Myth #18: I Have To Save, Save, Save (part 2)

Many people have no plan at all. They save an arbitrary amount each month, say $500 for college or some other long-range goal, but they fail to base this amount on reality. They know they need to save—but they have no clear idea of how much money is actually needed to meet their goal, and therefore don’t know whether or not they are on track.

To these people especially, an analysis is in order. There is no telling how much sacrifice and deprivation they may have imposed on themselves in order to make their savings goals—goals that may have been reached long ago.

When she was fifty-two, Diane came in to review her investments. She was working as a buyer for a fashionable department store, and one of her financial goals was to retire in three years. She had worked for the company for thirty years and would qualify for retirement at age fifty-five. She came in hopeful, but I could tell she was worried underneath. I asked if she wanted me to run a retirement calculation for her, but she turned me down. I didn’t press it—she had other priorities in her life that were more imminent and that needed attention.

Diane was the classic example of someone who did not want to confront the numbers about retirement because she was afraid of what they would tell her. It took her almost until the eve of her retirement date to come in and say, “Okay, I guess I’m ready to look at the retirement calculation. I hope you tell me I can retire.” The results showed she had more than enough money to allow her to retire. In fact, she had enough to last her until she was 110 years old!

For Diane it wasn’t a matter whether she could have retired any earlier—she had to work until age fifty-five in order to qualify for her pension. But imagine what her last ten or fifteen years would have been like if she had known that she was going to have plenty of money in retirement. She could have used some of the money she had been saving for retirement for other goals in her life!

Consider the psychological peace of mind she would have gained had she evaluated her retirement plan earlier. For the last ten or fifteen years, she had lived in constant worry that she wouldn’t have enough even though she had plenty—and then some!

Your savings plan might be for college or for retirement. It might be for a down payment on a home, the purchase of a new car, or an exotic vacation. By checking your savings plan periodically, you may discover that your rate of return has been higher than you projected. If you are reaching your goal faster than originally anticipated, you can make a downward adjustment in your monthly savings and have money available for other goals.

Every year, review your progress towards accomplishing your goals. Look at how much you have saved to date. Based on the rate of return you have earned and you expect to earn for the ensuing years, you can project how much you will have in the future. Determine how close you are to achieving your goals.

You may discover that you no longer have to lie awake at night worrying, or that you can do some of the things you never thought you would be able to. You may find inside your savings plan for college or for retirement that you have a cruise to the Caribbean waiting for you—right now.

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