Financial planning advice rarely touches upon the meat of what a goal is. One thing we know for certain is that financial planners are often encouraged to have their clients evaluate more specifically the difference between a goal and a realistic and financially achievable goal. Owning a superyacht when you are making $5k a year is not financially feasible, and while that makes for a humorous little analogy about the overall concept, it doesn’t really guide someone who is thinking about their retirement with processing the feasibility of their goals. Hopefully, this post will provide some help for those who need it or just are curious about their goals and if they’re properly managing them.
To begin with, what is a goal?
The dictionary describes a goal as “the object of a person’s ambition or effort.” This leads us, however, to another question: what is the definition of “object”? The same dictionary defines an object as “a person or thing to which a specified action or feeling is directed.”
Obviously, the use of “object” is not in reference to a material object. A retirement goal, for example, is rarely about material things such as the televisions, computers, and technology (toys for a lack of better word!), and if it is, that sort of retirement can often be shallow and unfulfilling, as relying on objects for happiness is bound to leave us wanting more out of life.
That isn’t to deny that there are aspects of our goals that oftentimes involve investing in some object in the future. Many clients want a boat so that they can pursue a fishing hobby or a house by a lake so that they can take long meandering walks by still waters. Others, still, have interests in pottery and canning and travelling and other hobbies that have a varying degree of investment range. Some are cheap, others require quite the fortune!
But if we were to put those two definitions together, we’d find that we’re left with a rather circular reasoning. An object is that which we are directing our actions towards, and a goal is directing our actions towards that object. How do we make sense of this? Perhaps it’s better to refine our definition as “the end result of a person’s ambition or effort” which at least leaves us open-minded as to what an end result can be, and now we can begin to make progress by narrowing that down.
2. The End Result: What is it?
Not to pontificate too much, as we’ve already spent some time chipping away at our own definition of a goal so we know exactly what exactly we’re trying to uncover, we can start picking apart what a retirement goal is likely to resemble. As we touched upon above, it’s unlikely to be an object, though there are some objects and tools we would invest in when retirement comes.
Eudaimonia, or as it is often translated “happiness,” was a state of being that Aristotle wrote an entire treatise on, called The Nichomachean Ethics, in which he discussed happiness as, instead of being a fleeting moment of elation, to be a state of flourishing of one’s being and while his definition is more involved than we are likely to get into today, I think it’s a proper concept to bring up mostly because it hits the nail on the head on what most people want from their retirement.
They want that state of being that is happiness to them. Many people desire a retirement full of energy, be it traveling or hiking or other full experiences, whilst others will prefer a quieter, more relaxed retirement, focusing on family life and taking time to enjoy the rituals of everyday life instead of rushing through them to get to their jobs or drop their kids off at practice.
“That’s great and all, very philosophical,” you might say, “but how do we convert that dream of a state of being (eudaimonia) into a practical financial reality?”
Well, dear reader and in this case hypothetical Socrates, as with any numbers game, the devil is in the details. So let’s dig deeper.
3. The Reality of Eudaimonia
Sticking with our theme of wanting retirement to be a state of being, we wouldn’t want that state of being to be compromised by anything, especially not monetary concerns. The first step to this phase is, after having formulated a realistic idea of what we would want our retirement to entail, to ask, how much is that going to cost?
When we create a financial plan for our clients, we usually start with the basics of expenses. This is important as it hones them into a pattern of understanding the value of money and properly allows them to evaluate what they are spending. This can 1) prevent or correct excessive behaviors that might have led them into credit card debt or other debt that is harmful to all stages of their financial life and 2) help us understand what they value so that we can create a financial picture of what is to come.
For instance, it is very likely that a bank manager would spend a great deal less on their clothes post retirement simply because they don’t need to keep up the appearances of having a suit and tie every day, and thus, with less wearing out, would need to buy less suits and will probably end up buying more t-shirts or polos that are vastly more affordable.
On the flip side, developing a hobby that requires expenditure, such as painting, would require supplies on an ongoing basis and thus that would suddenly become a financial reality only after retirement. Creating that expense sheet helps create a picture of your life today as well as what we can imagine your life will be like.
4. Crunching the Numbers
Then it’s off to the financial planner or advisor to seek their assistance on aspects of the plan that may be hard to calculate, such as how much return is needed per year to supply the kind of lifestyle you desire from retirement. They can also figure out the value of more difficult questions, like a mortgage, or analyze how realistic the estimates of the future are (including, but not limited to, the impact of inflation and the likelihood that markets will yield the kind of total returns you need given your risk tolerance).
5. Retire and Enjoy that Retirement!
I didn’t say it was easy, but it is feasible, and hopefully this simple outline will give you the understanding of what it means to have a successful retirement goal that is financially feasible and how to map out the financial details so that you and your financial planner can develop a proper financial plan that will help you achieve your retirement goals.