I think most people would be surprised at how many times a couple comes to us for the first time to plan their retirement just months before they want to retire. It’s as if they woke up one day in October, looked at the calendar, and realized they want to retire in January with no plan for how they’re going to do it. That’s not retirement planning; that’s damage control. It’s reaction rather than proaction. There’s little, if any, planning they can do at that point.
More often, I see the couple who wants to retire in five years suddenly asking for help to make it happen. While that timeframe may be better than none, it’s still a heavy lift that relies on everything coming together perfectly, which rarely happens.
More commonplace are the couples ten years out as if a timer goes off inside them. They realize they’re on the glide path to retirement, and it’s time to get serious. It’s still late in the game, but because they’re probably in their prime earning years, they can make an incredible amount of progress in that short period of time.
The Cost of Your Retirement is Never Going to be Cheaper than it is Today
It’s obvious where I’m going with this. The longer you wait to put together a serious retirement plan, the more difficult or expensive it becomes to achieve your vision of retirement. A couple in their early thirties with 30 years to accumulate a million dollars need only invest $800 a month (assuming a 6% average annual return). But, if they wait until their mid-forties to start saving for retirement, the cost goes up 300% to $2,400 a month—a much heavier lift.
The critical variable for these two couples is time, as it is for all of us. Younger couples gain more leverage from time because it provides a greater opportunity for money to compound. When money has more time to compound, it requires less financial effort. When there’s less time for money to compound, it requires more financial effort.
Using the Leverage of Time
It’s a lot like physics. Think about your retirement timeline like a board on top of a fulcrum. On the left end of the board is your retirement load. It’s a big load regardless of the length of your timeline. However, if the board shifts to the left side of the fulcrum, the right end of the board is shorter, signifying a shorter retirement time frame, you have less leverage to push it down to raise the left end of the board. The further left the board shifts on the fulcrum, the more effort it takes to raise the retirement load until you can’t budge it even with maximum effort because you have no leverage.
Conversely, if the longer end of the board is to the right of the fulcrum, signifying a longer retirement time frame, it takes less effort to raise the load. If the board is far enough to the right, it might only take your pinky finger to push it down because you have maximum leverage.
I find that where younger couples tend to get off track is they wait to start planning for retirement because they don’t think there is a lot they can do to start a plan. But there is always something they can do, even if it means starting with a 1% contribution to their 401(k) or a hundred dollars a month to an IRA. If they get a matching employer contribution, they’ve doubled their leverage. Remember, at that early stage, it only takes a pinky finger to lift the load even a little bit.
