#28 4 Strategies for Beating Retirement Planning Stress [Podcast]

Stressed about planning for retirement??? You're not alone. Most of us (including me) freak out when we look at what it could take to provide for our family in retirement. Don't believe all the statistics; you can take control.

Investing Corner

Listener Question: Wayne Asks,

"My question is are there hidden risks doing my diversifying on top of diversity that I do not realize, other than my time for managing, and the loss of opportunity of my conservative and explore portfolio $s?"

Wayne has multiple portfolios, each with its own allocation:

Large aggressive portfolio
Small moderately conservative portfolio
Explore portfolio (where he invests based on his economic views)

Hidden risks might include:

You are 55, and close to the danger zone, a time of 5 years before and after retirement when big investing mistakes can have the most impact on your retirement. The retirement danger zone is a time to focus on consistent investment returns.
Not having a consistent risk profile of your investments based on what you are trying to accomplish
Not having a process for evaluating the value, performance of each bucket. (no bonus points for complicated investments)
Chasing returns or safety at the cost of focusing on your lifestyle goals for retirement

Retirement Planning Stress: How to take control

No Wonder We're Stressed:

60% of all works have less than $25k saving for retirement (USA Today)
Only 22% of workers have over $100k saved for retirement
Only 28% of current retirees have over $100k in savings and investments

4 Strategies for Beating Retirement Planning Stress:

Forgive yourself--We've all made financial mistakes. Stop with the coulda/woulda/shoulda's and own where you are now and focus on the future.
Don’t stick your head in the sand--Don't get discouraged by the statistics about retirement. Regardless of your financial situation, you CAN make progress.
Take control of your financial decisions
Think creatively about your future

What Stresses You About Planning for Retirement? Tell me on Twitter.

Tweet to @roger_whitney

Read the Full Transcript Here

The Retirement Answer Man Episode #28

Welcome! This is Roger Whitney. I am The Retirement Answer Man and this is the podcast dedicated to helping you live well today without sacrificing your tomorrow. That’s what we all want to do, right?

Today, we’ve got two great topics. In our Investing Corner, which is a new weekly segment, I am going to answer a listener question about what are some of the hidden risks if you choose to have multiple portfolios, each with its own different allocation. So, what are some of the risks there?

And then, in our Retirement Tip of the Week, we’re going to talk about four action steps you can take when you start to get stressed out and start to feel unprepared for retirement. I think we all feel stressed out and unprepared for retirement, especially when we see a lot of the statistics on long-term care planning and health care planning and what it’s going to cost in retirement. It’s easy just to say, “Man, I’m never going to achieve that!” and stick our head in the sand. I’m going to give your four action steps to help you feel more empowered in your life.

I want to thank everybody that left a review in iTunes last week. It means so much to me. It gives me great feedback so I can serve you better, and that’s exactly what I’m trying to do here and it also increases the visibility of the podcast in iTunes so we can build a Plan Well community and have more questions so we can all help each other.

I had one review this last week and I want to read it to you and actually give this person a couple of challenging questions that, I think, might help everybody. This review came from Hypersaver – gave me five stars, thank you so much! That means a lot to me.

Hypersaver said:

“I enjoy your podcast, Roger. Really like the information you shared. Keep them coming.

I am on the fence about whether to retire or keep at it for a few more years. I can’t make the decision as there will be no going back for me. When I leave the job, I am out for good. Gut-wrenching decision.”

Well, there are a lot of things that you’ve said in such a short couple of sentences, Hypersaver, and I want to give you some challenging questions to ask yourself to help you through this gut-wrenching decision.

So, I’m guessing you weren’t expecting that but, based on your review, I thought these might be able to help you with that challenge of “Do I retire now or do I stick it out for a few more years?” and I think that that’s something we all struggle with when we get to that phase in our lives. So, here are my challenging questions for you, Hypersaver, and everybody else in the same position.

The first one is: Does it have to be an either/or proposition or question? It’s very easy to frame questions that way – not just in retirement planning but in anything – but does it have to be either/or? Is there some middle ground that you may be missing that may be a blind spot for you? Really consider that.

Secondly, when you’re thinking about retiring or going on to that next phase of life, ask yourself: Do you have more that you want to give? Not that you can give. We all have more that we can give to our vocation or our profession or our passion, but do you have more that you want to give? And, if the answer to that is yes, then how could you give more, but more on your own terms? Maybe it’s not that you want to retire? It sounds like you’re enjoying what you’re doing because you say it’s a gut-wrenching decision. So, in the event that you have more that you want to give, are there ways that you could do it more on your own terms? That would be my second challenging question for you.

Thirdly, look at your situation and the feelings that you have back and forth to “Do I retire or do I not retire?” and ask yourself, are you being pulled to retire? Do you feel or have things that you want to accomplish when you retire and that’s pulling you that direction? Or are you being pushed to retirement because you’re not 100 percent happy with the situation that you’re in?

In my practice, I see that a lot. It’s either, “I don’t like what this job has become, what they’re making me do,” “I don’t like the bureaucracy of all the meetings or the paperwork,” or, “I don’t feel like I’m growing or being utilized.” Those are some signs that can push people when they’re older or, you know, fifties and sixties – that, “Man, I just need to retire” – rather than being pulled by the opportunities and the excitement of that next phase in life.

And, if you’re being pushed, then that gives you the opportunity to think a little bit more creatively. “How do I create the right situation? Even if it’s not with the same company?” because that may indicate that you have more that you want to give; you just can’t tolerate the situation that you’re in.

And then, the last challenging question I would suggest that you ask yourself, Hypersaver, and anybody else in this situation – and I use this a lot when I’m trying to make decisions – is, if you were twenty or thirty years older and you were looking back on this phase or this decision in your life, what is it that you wish you would have done? What do you wish you would have done if you were looking back on yourself? And that can be really powerful because what it does is it pulls you out of all of the muck of emotions and wants and desires and fears and insecurities and everything else and it allows you to look above and say, “Hey!” – you know, for me – “Hey Roger! Stop whining about that. Man, I wish you really would have just started that business or taken that position. Why didn’t you do that? Why were you so afraid?” It pulls you away from the situation and gives you some more perspective.

So, thank you so much for the review, Hypersaver. You got a little bit more than you bargained for, probably. But, based on your review, I thought these were some good challenging questions that could help you and maybe help others that are in the exact same position as you are.

My name is Roger Whitney. You can find me at rogerwhitney.com – that is the home of The Retirement Answer Man and that is a platform I’ve built to serve you, to help you plan well and invest wisely in your life. Bluntly, it helps me serve the clients that I work with better. So, I’m a practicing financial planner. We partner in a registered investment advisory firm. I serve a number of families. And this is also a way of me becoming a better advisor and honing my craft.

So, I think this is a great symbiotic relationship so that I get to share some of my practices and view of helping hundreds of people over the last 23 years and you get to help me by letting me know what the things are that you’re worried about so I can help you solve those. Because, if you have questions, desires, or fears, more than likely, the people that I’m serving do. So, it’s a great symbiotic relationship.

On my website, rogerwhitney.com, I also have The Retirement Answer Library which is a members’ site so you need a username and password, but the cool thing is it’s free. All you need to do is register for it right on my site – just enter your first name and your email – and I will give you free access to The Retirement Answer Library. What this has is over 20 worksheets and checklists and videos – things that I use in my life and in my practice to help clients. You can use these checklists and worksheets in your own life to plan well. So, if you’d like access to that, just go to rogerwhitney.com and you can register there.

All right. Well, before we get started today, we’re going to do the all-important disclosure, and that disclosure is only you know your entire financial situation so don’t take advice from people on the internet or on podcasts because I don’t know you – I don’t know your situation, your wants, your fears, and desires – so look at my podcast and my blog and anything you read on the internet as helpful hints and education.

When you’re ready to make a decision, consult people that understand your entire situation, and that could be your tax advisor or your legal advisor or your financial advisor – those are the ones that you should rely on. If you don’t have one, find a good one because there are a number out there and I can tell you how to go about doing that if you shoot me a question. That’s not only a great legal disclosure; it’s also a really sound principle of planning well and investing wisely.

All right. Well, let’s start off with our new feature called Investing Corner. This is designed to help you invest wisely for your retirement and we’re going to start off answering a question from Wayne.

Wayne asks: “Are there hidden risks doing my diversifying on top of my overall diversification that I do not realize, other than managing my time and the loss of opportunity of my conservative and explore portfolio dollars?”

So, give you a little background because Wayne gave me a good deal, Wayne has multiple portfolios – he has an aggressive portfolio that’s growth focused, he has a moderately conservative portfolio, and then what he calls a core and explore portfolio where he makes investment decisions based on his views on the economy and investing and politics and everything else.

He wants to know, are there some hidden risks that he’s not thinking about, other than his time and maybe some lost opportunity doing it this way rather than having one big overall asset allocation portfolio?

Well, Wayne, I think having multiple portfolios is not really that unusual. In my practice working with clients, I typically do this and usually we’ll have a one- to two-year bucket which is a cash reserve bucket which is obviously very conservative. And then, we’ll have another portfolio that’s called a liquidity account which will have a time frame of three to five years and that will have a different allocation. And then, we’ll have a long-term allocation which is a five-year-plus bucket. So, it’s not unusual to have multiple portfolios with different asset allocations.

What are some of the hidden risks if you choose to do that? Well, in your situation, Wayne – and this may apply to others as well – you mention that you’re 55 years old. So, one of the first hidden risks in the way that you’re approaching this is that you need to make sure you understand that you’re entering the retirement danger zone and that’s an important period of time for anybody in their financial life.

So, what is the retirement danger zone? The retirement danger zone is roughly the five years prior and the five years just after you transition into retirement. That is the retirement danger zone and that’s dangerous for two reasons. The first reason is that’s the period of time that – traditionally anyway – your earning power is starting to wind down. So, you’re going to earn less as you transition into retirement, and this comes after probably decades of making a good living and having your earnings slowly increase over time, and that’s awesome because, if you think back to your twenties and thirties – and, Lord knows, when I do, I look at all the stupid financial mistakes that I’ve made, and I’ve made a lot. One of the things that saved me, other than my being willing to learn from my mistakes, is the fact that I had an income that was consistent and -- for the most part – growing over time. So, I was able to work my way and save my way out of all the stupid financial mistakes I’ve ever made, and that is huge.

But, when you’re in the retirement danger zone, you don’t have as much earning power now and in the future because you’re in that transition mode to a more traditional retirement or you’re trading more lifestyle for forgone earnings which means you don’t have the earning power that you used to have to make up for big financial mistakes or investment losses. So, that’s number one.

The other big risk, if you’re entering that retirement danger zone, is even outside of earning power, studies have been coming out that show, if you experience big investment losses in this retirement danger zone, that will drastically impact or can drastically impact your entire financial picture for the next twenty or thirty years, and the reason is just the mathematics of loss.

So, think about a simple example. If you have $100 and you invested aggressively – and this is super simple but it illustrates a point – and you lose 50 percent because you were aggressive in your investment portfolio, now you have $50. You had $100, now you have $50. What do you have to earn to get back to your original principle of $100? Well, you lost 50 percent. You’re going to have to earn 100 percent just to get back to even. So, when you have big investment losses, it can take a long time just to make up those losses before you actually start to grow again.

When you’re in that retirement danger zone and you have losses, big losses or significant losses, on the front-end of your retirement – and a lot of this can happen not because of poor investment decisions, it could just simply be poor luck of the investment cycles that we naturally go through in an economy – if you have those big losses upfront, you’ve really handicapped your entire financial picture, that’s why that’s part of the retirement danger zone.

So, for you, Wayne, one thing you need to understand when you have these different investment allocations and buckets is, when you’re in that retirement danger zone – if you’re actually entering that – it’s much more important that you have consistency of returns than to have a great average annual return. Consistency becomes paramount when you’re in that retirement danger zone.

The second hidden risk – that might apply in your situation, Wayne – is, when you have multiple portfolios with different risk buckets, it’s very natural for us to lean towards the ones that are working best. You know, that’s just a natural human survival instinct. We move more towards things that are making us happy and pleasurable and we move away things that are uncomfortable or painful.

We see this time and time again in investing is that people skew their investment dollars that they’re adding or allocating to things that are doing well right now and away from the things that are doing very poorly right now. We see that all the time in studies that show how people invest. What that ends up doing is buying high and selling low because you’re selling the underperforming “cheaper” on-sale assets and you’re buying more – or keeping more – of the high-priced, doing well, overpriced assets. That’s counterintuitive but, emotionally, that’s how we’re wired. That’s why a lot of the studies show that the actual investing performance significantly lags the overall indices of stocks, bonds, inflation, and other things because we all end up buying high and selling low because we’re emotionally wired that way. And, when you have different allocations like you do, Wayne, that could be a hidden risk is, even if you’re not adding dollars to one or the other, you may not rebalance from one bucket to the other.

The last hidden risk for you, Wayne – or anybody in this position – could possibly be that you’re focused too much on your “risk profile” rather than what it is you’re trying to accomplish. Now, when you’re in your twenties and thirties, and even if your forties, I say, “Screw retirement planning.” It’s so far off. It’s such a vague concept that it’s not productive in how you make financial decisions. It’s better to focus on just simply making smart decisions and growing your overall net worth over time.

But, when you’re 55 and over, that retirement or that last phase of life is much clearer. You know who you are a lot more than you do when you’re younger. You know your lifestyle choices and your priorities. So, things are a lot clearer for you. So, when you’re in your fifties and over, it does make sense to focus more on what it is you’re exactly trying to accomplish from a lifestyle and wholistic perspective much more than it is does when you’re in your twenties, thirties, or forties. That can be much more productive for someone in your situation, Wayne, because, first off, risk profiles are not very productive or accurate for everybody. So, think about this.

You know, you develop a risk profile to tell you what your “asset allocation” should be. Usually, you’re asking seven or eight questions and what those questions are designed to do, they’re usually scored and they’re designed to gather how much risk you can tolerate, right? Risk tolerance. So, they’ll ask you these nine questions. It’ll score those questions and say, “Okay.” In your example, “Wayne can handle X amount of risk or volatility, moving up and down,” and, based on that, it will give you an asset allocation that will maximize return for that given level of risk.

That all seems very logical, but here are a couple of problems when you approach it from this perspective and this becomes magnified as you get older because you don’t care about your risk profile, you care about your lifestyle and your lifestyle choices, typically. It’s okay when you’re younger to do it this way but, as you get older, it doesn’t make much sense, and that is it will determine how much risk you can tolerate regardless of whether you actually need that much risk to achieve your lifestyle goals that you’re trying to achieve. So, it’ll say you should be in a growth portfolio, theoretically, even if you don’t need to be in a growth portfolio because you can tolerate it.

You know, the crazy analogy to that is, if I say I can tolerate being punched in the face three times before I fall down, that doesn’t necessarily mean I want to be punched in the face three times. Just because I can tolerate it doesn’t mean I need to experience it. That’s one of the hidden risks of approaching it from a risk profile.

So, in your phase of life – 55 and older – it makes much more sense to say, “Okay. What is it I really want to achieve from a lifestyle perspective over the next twenty, thirty years? Because I know roughly what my lifestyle is and what I’m comfortable with.” So, it makes a little bit more sense if you’re in your fifties and above to, rather than do a risk profile to establish your investment portfolios, start with a zero-risk based approach. And what do I mean by that? What I mean is, if you can really spend some time defining what it is you want to accomplish from a lifestyle goal in terms of the lifestyle you want to maintain and all the different factors that will go into that – security pension, part-time work, investments and everything else – you want to start off determining, “Can I achieve that desired lifestyle with taking zero investment risk?” More than likely, you can’t, but that’s a better place to start because the only reason to take risk is because it can potentially buy you something you care about more than the uncomfortable-ness of having the money at risk.

So, if you start from that level, then you can work up the risk profile scale of getting to “What is the risk that I need to take to achieve what I want to achieve from a lifestyle perspective. That is much more productive as we get older than figuring out what we can endure from a risk profile because I may not need to be punched in the face at all to be perfectly happy. More than likely, that’s the case, I think.

So, that is a hidden risk in the way that you’re approaching it, Wayne. You’re looking at each of these buckets from a risk tolerance perspective in growth portfolio, conservative portfolio rather than “Hey, what am I trying to accomplish? What’s my goal here and what’s the minimal amount of risk that I need to take to actually achieve it?” That’s going to be much more productive for someone in your type of situation.

So, those would be the hidden risks that come off the top of my head as I read your question and thought about it. Hopefully, that helped you, Wayne. If not, shoot me another email and we can continue the conversation.

All right. Let’s move on to the Retirement Tip of the Week and this comes from, really, a conglomerate of questions that I get all the time when I’m sitting across the table from someone or I’m communicating with somebody on Twitter or Facebook or any of the social networks. It’s, “Man, I’m X number of years old. I’m putting my kids through school. I just feel like I’m behind the 8-ball. I don’t feel like I’m doing enough. I feel like, man, I screwed up my twenties, I spent too much money. In my thirties, we had kids growing up. We didn’t have time to save. In my forties, I had to deal with college and expenses and I always meant to save more and we probably could have not bought as big a house,” and a lot of regrets – a lot of, “Man, I should have been smarter.”

What ends up happening in the implication of all these questions is all the regret of coulda-shoulda-wouldas of what I shouda-coulda-woulda done to prepare myself better now that I’m fifty or fifty-five or whatever the age is. And some of us never get over all of those regrets – replays of how we should have managed things better and should have been smarter with our money. We feel lost. We don’t know what to do. We feel like we’ve just messed it all up and I’m here to tell you we all feel that way, and I’ll tell you bluntly, I feel that way.

I’ll tell you my story real quickly. I mean, when I was in my twenties, I didn’t know anything. Nobody ever taught me anything about finance and I think this is how everybody is. So, I’m in my twenties. I got married at twenty-three so I was fairly young. I got a job, had my first real money. I think, at my first job, I was making, like, $25,000 a year and my wife was as well so we were rich coming out of college. Bought my new car. I had my credit card and started nesting. We bought our first home. Late in our twenties, we traveled a lot. We played. I call it the “young and dumb” years. We just wanted to play. We had a little bit of cash in our pocket. We didn’t know any better so we just played.

I can remember, in my twenties, I was blessed that my income grew quicker than I expected. So, when I was in my mid-twenties, I was earning, you know, $70,000, $80,000, $90,000 more than I thought I would that quickly and, being young and dumb, I just thought, “You know what? Hey, that will increase by X percent every year,” and I would do my Excel spreadsheet and I’m like, “Man, that’s awesome!” So, I started to make financial decisions based on my income increasing every single year. It would only get better because I didn’t know any better. I was young and dumb which meant that I pushed with my wife to build a house, you know, and have it custom designed in our late twenties and it was gorgeous on a half-acre with lots of trees and bought a BMW. My wife hates BMWs now because of that, rightfully so. I just thought I was “it.”

And then, we started to have kids in our late twenties. And then, in our thirties, I realized what my calling was. I was always in this business – in the financial advisor business – but, bluntly, in my twenties, I traded a lot of stocks. It was the technology era and it was easy to make money in stocks and I never felt quite right what I was doing and then, in my late twenties and thirties, I knew what my calling was. I knew what my core competency was so I adjusted my entire business and basically had to rebuild this when I had very young kids in our thirties. I left a major firm and went independent so my income went down from six figures down to, I think, the low when we started our firm was under $25,000 because we weren’t paying ourselves, we were starting fresh, we knew exactly who we were. I was spending money on education, getting my certified financial planner degree or certification and a few other certifications. Really, I certainly knew who I was but I had to clean up all the stupid mistakes I made in my twenties.

We moved from our beautiful custom home house to a house that cost less than half as much. I got rid of the BMW and bought a very inexpensive car, and this is all with young kids, and spent most of my thirties cleaning up all the mistakes that I made in my twenties while trying to raise a family and start a business.

In my forties – and I’m 47 now, and I’ve been blessed that it’s worked – I’ve cleaned up all my messes. It took me almost a decade to clean up all my financial mistakes while I tried to raise a family. And now, our business is doing well, we’ll blessed with that – knock on wood – and we work hard to make sure and now we’re focusing on getting our kids through college and managing our lifestyle.

But I look back and I’m like everybody else, and I was in this business and I understood numbers. But we’re all emotional beings and we have families and considerations and we’re not trained from a very young age to understand. So, we all make the same type of mistakes and that’s exactly where I’m at. So, I’m feeling behind the 8-ball in terms of retirement as well as everybody else is. And, if you’ve listened to this podcast, you know my perspective on retirement. I plan on never retiring as long as I can stay engaged and enjoying what it is I’m doing and serving people because this is my calling. But I still have all the same kind of regrets and stresses about all of my financial mistakes and wondering if I’m ever going to be able to make up for them because I see the statistics just like you do and it seems insurmountable.

I got thinking about this again because I was sitting with a client and basically relayed the same kind of conversation. “Man, what am I going to do? I feel so far behind the 8-ball on this.”

So, here are my four strategies to get over this and to start living more intentionally in your life.

The first is – and it took me six or seven years to do this so I suggest you do it a little bit quicker, hopefully this will help you along – is forgive yourself. Forgive yourself for any of the financial mistakes that you made, or even personal mistakes you made, and just realize you are on the path that you are on for a reason. Your eyes are open, you know where you’re at right now, forgive yourself. You would not be who you are today if you hadn’t gone through and made all those stupid mistakes later on.

I mean, look at Dave Ramsey – if you know who Dave Ramsey is and his story – he made tons of money. He was a real estate magnate in his twenties and filed bankruptcy because he blew it all up. He does extremely well today and he has a huge audience on how to get out of debt and he would never be where he was at today without all of those stupid things he did when he was younger. He owned them, he forgave himself, and he learned from them, and he uses it as his springboard for what his calling is. So, forgive yourself. Give yourself some leeway because we all do it – number one – and, two, you wouldn’t be who you are today without that and that takes some time but that’s going to be the first strategy when you start to have these feelings.

The second strategy is don’t stick your head in the sand. Man, you read these retirement statistics – and I’ll read a few of them to you – 60 percent of all workers have less than $25,000 saved for retirement – that comes from the USA Today and all of these do. Only 22 percent of workers have over $100,000 saved for retirement. For those that are currently retired, only 28 percent of them have over $100,000 in savings and investment. So, we’re all behind the 8-ball. You look at the statistics of what long-term care costs, how much money you’re going to need for retirement – all of these things are really, really scary.

Now, one is understand that this is news and I’m not a big fan of the news, especially I’m not a big fan of statistics because I used to own a book when I was in debate, it was “How to Lie With Statistics.” Statistics are easily manipulated. They don’t always tell you the whole picture because people make it through life. They live amazing lives regardless of their financial situation and you can, too.

But, once you forgive yourself you can’t stick your head in the sand and get beaten down by all these statistics and then say, “I can’t do anything about it so I’m just going to live well today and tomorrow will be what it’ll be.” You definitely need to find that balance between living well today and not sacrificing tomorrow, but you can’t just stick your head in the sand. You need to accept where you are now and figure out how to make the most of it. So, how do you do that?

Once you’ve forgiven yourself, you said, “I’m not sticking my head into the sand. I’m going to deal with where I’m at, work for a better future.” Now, what do you do? Well, this all comes down to how do you live intentionally financially? And that is what the entire Plan Well process is that I use with my clients. That process is basically capsulized in The Retirement Answer Library. I have it broken down, all the different areas of your financial life, and I have checklists and worksheets to help you work through each one of those areas, and that’s what I’m building out for you. But how do you live intentionally if you’re not going to stick your head in the sand when you’re worried or stressed out about retirement?

Here’s how you live intentionally:

First, you take control of your cash flow. Stop the bleeding. Mitigate the issue. Think of it like a hospital. The first thing you do when you go into an emergency room, they do triage. They stop the bleeding. When you’re dealing with your cash flow, that’s where that triage needs to take place. You need to start focusing on how to make smarter decisions day-to-day and how to create free cash flow.

What is free cash flow? You have earnings and you have expenditures. If your earnings are higher than your expenditures, the difference is your free cash flow and it’s critical that you create free cash flow. A couple of ways you can do that, you have two sides of the ledger.

You have your income. How can you increase your income in your cash flow? You can hustle more. You can make yourself invaluable in your work. Work to get raises. You can take on extra training, get certifications, take online courses for Excel or whatever tools will make you more valuable in your work force. You can start side businesses – you can do that easily nowadays with very little money down, if anything, and start to explore different revenue sources. So, that’s how you can affect the income side of the equation.

On the spending side of the equation, you can screw doing a budget. Just work to spending to a specific number. I have a worksheet based on exactly that because we don’t need to be budgeters. We don’t need to have Quick and then analyze every single penny. But you can determine the number that you can live to that’s below your income so you can capture that excess, and I have a worksheet that will show you how to do that. You can change your focus on your spending from focusing on experiences and not things, and this is very countercultural in America, but you can focus on creating experiences and not getting that fix from buying things, rejecting consumerism.

And then, lastly, you’ve got to start getting real about what your needs are and what your wants are. I’m not saying you specifically. I don’t know you specifically. But, I’ll tell you, I see that time and time again, and I went through this. Bluntly, I was not able to do this. When we were very upside-down in our spending for a period of time, I wasn’t able to get rid of the cable TV. I wasn’t able to get rid of Starbucks or some of my creature comforts. That was stupid. Now, it worked out in my instance. But, in general, we all need to get real about what our needs are and what our wants are. And, if you really want to start to make some changes in your cash flow situation, that’s a great place to start – get real about what those needs and those wants are.

Once you’ve created free cash flow, start to get very intentional about how you build your net worth because that’s key and I did a podcast on the importance of a net worth statement. I have a worksheet on how to build a net worth statement. Your net worth statement, all of the things that you own and all of the things that you owe are ultimately that one page is the accumulation of all of your financial decisions that you’ve made decade after decade. So, when you look at your net worth statement, what you’ve built up in assets and what you have on the debt side, that’s the accumulation of every little investment or spending or financial decision you’ve ever made. So, that’s where you need to start.

If you can do step three and live intentionally and create some cash flow, now you can decide what to do with that free cash flow. What do you do with this excess money that you’ve squeezed out of your budget? You can allocate it to reserves, number one, then go to debt then go to tax deferred savings and then go to tax-free savings like a Roth and then go to taxable savings. That’s the hierarchy that I would use and I have a checklist that talks about that.

And then, lastly, when you start to get really stressed out about retirement, if you forgive yourself, you decide you’re not going to stick your head in the sand and you start to live more intentionally financially, lastly, start to think a lot more creatively about your future. I say – and this was the last episode – “Screw retirement. Screw retirement goals.” Retirement is a foreign construct that was created over the last eighty to a hundred years. It’s not a natural order of things. Think about how to live well today without sacrificing tomorrow. Don’t sacrifice yourself and your current life for a retirement that you’re told that you need to save for, that seems almost insurmountable to do or impossible to do. Find that balance. I’ll use myself as an example.

My plan has always been to work at least until I’m 70 – probably beyond. So, because I’ve accepted that and I want to, I’m focused on how do I create life balance along that entire journey rather than thinking I have to save to some date for this “retirement goal?” The more you can think creatively about income sources, how you structure your life, how you structure your lifestyle, the more control you will have over your situation.

So, that’s my challenge to you. Don’t get stressed out about this stuff so much. Think about little things that you can do – how to forgive yourself for being stupid because we were young and dumb, and we all are. Decide that you’re not going to stick your head in the sand. Start to live more intentionally and create a life of balance between today and tomorrow. And think creatively whether it’s working longer but having more balance so you have more time at home now and you live a balanced lifestyle or whether it’s alternate income streams of businesses or passive income or real estate income – all the different things that you can do. Don’t get boxed in by what mainstream investment planning or retirement planning tells you that you need to.

I think, if you can take these four steps and start to figure out what they mean to you, that will take you a long way into dealing with what is and living more intentionally and not getting so stressed out when you start to hear all these statistics.

Whoa! I sort of brought out a soapbox there for a little bit. Hopefully, this was productive for you. I want to thank you so much for joining me today. If you have any investing or retirement questions, for The Retirement Answer Man, go to rogerwhitney.com, click on “You Ask, I ANSWER” and I’ll work to answer your questions directly to you or via the podcast or the blog so we can all learn to live well today without sacrificing tomorrow.

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Until next week, this is Roger Whitney, wishing you well.