Ignoring Retirement Is Not a Plan

March 5, 2013— -- Perhaps the most vexing thing about being a 401(k) plan advisor is dealing with the reality that many people have a remarkable lack of interest in planning their retirements.

This goes hand in hand with a lack of curiosity about what the second half of their lives will be like, possibly stemming from an obsession with youth culture that is nurtured by advertisers and mass media. But the eventuality is that you're going to get older (which beats the alternative), you can't work forever, and you're going to need to pay for your retirement.

Another possible reason for the widespread lack of interest in retirement planning may be a basically nullified view of retirement based on a negative view of the present. The sad reality is that many people don't like their jobs. As a result, they tend to view retirement in terms of not what they will be doing, but what they won't be: They won't be putting up with a thankless job, an ungrateful boss, watching the clock all day, or commuting in nasty traffic. So if retirement is the absence of something, the idea of planning for it just doesn't jibe. You don't plan for what you're not going to do — only for what you will do.

But retirement will eventually come, unless you want to be working when you're 80 years old. It all comes down to personal responsibility to confront this eventuality now and plan for it, and that means investing. It's impossible for most people to simply save enough money for retirement, so the idea is to grow your money in the markets. The most commonly available way for most people to do this is through their 401(k) plans at work. Yet many people have little idea of how these plans, and the markets they're invested in, actually work.

The first step is to clear all the preconceptions and assumptions out of your mind, as many of them may be flat wrong. Then, without these distracting obstacles, you can get started with a clear mind and a clean sheet of paper. First, learn to view your retirement as a positive — as something other than the absence of work — and decide:

• What you want to do with your time during retirement, within realistic limits.

• How much money you will need to do this and pay basic living expenses, based on what you're spending now (a retirement budget) Then ask yourself: How much less could you live on than you do now?

• What is your current capacity to fund this budget from existing investments, savings and anticipated or actual inheritance?

• What will your spouse's likely retirement resources be?

• Based on this, how much money do you need to retire, and by what target date? One way to approach this is to ask, if you were to retire tomorrow, how much money would you need to live on comfortably, assuming that the mortgage is paid and your kids are educated and off your personal payroll? What percentage of your current income would you require?

Energized by your newfound direction and clarity on the subject, you might now go to that drawer where you keep your 401(k) statements, read them, and find that, like many people, you're not on track to build the retirement nest egg you believe you'll need because you're not adequately funding your plan.

This usually means budgeting now so you can fund your retirement budget later. By spending less every month, you'll be able to make a larger contribution to your plan. Most people don't make the maximum contribution, and fail to take full advantage of employer matching money.