Planning Your Retirement Journey Step 2: Mapping Your Route
To summit Mount Everest, climbers have a choice of 18 different routes that previous expeditions have proven possible. Commercial expeditions take one of two traditional routes: the Northeast Ridge or Southeast Ridge. According to summiter Alan Arnette, “Neither is easy, just different.”1 The north can be colder and more technically difficult whereas the south has dangers like the Khumbu Icefall and the Hillary Step.
In my last post, I encouraged you to think about what retirement mountain you’re climbing and why.
This time, let’s talk about the route: how you’re going to get up and down the mountain you’re climbing.
Ascent vs. Descent (Saving Strategy vs. Spending Strategy)
I find it helps to think of the retirement journey in two parts:
The ascent: the accumulation of assets in preparation for retirement. We’ll call this your saving strategy.
The descent: your retirement, during which you manage the assets you’ve saved so that they last for your lifetime. Another way to think of the descent is your spending strategy.
Your saving strategy may entail a variety of retirement savings vehicles, such as a 401(k), IRA, stocks, bonds, CDs, cash savings, etc. Your spending strategy may include creating a retirement budget and establishing a source of guaranteed income, for example. Changes to your saving strategy may affect your spending strategy and vice versa. They’re connected.
Many people have a tendency to focus primarily on their saving strategy with the assumption that if they can just save enough, they’ll be set for retirement. You’ll even find that many financial and/or insurance professionals place their focus mainly on the saving strategy. And that’s certainly an important part of the route to map out with the help of a professional. But that’s only half of the story.
In our Mount Everest analogy, the post-summit climb is actually the most difficult part of the expedition. Many climbers have been criticized for having “summit fever” where they’re so focused on getting to the top that they disregard everything else, including climbing best practices and their ability to continue back down. Thinking practically about your spending strategy can help you avoid succumbing to “retirement fever.”
Factors That May Influence Your Route
As you plan your saving and spending strategies, it’s helpful to keep in mind which factors and life events might influence or alter your route and the pace at which you’re climbing. Here are a few factors to consider:
Your earning potential – How much you make will determine how much you can save for retirement or convert to retirement income.
Your spending habits and expenses – How much you spend and your general standard of living will determine how much you’ll need to save to support your lifestyle.
Health issues – You may have to retire sooner than expected due to health reasons, or you may have higher medical expenses than you thought you would.
Caring for dependents – Whether you’re caring for aging parents or still have children in the house, this is another common factor that can impact when you choose to retire and how you spend your time and money.
Taxes – Income tax, sales tax, property tax, and other taxes all influence the amount of money you have available to save and spend.
Debt – At what age will your mortgage or other debts be paid off? That might be a point at which your route takes a new direction or continues at a different pace.
Reality check – you may realize you’re behind, decide on a new goal, or receive guidance that initiates a course correction.
Personality – Your appetite for risk and adventure will play a role in determining how you go about reaching your goals.
You may be able to think of a few other factors specific to your situation that would influence your route. Most people strive to maintain or improve their current standard of living by developing their strategies to guard against disruptions to that standard. Some of the aforementioned factors may even do more than influence your route—they could throw you completely off track if you aren’t prepared.
Next time, I’ll share more about risks to avoid along your route and safety measures to build into your saving and spending strategies.
Your Retirement Reality Sherpa
1. Arnette, Alan. “Everest FAQ.” http://www.alanarnette.com/everest/everestfaq.php.
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