over riding purpose. As Christians we should always have a purpose apart from money.”

Amen! In America we seem to confuse retirement with ultimate treasure! It’s best to have a purpose and fulfill it before and during retirement.
.-= Jason´s last blog ..Would You Rather Be Filthy Rich or Extremely Poor? =-.

Jason December 11, 2009 at 5:13 am

@ Wojo – I think you hit it on the head, ultimately we do need a plan of some sort in place to help figure out how expensive retirement is compared to how much we have saved up and to Kevin’s point – how we can use our savings to help fulfill our purpose!
.-= Jason´s last blog ..Will Black Remain the New Black? =-.

Ken December 11, 2009 at 6:27 am

I think many younger folks think “I’ll get to that retirement planning later. Later never comes because they are spending all their money on “now.” Good list!
.-= Ken´s last blog ..Get Your Head in the Game! =-.

Jason December 11, 2009 at 9:43 pm

Thanks Ken – yeah, there’s always something we could be spending our money on rather than saving it up.
.-= Jason´s last blog ..Why You Have a Hard Time Sharing Your Wealth And How To Overcome It! =-.

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