Know Yourself: Conscious Retirement Planning

So you’re old enough to have finally purchased the house and made it a home.  You’ve molded your children into fine readers and artists as well as piano, soccer and lacrosse players.  You’re on the board of the local Y, you support the PTA and normally make a contribution to the offering plate when it’s passed.

How about your retirement plan—how is that coming along?  Do you have an inherent tendency making saving easy for you, or is it more difficult? Each of us has a saving personality on a continuum spanning a wide spectrum.  Are you a Spendthrift, a Spender, a Saver or a Hoarder (or somewhere in between)?  Your optimal retirement savings methodology depends on that answer.

Most educators in the realm of personal finance take aim solely at those who find themselves on the left side of this continuum as if more is always better, so I’ll first address those predisposed to over-saving.   Hoarding is warehousing money simply for the sake of seeing it collect, not for a specific use or purpose.  This practice is idolized by far too many in the realm of money management, but hoarding is actually a financial disorder.  I’ve written recommendations for mandatory vacations in financial plans for hoarders to help break their addiction to stockpiling, and I don’t presume it’s a fault simply driven by greed—for many, it’s fear.

Those who lived through or felt the effects of the Great Depression saw such vast amounts of wealth decimated that many developed a scarcity complex.  A client I was blessed to call a friend passed away last year at the age of 87 with no lineal descendants and over three million dollars in liquid cash and investments.  The good news is that three worthy charities benefited from her generosity; the bad news is that she worked until she was 70, she never took a vacation (not once!) and she lived in a bad neighborhood in which she was burglarized and assaulted (but thought she couldn’t afford to move).

Conversely, a good friend and financial planning colleague of mine is living and battling with Cystic Fibrosis, a disease attacking the lungs which leaves its afflicted with a life expectancy of 37.4 years.  My buddy is married with two beautiful children and turns 37 this year.  He’s forced to be focused both on the future for his family’s sake (and hopefully for his sake as advances in medicine push towards a cure for CF), but he also recognizes the absolute necessity of getting the most out of every single day.  Tomorrow is promised for none of us, and our retirement plan should reflect that.

Am I, a financial planner, suggesting you could actually save too much for retirement?   

Absolutely!  I’m not demonizing any particular level of net worth, but you may be socking away as much as humanly possible for your future even to the detriment of your (and your family’s) present.    Many advisors will, driven by their economic bias to manage your money, use the save-for-your-family’s-future guilt trip to wrench more of your dollars into accounts they can oversee.

It is also important for me to acknowledge most of us are actually more inclined to lean in the direction of the spendthrift than the hoarder.  It’s easy to over-value the present because we can see, touch and feel it today.  And many of us have so many pressing concerns demanding attention and funding, it’s only natural for deferred gratification to take a back seat.  So my calls for balance between your future and present plans should not be received as a blessing to underestimate the importance of saving for the future.

The key, therefore, is to know yourself and be honest about your strengths and weaknesses pertaining to saving and spending tendencies and patterns.  

If you’re a spendthrift, you may likely need some form of intervention.  You may need to institute personal austerity measures—like the governments of Greece and Ireland—or introduce some level of accountability with a mentor of sorts.  If you’re a spender, it is likely you can effectively train yourself by setting up automatic savings mechanisms, diverting funds directly from your checking account (or paycheck) to the buckets you’re filling for the short-, mid- and long-term.

A sign you’re a natural saver would be that extra cash piles up each month—seemingly effortlessly—but you may also judge and condescend to family and friends without the same innate advantage.  If you’re a hoarder, you too may need intervention…to force yourself to spend!  One of the best ways to redirect in this regard is first to offer your services—not your money (at least initially)—to a worthy charitable organization, like a homeless shelter.  Or go on a mission trip to a third-world country and see how people live with nothing.  I’m not trying to guilt you into giving your money away, but to demonstrate how people with absolutely nothing may experience more happiness than you.  You’ll have to experience it to believe it.

Retirement planning is not a science, but behavior management is.  By better understanding yourself and controlling the only economic assumption over which you have absolute control—YOU—you’re likely to better enjoy your retirement, and all the days leading up to it.

*This post will also be appearing on TheStreet.com.