8 Retirement Planning Success Drivers



Retirement Planning is All On You.

8 Keys to Get It Right.

A secure retirement starts with taking the right steps to ensure you’ll get from where you are today, to the lifestyle you deserve during your golden years.

Although my aunt and uncle’s retirement story had a tragic ending, it wasn’t because they didn’t do a solid job preparing. Their readiness put them in the top 5% for retirees of their 1980s era.

They understood the importance of starting early, developing a detailed plan, and then sticking with it until their big day.

They set an admirable example. They made their plan and brought it to life.

Every day you delay in preparing for the brighter future you deserve is a day you can never get back.

Lost savings. Foregone compound interest. Wasted employer matching.

Worst of all, you miss out on the peace of mind that comes from knowing you’re preparing for the future you deserve.

The 8 retirement planning success drivers are proven. And sequence matters.

The first 5 steps should be taken before age 30, ideally with your first full-time job. The 6th step becomes critical as your retirement balances grow, becoming an attractive but dangerous source of cash that can be tapped.

The 7th step is often overlooked because it’s not financial, but it’s important to control what you can, and guarding your health is up to you. Poor health can undermine your happiness even if you’re financially prepared.

For those entering retirement, the 8th retirement planning success driver is the most critical of all.

Much expert advice ignores what happens once you reach your big day. There’s an assumption that your plan is in place, so just set-it-and-forget-it.

But unfortunately, life happens. Key financial assumptions will prove wrong. You may experience a health event. You may draw funds due to an emergency. Or you may need to help a family member.

Missing the 8th driver is what sunk my aunt and uncle’s secure retirement. Learn from their retirement disaster. Don’t let it happen to you.

Highlights of the 8 Retirement Planning Success Drivers

Below is an overview of each of the Retirement Planning Success Drivers. For more detail, click the title or the icon above to go to a page that covers the driver in actionable detail.

1. Control Your Burn Rate & Debt: This is first because it’s the most important step you can take to ensure a secure financial future. Take action today and you’ll see immediate results.

Your burn rate is your annual spending. Start up companies wisely manage theirs in order to survive, and the same goes for savvy wealth accumulators. Every dollar a future retiree unnecessarily spends forever loses its ability to grow wealth and generate a lifetime of compound interest.

A permanently lower burn rate also means you’ll need to save less for retirement as you can carry your expense management skills and success into retirement.

Debt can undermine or outright destroy your ability to gain a secure retirement. When you carry debt, especially high interest debt for purchases that have no asset value (like trips, clothes, dinning out), you pay someone else a much higher interest rate than you can ever earn for things that are just distant memories…(read more).


2. Save Early & Automatically: The benefits of starting your retirement saving as early as possible are massive.

First, compound interest is an awesome force so strong that Einstein famously declared it the 8th Wonder of the World. But time is the ingredient it needs to unleash its power. By starting early, you give compound interest what it needs to go to work for you.

Second, those not enrolled in a retirement savings account are ultimately flushing cash down the drain. If an employer offers matching, and a future retiree chooses not to contribute to the degree they grab 100% of the match, they are letting the employer fatten its bottom line instead of the future retiree’s savings account.

Even if there’s no matching, the tax benefit of contribution could be the equivalent of a 30%+ return for the first year money is placed in a tax advantaged retirement account.

The other success component that increases your likelihood of success is automation. For retirement savings, automatic payroll contribution means you can set it up once and let it run forever.

The money never ends up in your take home pay where life happens and there’s temptation to spend. It’s like you never had the money to begin with, and saving for retirement becomes much easier because you don’t miss what you never brought home…(read more).


3. Develop a Realistic Plan: This is the third driver because controlling spending and debt, and starting to save early, will both head you in the right direction even if you don’t yet have a written plan.

But once you get into your late 20s you should develop at least a ‘first pass’ plan. The reason is that retirement is like a trip, and therefore you need to identify your destination before you can plot the optimal path to get there. The earlier you begin planning, the more time you have to re-route for any unexpected financial detours on the way to the secure retirement you deserve.

In developing your realistic retirement plan, you are ultimately determining how you’ll support your post-working years’ lifestyle by covering your annual expenses. It really is no more complex than that: retirement planning is about expense coverage in retirement.

While it’s simple, it’s not easy. In planning for your retirement you’re trying to finance a 30-year vacation with 40 years of work. No small feat…(read more).


4. Invest for Targeted & Consistent Returns: The core of every sound retirement plan is a series of assumptions about your annual expenses, income, interest rates, inflation, and the returns you expect on your assets during your golden years.

Retirement calculators can be powerful tools because they allow you to see what you need to do to fund the retirement you desire. But they just show you what could be. Making it happen is up to you. And the ‘could be’ is always largely driven by what returns you project on your assets, which is, at best, a huge guess.

Therefore you must do two things to up your chances for full success. First, you have to invest in a mix of assets that pursues the returns you are targeting. Within that is a constant trade-off between risk and reward. Generally, higher returns require more risk. Thus your risk tolerance is a key consideration in projecting what you think you’ll earn on your investments. Once your tolerance is decided and your projected returns target identified, you need to ensure your investment mix delivers to that target.

If it doesn’t, you need to either adjust your retirement plan or adjust your investment mix. Even falling short just a little in your anticipated return will add up over decades to a serious deficit.

Which brings us to the second key to ensuring success: consistency. While you can adjust your overall retirement plan up or down, whatever returns you’re pursuing should be as smooth or consistent as possible.

Returns that swing widely year-to-year will not only reduce your likelihood of hitting your target, they will surely undermine your peace of mind…(read more).


5. Don’t Forfeit Free Money: While this driver is partially tied to #2, it deserves to also stand separately because of its incredible importance.

Most employees will willingly fight for an annual raise and feel slighted if they don’t get one, which is fair. Last year, the average raise was 2.8%.  But many employees won’t give even passing consideration to joining their 401k or opening an IRA.

Employer matching is free money, and it’s even more powerful than it looks because it isn’t taxed. A 2.8% raise, assuming a total tax burden of 30%, is only a net 2%. But if your employer is matching the first 6% of your contributions, you keep every penny of the 6%. It’s an immediate 6% raise with no haggling and no performance review!

And then it goes to earn returns which are also tax free, until you begin to withdraw them in retirement, and then only the withdrawn portion is taxed. This combination, of free money that compounds and long-term tax delay, is substantially favorable for growing your retirement savings.

There are other actions, too, that you can take that amount to free money…(read more).


6. Don’t Mortgage Your Future: Unless you’re acquiring an asset that will generate income, like a business, debt is always a drag on your financial progress.

Often times, debt is initiated to acquire things outside of our budget that are usually in the want, not need, zone. Not only does the purchase itself divert funds that could otherwise be used to prepare for retirement, but you end up paying interest that’s typically much higher than the rate of return you can earn on your investments. Diverted cash, plus the legacy of a long stream of interest heavy payments, means you mortgage the financial future you deserve when you take on debt.

This principle also applies to a 401k loan. The problem with borrowing against one’s retirement plan is that despite the best of intentions, many loans are never repaid. While this doesn’t cause a hit to the defaulter’s credit rating, it is considered a disbursement from the plan. Cash that should be generating compound interest for retirement is forever removed.

The default rate is especially high among those who are changing jobs. A Wharton research study, Borrowing from the Future: 401(k) Plan Loans and Loan Defaults, shows that for those who had open loans when they changed jobs, 86% did not repay their outstanding loans…(read more).


7. Health is Your Most Valuable Asset: When it comes to retirement planning advice, nurturing your health during your pre-retirement years is rarely mentioned as an important retirement preparation strategy.

This is unfortunate as your health is one of the most important factors in determining  happiness during retirement. In a study conducted by Merrill Lynch, Health and Retirement: Planning For the Great Unknown, 81% of survey respondents said “Having Good Health” is one of the most important ingredients in retirement, while only 58% said the same for “Being Financially Secure”.

Good health provides several benefits. Prior to retirement, it allows you to maximize your ability to save for retirement as your healthcare costs will be lower. You’ll also avoid the income interruptions of temporary disability as lost productivity can be caused by chronic health conditions.

In retirement, good health is additive to your overall happiness and ability to enjoy whatever lifestyle you desire, and your medical costs will likely be lower, freeing up your cash to either enjoy or pass on…(read more).


8. Execute Your Agile Retirement: So what is an agile retirement and why should it matter to you?

My aunt and uncle’s financial disaster happened well into their retirement. Their preparation could be considered exceptional as they dutifully executed steps 1-6. Regarding step 7, despite little proactivity, they were fortunate to enter retirement in good health, although their retirement ages of 55 and 48, respectively, gave them an advantage.

Where they failed is that they made several poor post-retirement choices, partly due to voluntary decisions, and partly by not adjusting to the circumstances life delivered. They also made mistakes 1 through 7 of the 8 Retirement Disaster Drivers.

Missing this 8th step really wasn’t necessarily their fault because too much retirement advice is focused on the front-end part, planning for retirement. Many experts lead future retirees to believe that upon retirement day you can just place your great plan on autopilot. You’ve set it, now just forget it.

My observation is that it’s quite the opposite, as in your retirement years the uncertainties will be great, and your absence of job related income limits flexibility to pull yourself out of financial setbacks.

In order to ensure a secure retirement you must execute what I call Your Agile Retirement…(read more).


⇒Next: 1. Control Your Burn Rate & Debt

Share This