Think for a minute about the architecture around Omaha.
The gas station where you fill up. The Dodge Street Expressway that you take to work. The farmer’s barn. Your home or office. Or maybe something a little more imposing. The Holland Performing Arts Center. The Henry Doorly Zoo. TD Ameritrade Park. The Old Market. The First National Bank Tower. Boys Town. Joslyn Castle.
What do these all have in common?
At first glance, not much. They were built in different time periods using different methods and different materials. They are in different parts of town. Some are little known. Others are celebrated. Some are massive while others are more modest.
The common thread woven through all of them, however, is design. None of those structures just appeared out of thin air without design or forethought. Whether it was a horse barn in 1854 or the new Gavilon building in 2013, before the first hole was dug or the first block was laid, someone sat down with pencil and paper and came up with a design. It was a very intentional process that took into account things such as the building site, climate, technology, cost, schedule, regulations and, perhaps most importantly, what the building or structure would be used for.
Consider those buildings as a metaphor for your retirement. Your ideal retirement won’t just spring up out of thin air. Someone needs to design it. And since it’s YOUR retirement with YOUR plans and dreams, YOU need to be involved with the designing. It’s your job to consider all the factors involved and decide what you want that period of your life to look like.
To help, here are three key elements that your plan should include.
Your retirement, similar to a new building, needs a strong foundation. Rather than concrete and rebar, however, the foundation of any retirement plan is money. Without money, your dreams will never get off the drawing board.
Because of that, it’s important to know exactly how much you will need to fund the type of retirement you want. Said another way, you should retire based on your bank account, not your birthday.
So how can you calculate your “number”? The best way is to work with a trusted adviser and calculate your need based on a careful analysis of your plans, circumstances and estimated expenses. There are certain rules of thumb, however, that will enable you to make a quick estimate right now. One such way is to calculate your need based on your current income.
Recent research by Aon Hewitt shows that the average person needs Social Security plus a nest egg worth about 11 times their annual income to maintain their standard of living in retirement. With that in mind, multiply your income by 11. That’s a rough estimate of how much you would need to have set aside if you were going to retire today.
How are you doing? Are you on track to accumulate the assets you will need? If not, there are a number of things you can do to catch up. The obvious solution is to save more. Both 401(k)s and IRAs have higher contribution limits for people over 50, which could help you make up lost ground. Other options would be to work longer, work part time during retirement or scale back your retirement expenses. While these options might not sound ideal, they are certainly preferable to running out of money during retirement.
When you look at a set of blueprints, you quickly notice that the building in question is made up of much more than just concrete and steel. There are a number of other systems — plumbing, electrical, heating, etc. — that come together to form the final structure.
In a similar way, the typical retirement has a number of separate parts that come together to form the whole. Answering “How much?” (as we did earlier) is important, but retirement is more than just a math problem. Don’t forget about things such as Social Security, Medicare, housing, health, asset allocation, distribution strategy, long-term care and estate planning to name a few.
Your plan needs to be comprehensive and cover each of these areas. If one is missing or isn’t designed properly, it will create problems. It would be like designing the Century Link Center to include everything except electricity. It would look much like it does now, but it wouldn’t be a great place to see a concert. Your retirement will be just as incomplete if you overlook a key part of your plan.
There is an old design adage that says form follows function. In other words, the design should be heavily influenced by the intended purpose. That is why the Bob Kerry Pedestrian Bridge looks much different from the Mormon bridge. Different functions. Different designs.
Applying that idea to your retirement, your design should reflect your unique plans and dreams. Think about what you actually want to do during your retirement years and then plan accordingly. After all, what’s the point of having money and time if you don’t spend those valuable commodities doing what is important to you? A detailed lifestyle plan will greatly improve your odds of having a fulfilling retirement doing the things you want with the people you love.
To get started in this area, just ask yourself some basic questions. What do you actually want to do during your retirement years? What hobbies or activities do you enjoy? Do you want to continue to work part time? Do you want to travel? Do you have a bucket list? If you were to die tomorrow, would you have any regrets? What can you do that will provide purpose and satisfaction? What relationships are important to you? Is there a particular state where you’d like to live?
As you answer these questions a picture or your ideal retirement will come into focus. Those plans, along with the solid foundation and comprehensive structure that we discussed earlier, are the key ingredients to a rewarding, successful retirement.
Note: Want some help with your design? Just like Omaha has great companies such as HDR and Kiewit to help people design and build buildings, it has great financial planners, accountants and estate planning attorneys to help you design your retirement. I’d encourage you to connect with one or more of those advisers in the new year so you can keep your plans on track. If you’re interested, I’ll be doing a series of workshops in 2014 to help people design their ideal retirement. Visit www.intentionalretirement.com/workshop to learn more.
Joe Hearn is an Omaha financial planner. He can be reached at 402-331-8600 or by email at email@example.com.