You've probably seen an ING commercial with people carrying around big orange numbers that all seem to be north of one million dollars. The commercials are about finding the dollar amount that you will need upon retirement to live comfortably through the rest of your life. While it's nice to see this number and it no doubt makes for good advertising, we very much prefer that you lighten the load and get real about retirement.
What we mean by this is to figure out what you need to save on a regular basis to achieve your retirement goals. This number will be considerably more manageable and meaningful than some multi-million dollar figure portrayed in commercials and to find it, you need only put in from five to thirty minutes of work. On balance, what matters is that you create a plan for your future that is designed to tell you what you need to save and invest today.
Why Future Values are Worth Little
It doesn't take a clinical psychologist (or a behavioral economist for that matter) to figure out that most of us don't place much value on the future. The old adage of 'a bird in hand is worth two in the bush' didn't come out of nowhere and the fact that most Americans retire with relatively meager nest eggs supports this position. What we are chiefly concerned with is today. As a result, setting a retirement goal of $2,356,821.98 twenty-five years from now isn't nearly as meaningful as setting a savings goal of $587.86 for this month.
Big Numbers are Cool and Futile
Again, you have to take your hat off to the ING Direct marketing and advertising group because seeing seven figure numbers (before the decimal point, mind you) conveys a sense of accomplishment or importance. However, when we get down to brass tax, planning in this way is futile. While there are a multitude of reasons, the best among them is simple. Big numbers don't resonate with most of us.
When it comes to managing our cash flows, we don't think in terms of big numbers, but small ones. We consider how much we'll earn this month or even this paycheck. Setting aside money from this smaller amount makes retirement savings much more manageable. If your retirement plan calls for savings of $250 from your next paycheck or for next month, that resonates much more with us than a big number many years into the future.
If you want to get on track for retirement, start with a plan that will tell you how much you need to save today. While most calculators (including ours) will identify this number that ING is so fond of having actors carry around, what matters most is identifying the small number that will tell you what you need to set aside on a regular basis. As your life evolves and the world around you changes, you can always go back and do another calculation to see if you're still on track. Either way, we are major advocates of working with small numbers within the context of what you can do today.
Just like a marathon runner knows they'll need to cover 26.2 miles, they get to the finish line by putting one foot in front of the other, it's no different with retirement planning. You have a lengthy run, but you get there one small step at a time.
NOTE: We are in no way disparaging ING Direct. The company has a long record of providing above average interest rates on deposit accounts and relatively low costs for investment and loan products. If you would like to visit their 'Your Number' website, click here.