The Squishy Middle
This blog is not about, shall we delicately say, your lack of core integrity.
Retirement planning when you are in your 20s and 30s is mostly straightforward: Invest about 15% of your income in low cost index funds, mostly stocks. You could pretty it up a bit and talk about pre-tax versus post-tax saving, or target date funds versus “choose you own adventure.” But honestly, those are details.
The reason retirement planning is “easy” when you are young (the planning, not necessarily the doing!) is that retirement is decades away. There is no need to tear your hair out trying to figure out your retirement years spending budget, whether Social Security will play a role or not, or how to tax-optimize the structure of your investments. There is simply too much life to be lived between now and your 60s. Until and unless someone comes up with a better idea, in our youth we can safely rely on the orthodox research that investing about 15% of your income (and that includes the employer match, by the way) should get you to at least approximately where you want to go.
But then you hit what is lovingly known as middle-age. I am not sure of the technical definition, but for today’s purpose, I am thinking early 40s to early 50s. Retirement isn’t around the corner, but it is close enough that your planning effort must be a bit more than half-assed.
Start with a simple online retirement calculator. There are many from which to choose; I rather like this one. Using a calculator is useful now, when it would not have been very instructive in your 20s, because you likely have at least a vague idea of what you might like retirement to look like. Is your current lifestyle, broadly speaking, comfortable for you? Have you lived enough life to know that retiring to an off-grid cabin in the woods is not your jam? Do you have champagne wishes and caviar dreams? (If you got that reference, you are already old.)
What makes this planning task so “squishy” is that while you have more data to work with than you had in your 20s and 30s, there are still a great deal of unknowns with which to contend. If you were already in your 60s, for better or worse, we would have a fairly good idea of what your retirement possibilities are. But here we are, in the uncharted middle years of planning.
If you have been saving 15% of your income religiously since you left your college dormitory, you are likely in excellent shape. But more realistically, life interfered and running the numbers may reveal that you are behind. Fear not! The excellent news is that retirement is far enough away that you can make up for lost time if you get busy. This is why it is so important to run the numbers now, however rough and speculative they may be.
The other thing that you may know now in your middle years is when you want to retire. You may now be able to form a definition of what the word “retirement” means to you. Do you want to leave full-time paid employment before you are 60? If so, then it is not just a matter of calculating how much to save. You also need to consider where you are investing for retirement. Have you been tying up all your savings in tax-advantaged accounts, not accessible until the magic age of 59 ½?
For those contemplating an early out, think about your retirement savings in time-defined buckets. How much do you need from your savings to sustain your lifestyle from your early retirement age until 59 ½? How much from then until you collect Social Security? Are there different investment choices that you need to consider for these phases?
The squishy middle presents the greatest retirement planning challenge. There is enough time to get it right…but possibly not enough time to recover if you get it very wrong.
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