I recently read an article in the WSJ titled If You’re Behind on Retirement Savings, Here’s How to Catch Up. I couldn’t help but wonder – am I missing something?
The main points of this article are:
1) People age 50 and up can contribute an extra $6,000 to their 401(k) and an extra $1,000 in an IRA
2) An often overlooked deduction is the HSA. You can contribute $3,400 or $6,750 per year as an individual and family, respectively. You have to be covered by a HDHP in order to contribute to a HSA.
3) Delay Social Security
4) Consider a reverse mortgage if you’re 62 or older.
Aside from being generic, the article focuses on tactics without consideration to retirement strategy which should be the overall focus of your retirement plan.
This article gives pointers on catching up on your retirement savings but that’s not really the problem, is it? Wow, you can save an extra $1,000 in your IRA. That’s your prize for being 50 years old! Does anyone really think that adding an extra $1,000 to your IRA will move the needle in your retirement plan?
This is a scarcity-mentality paternalistic nanny-state way of organizing your life. You’re “allowed” to save extra money. You can delay your Social Security and the government will “allow” you to have more money. Here’s what you’re “allowed” to do.
I’m not disparaging tax-deferred retirement vehicles. Far from it. I think they’re great.
And delaying Social Security can really help a lot of people have more money in retirement.
I just believe that you can ACHIEVE MORE by focusing on your retirement strategy. Tactics can change from day-to-day depending on the whims of the government.
Tactics vs. Strategy
There’s a difference between tactics and strategies. Tactics are what are used to gain an objective while a strategy is larger overall plan.
Strategy is your long-term retirement plan and how you’re going to achieve that plan. Tactics are the small steps in life that you’re going to use to during your journey.
Real Life Examples
1)In Operation Iraqi Freedom, the strategy was to put in place a functioning quasi-democratic government to bring stability and rule-of-law to the country. One of my roles was to pay informants to give information as to where the bad guys were located. We called them micro-rewards and they ranged from $500 – $2,500. This was a tactic my team used to help in the overall strategy.
You can see how this small tactic helped to build-up to the overall strategy. We paid informants for information. This information led to arrests of people who were trying to undermine the Iraqi government through the use of terror and violence. My team’s small part played a role in the strategy.
2)Google’s strategy is to provide the search results that its users value most. It isn’t to make X amount of money. Making money is simply the byproduct of its strategy that puts the user first, regardless of short-term monetary gain. A tactic that Google uses in providing the best search results for its users is that a Googlebot crawls websites to index them.
This indexing is just one tactic that goes into what search results pop up in Google. There are over 200 factors that go into what pages are included in the search results. None of this would be possible without the Googlebot.
Use Tactics, Focus on Strategy for Your Retirement Plan
“There is nothing so useless as doing efficiently that which should not be done at all” —Peter Drucker
Focus on strategy when you’re planning your retirement and you’ll be leap years ahead of everyone else.
Example of a Retirement Strategy:
I’m currently 50. I want to retire at age 60 with $60,000 in annual income by focusing on investing in a diversified income-producing portfolio with proper account structuring. I will reduce the risk of my holdings at age 70 which is when I’ll file for Social Security in order to maintain a $60,000 income (in real money terms).
The above paragraph is a strategy statement. This is a good starting point to get you thinking about retirement strategy.
The tactics that you could use to achieve this strategy:
- Setting up a portfolio and determining ongoing allocation
- Determining the structuring between taxable and tax-deferred accounts
- Funding your portfolio every month
- Funding your catch-up contributions for IRA and 401(k)
- Funding your HSA
- Carrying a mortgage in retirement
- Working a part-time gig in retirement that you love and would do for free
- Making your income tax-advantaged
- Withdraw tactics that fit into your strategy
- Figuring out the proper risk for your desired return
The list could go on or could be different for different people. Some people may want to travel the world in retirement. Others want to cut expenses and become a minimalist.
There is nothing wrong with discussing tactics but it shouldn’t be all that retirees discuss.
If you simply focus on putting away an extra $6,000 in your 401(k) without thinking about when you’ll need the money and how that money will work in tandem with your other funds, you’ll end up not knowing what to do when retirement arrives.
Maybe that $6,000 you used to fund catch-up contributions on a 401(k) could have been better utilized elsewhere.
You’ll never know because you haven’t sat down with a fee-based financial advisor or someone else you trust to go over your strategy.
Maybe you’re a DIY retirement planner and know the tactics but lack a strategy.
You need a strategy that is written down and properly executed whether you’re a DIY retirement planner or someone who seeks the guidance of experts.
You can then look at specific tactics that would get you to your end goal. Make sure to set up annual goals so that you can measure your progress. You may have to change tactics based on your annual retirement checkup.
Focus on the strategy and the tactics will present themselves.