Save as if you are going to live forever.  Live as if you only have today.

Too often, we find ourselves doing one or the other, and that just doesn’t work.

If you are saving money as if you are going to live forever, but you forget to enjoy your life and live it to the fullest, you may have learned valuable ways to save, but you will have missed out on valuable experiences and many of the rewards associated with working hard and being responsible.

If you live as if you only have today, but you do not save, you better plan on working on your last day because you won’t have any money to spend anyway.

“It boils down to balance”

Like so many things in our lives, it boils down to balance…achieving the right mix between “taking responsibility” and “having fun,” and “planning” and “leaving time for spontaneity.”

This is a particularly relevant topic these days given the uncertain economic times we have been in and will probably continue to face for several more years.  If you are thinking about retiring or you plan on doing so in the next five years, you are probably very concerned about ways to save money and which financial tools best fit your needs, ranging from a Share Account or Money Market, to an IRA or even a traditional credit union Savings Account.  Unfortunately, there are no magic answers, but if you have a plan and you have followed that plan, then chances are you will continue to grow your savings and be just fine in your golden years.

“Sound financial plans carry the day”

Whether times are good or challenging, sound financial plans are going to carry the day.  It’s just easier to relax and not worry when times are good.  If you have lived within your means, adhered to your budget, and set money aside for future needs, you should take a deep breath.  Everything is going to be okay no matter how rotten the economy is. But, if you have not done those things and retirement is beckoning, you have some additional steps to take, and growing your savings should be at the top of the list.

A common mistake in retirement planning is to assume that you will be able to change habits and make do with less once you are no longer working full time.  The fact is that if you have spent your whole life living a certain way, you will simply not be able to change your ways just because you are no longer working.  How much money will you need to feel comfortable when you finally do set out to retire? That is a good question and the answer varies person to person.  According to AARP, in a recent article entitled, “How Much Money Do I Need to Retire”: “It all depends on what you've saved and how well you wish to live.”
 
“Saving money is a skill”

Planning for retirement and saving money is a skill, not unlike learning to fly a plane or run a restaurant.  You probably don’t believe that you could jump into the seat of a 747 and fly it without any training.  Most people don’t think they can run a restaurant just because they have eaten in one.  Retirement planning is no different, so forget the idea that you will simply adjust your spending habits or your living needs.

According to Forbes, the following are “5 Steps To Take, In The 15 Years Before Retirement, To Make Sure You Don't Run Out Of Money”:

1. Track your expenses now
2. Start living like a retiree now
3. Increase your savings
4. Start exploring your Social Security options
5. Don’t invest too conservatively

It would be a much better exercise to reasonably project what your expenses will be and what you would like to accomplish during your retirement then try to figure out how you will make it work.  This, of course, is much easier to do if you took the time to develop a plan earlier in your working career. However, as long as you are still in the planning stages, it is not impossible to come up with a plan late in the game as long as you are open to what the solutions will be.  For example, you may have to be prepared to work longer than you had originally thought.  You will almost certainly have to start working on new saving habits if you didn’t already have an established savings goal. These are problems with a solution, however, and that is good news for anyone facing any type of challenge.  The real worry is when you face a problem for which there is no solution.

“Retirement age plays a big role”

Another common mistake in retirement planning is underestimating the impact of the changes that will occur in your expenses and needs as you get older.  Your retirement age plays a big role here.  If you plan to retire at a younger age, be sure to account for higher insurance premiums and lower social security benefits.  If you retire at an older age, you should be prepared for higher overall medical expenses and potentially higher taxes as you gain access to retirement funds.

Additionally, many people mistakenly believe that one source will carry them through their retirement years.  Some people think that their social security benefits will cover their needs.  Others believe that if they have a pension, it will be enough to ensure that their financial needs are met when they are no longer working full time.  They may be right, but why risk it?

According to the Washington Post: “A shocking number of workers — 79 percent — expect to supplement their retirement income by getting a job, according to the Employee Benefit Research Institute (EBRI). Just one problem if this is your retirement plan: What if you can’t work?

“The back-up plan”

An essential part of financial planning is the back-up plan, the part of the plan that you rely on when things don’t go exactly the way that you thought they would.  Heading into retirement and needing everything to be what you planned for it to be does not sound like a very realistic or dependable strategy.  You will greatly increase your peace of mind and your chances for a successful retirement if you have a contingency source or back-up funds.  

Lastly, don’t assume that you will not live a long and fulfilling life.  Our life expectancies are constantly rising.  Embrace the thought of a long life, don’t bet on a shorter one and then end up disappointed because you are out of money.  When you are looking at your plan and determining how reasonable it is for your needs, be sure to include plenty of happy retirement years for yourself.

The common theme in a strong financial plan is to develop one as early in your life as possible.  According to a recent US World News and Reports article entitled, “How to Kick-Start Your Retirement Savings in 2018”: “It doesn't matter whether you're 20 or 60. You need to be saving for retirement. If that's something that's been on the back burner, make 2018 the year you focus on preparing for your future.”

Make adjustments as necessary, but allow yourself to enjoy the full rewards of your hard work and fiscal discipline.  A well thought out financial strategy that is tailored to you and your lifestyle is going to carry you through all different types of challenges and set you up nicely for a happy retirement.

If you haven’t taken the needed steps, don’t live in the past and dwell on what might have been, take charge of your situation and make every day your own going forward.

This article was written by Scott Arney, CEO, Chicago Patrolmen’s Federal Credit Union. This article is part of Scott Arney's educational series, entitled The Serial Decision Maker.