Like all things in life, retirement planning has many aspects to it and a few items we can control but most items are beyond our control. To help remove some of the stress of retirement planning, we would like to help reframe the way that you look at retirement planning. Looking at the chart below it breaks down the most important factors that impact your retirement and are broken into three buckets: 1) things you can control; 2) things you have some control over; and 3) items that you have no control over.
Too often we focus on the things in life that we cannot control and those are the items that cause us the greatest stress. Instead of wasting our time and energy on those items, we instead should put our focus on the buckets that we have control over.
Total Control Bucket
This bucket is the most important because these are the items that you explicitly control. For most individuals, savings and spending are the two biggest factors for retirement planning and the two items you have the greatest control over! When you work with a Financial Adviser, any recommendations they make typically will try to reduce expenses or make you more money.
Some Control Bucket
This bucket includes things that you can influence but do not have total control over. Items in this bucket would be things like your health and longevity. We can do the best we can to be healthy which will reduce stress and increase life expectancy, but we have no control over diseases like cancer (i.e., heredity traits). Many times, people plan on working till a certain age, but things can change if you experience a layoff or health problems that force you into retirement. It is important to have plans for this bucket like trying to stay healthy, reducing stress, and having a plan for your career. However, we must keep in mind we do not have total control, so having proper hedges in a place like a disability policy, health insurance, emergency fund, etc. should be considered.
Humans always want to have the illusion of control. Most people do not respond well in dealing with things that they have no control over. The fear of something happening in the no control bucket (i.e. bad market returns) leads to more anxiety and sleepless nights than any other bucket. Remember that worrying is like a rocking chair, it gives you something to do but accomplishes nothing. That is not to say we do nothing with this bucket, but rather you build a retirement plan to reduce risks from this bucket. Market returns are something we have no control over but studies have shown a diversified portfolio produces the best risk-adjusted returns. No one controls what happens with taxes and government policy, but you update your retirement plan once these changes occur.
Use the above chart as a reminder to focus your time and efforts in retirement planning on the items that you have the most control over. Starting there will produce the best results and will reduce stress since it takes your attention from the items in the no control bucket that cause the most anxiety. Working with a Certified Financial Planner™ and focusing on the two buckets that you can influence, will give you a simple and lower stress approach to retirement planning.
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