How To Reach Retirement Freedom In Just 10 Minutes

During the course of a typical busy life, it’s easy to feel overwhelmed by all of its daily demands. With job changes or losses, running a family, trying to balance a budget, and handling debt, just trying to keep up is hard enough. To add fuel to the fire, 2020 has amplified our collective struggles by bringing a pandemic, social unrest and one of the most contentious political climates in recent history.

With all of this going on, it is easy to feel that adding one more thing to your list of worries or concerns is just too much. In fact, it might make you feel like yelling, “I CAN’T TAKE THIS ANYMORE!” I am with you and I get it.

Well, it doesn’t have to be that way. Things can be and should be simpler. I’m a big believer in taking things that seem complicated and breaking them down or distilling them into easy and simple to understand steps that allow you to hit the easy button to get almost anything done. Over the next few series of articles, I will be focusing on doing just that with some of the most common and yet easily overwhelming financial topics so that you can start crushing it no matter what you have going on in your life!

Are you ready? (To get started: Grab your financial documents, a computer/smartphone and a timer.) Let’s do this!

Minutes 0-2:  Run a retirement estimate.

Why it is important: Running a retirement estimate is like putting in the coordinates to your retirement destination in a GPS. It will show you where your destination is and alert you if you are off track based on what you are doing today. The goal is to be able to replace ~ 70% – 80% of your income throughout retirement. This is a generally accepted number amongst financial planners that estimates if you will be able to live your current lifestyle based on your current expenses. If you expect to spend more in retirement, shoot for a higher percentage, but if you plan on spending less, shoot for a lower percentage.

By running a retirement estimate as a first step, you give yourself some time to think about, plan and implement changes that can help you reach your destination in the time you want and in the best way possible. The general options to close any gaps are to save more, spend less, retire later and technically plan on dying earlier (not really a good plan). I’ve seen too many people run an estimate too late and then realize that their options to close any gaps are limited. Following this as a first step helps ensure that you are not one of them!

How to do it:  There are many calculators out there. The easiest and quickest option is to leverage the retirement calculator on your employer’s 401(k) site. They typically will automatically feed in information like your retirement contributions, balances, investments, and an estimate for Social Security. Many of them will allow you to add your other accounts as well. If you don’t have access to a retirement calculator through your employer’s plan or perhaps through your bank or brokerage firm’s account, then consider running a simple calculator like this one or this one .

Minutes 2-4: Sign up for a contribution rate escalator or create your own automated process.

Why it is important: Saving early and often is the most powerful way to ensure you have enough for retirement, but it’s not easy. The reason is that we tend to get in our own way. With so many other reasons and demands on our money, we can always find an excuse not to save.

This is why we have to hack our own brains into saving more by using the power of inertia to our own advantage. I refer to this as a positive nudge. Anytime you take the thinking out of saving, you win. The easiest way to do this is to set it on automatic, which is where the contribution rate escalator comes in.

How to do it: Most plans now have the option to set your 401(k) contributions to automatically increase on a periodic basis up to a certain limit that you set. For example, you can set it to increase 1% on Jan. 15^th of every year until it hits 15%. If your plan doesn’t offer this, then set a reminder in your calendar on the day of the year that you will go into your account and increase your contributions. Share this with your partner, a trusted friend or your financial professional to hold you accountable.

To make it painless, time the increase to happen during the period that you typically get a raise. To make it more effective, set your ceiling to 15% or more. You can quickly see the impact of making a change like this to your retirement savings by using a calculator like this one.

In the scenario I ran, I took a 40-year old with $50k in retirement savings, contributing 3% per year with a 4% employer match, and retiring at 65. By running the escalator on an annual basis up to 15%, this individual could go from having $483,000 for retirement to having over $815,000 – that is over $330,000 extra dollars! Just imagine what those extra dollars could do for you.

Minutes 4-8: Assess your tolerance for risk based on your retirement goal and pick the best hands-off option available.

Why it is important: Investing properly requires having discipline and an investment process because often times we tend to let emotions drive our investment decisions. (We’re only human!) Just think about how you reacted to the market behavior in 2008 or even this past March of 2020 when the pandemic started spreading.

Study after study demonstrate that timing the markets based on anticipated adverse or opportunistic events is extremely difficult if not impossible. Due to this very dilemma, studies show that the average investor has earned a measly 1.9% annual return between 1999 and 2018. If you want to get an idea of the scary results that this might produce on your long-term planning, try running a retirement estimate like this one and substituting the average market return of your portfolio with the return of an average investor. It is not pretty!

How to do it: First, take a risk tolerance questionnaire to make sure you have the right amount of your portfolio in stocks, bonds, and cash based on your time frame and comfort with risk. Second, consider picking the best hands-off option. One-stop funds such as a target risk fund or a target date fund can do the heavy lifting for you.

The former is geared towards a certain risk level (conservative, moderate, or aggressive) so you may want to switch to a more conservative fund as you get closer to retirement. The latter automatically becomes more conservative as you approach the target date, but you may want to pick a later date if you want to be more aggressive or an earlier date if you want to be more conservative. Since everything would be in one fund, you may be less tempted to sell it than if you had the more volatile components of it.

Alternatively, you can explore the world of managed accounts. Many of these options are being increasingly offered within employer retirement plans. You can evaluate the options offered through robo-advisors, hybrid advisors, which use live advisors coupled with a robo-advisor, or a more traditional managed account model, where your investments are managed by a team of professionals for a fee. Just be sure to understand how each of those options works and the fees associated with each before you proceed.

Minutes 8-10:  Set regular periodic reviews of your progress to stay on track.

Why it is important: Things change over time, and your plans might need to change with them. This especially includes your retirement planning. If you experience a major life event, whether it’s a struggle like losing a job or getting a chronic illness or something amazing like getting that big promotion or finally selling that patented idea or perhaps a change in your life philosophy, you want to make sure you periodically review your progress and goals in case they need to be changed, adjusted or reprioritized. That way, you ensure you stay on track or update that track to match where you are and want to be in life. For the majority of people, especially those hitting the easy button, not much really needs to change that often, but it is still best practice to incorporate a regular review process.

How to do it: Set a calendar reminder to spend at least 10 minutes every year to review your progress and make adjustments as necessary. In addition, set a date and time to meet with a qualified financial professional – perhaps one that is paid for by your employer through a financial wellness benefit. By doing this, you can take this easy button process and get help to further optimize your approach for the things that matter most to you and best prepare for the things that give you the greatest concerns today and in the future.

There you have it! I hope these 10 simple and easy minutes change your financial life, and I look forward to sharing more life changing financial guidance in simple and easy steps over the coming months. Take care and stay well!