I recently decided to rate our retirement planning. I've seen Suze Orman do this regularly on her weekly television show and I didn't think it would be a bad idea to do it myself for our own family.
I ended up giving our retirement situation a grade of around a C based upon our complete retirement picture. The following are some of the strengths and weaknesses that arose in the grading process and that made for the major determining factors in the stress-testing of our retirement plan.
Poor estate planning
Yes, I have a will, but it's handwritten, outdated, and was completed before I was married or had children. Long story short…it's pretty much worthless. While my assets would be passed along to my wife upon my death, that's not really my concern. My concern is more about the children should both my wife and I become incapacitate or die. We need to complete a will to answer questions regarding custody, how assets would be used to care for the kids or be passed along to them, and similar issues.
This items has been on my financial "to-do" list for several years now, but it needs to be on my financial "got done" list and hopefully sooner than later. It is, in my opinion, my number one financial weakness and is a major reason for the lower rating of my retirement planning.
Not funding retirement accounts
Neither my wife nor I have recently been funding our retirement accounts. Since I'm a self-employed individual, I don't have an employer-sponsored account, and my wife's employer puts almost nothing by way of matching contribution toward her retirement account. Still these aren't really good excuses for not contributing to retirement accounts and tend to count against us when grading our retirement planning situation.
However, not all is lost in such a situation. While less has been going toward retirement savings, more has been going toward debt payoff, and in the process, we've been able to purchase a home outright, eliminating the need for a mortgage, and saving us on interest on such a loan. While all is not lost in this aspect of our retirement planning, I still tend to consider our underfunded retirement accounts a negative to our current situation.
Even though we are relatively young and still have decades until retirement, our retirement accounts are not heavily weighted toward risk. While this is nice when it comes to peace of mind -- especially when the stock market drops -- it can hurt us by way of lower returns over time. We tend to keep a large portion of each of our retirement accounts in bond or index-funds, which often don't offer the risk or the possibility of potential bigger returns of large cap stock funds.
Time is on our side
One thing that we do have going for us that helped to counteract some of those retirement weaknesses is time. With about three decades until we even start to contemplate retiring, we still have time to make changes and improvements to our situation. As many financial planners will report, time is a huge aspect to have on our side when it comes to retirement planning.
Being able to invest $3,000 a year at 6 percent interest over the next 30 years could provide us with over $250,000, while investing double that amount ($6,000) at the same interest rate (6 percent) over just 15 years would only result in about $150,000.
We have the knowledge we need
Knowledge is another valuable retirement resource we have going for us. Through things like doing our own taxes, reading Internet personal finance articles, watching personal finance television shows, and handling just about every other aspect of our personal finances ourselves, we have a better understanding of our money and how it works and can work for us. This way we can maximize the power our money has to earn for us and reduce the chance of wasting it on poor or uninformed spending or investment options.
We also have options
Finally, the other strength that works for us in our retirement planning is options. With my being self-employed and really able to work from anywhere as a writer, and my wife working in health care, which has job options and opportunities nationwide, the options as to where we can live and how open up greatly. Being able to move to where the tax or cost of living situation is better -- whether in several years or when we're closer to retirement -- can open up a variety of money-saving options.
This freedom -- in which I can work when, where and how I want -- means that I can make money on my own without needing the "standard" employer-sponsored job and having to be attached to such a role in a particular location. This means that like Indians following the buffalo herd, we can travel to where the situation serves us best, which can make for better retirement flexibility down the road.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Calculations contained within this article have not been verified by a financial professional. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
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