Several months ago, I saw an advertisement for a financial institution where various actors walked around haloed by a three-dimensional dollar figure — their savings target for retirement. The concept was sound, encouraging viewers to focus on saving for the future with each individual having a different financial goal. It’s a great ad with an important message.
Giving this so-called fiscal “number” a minute of thought isn’t really the priority for those not facing the imaginary wall of retirement any time in the near future. With housing bills, car payments, kids’ tuitions and the like, looking at the 401K in this grave light is not yet in the cards. But, once the dust settles on familial affairs, this number creeps into an overriding question, a barometer of sorts to how close or how far one is to being able to consider retirement with peace of mind.
As the commercial eloquently demonstrated, not only is there a different satisfactory number for everyone, but these monetary figures also change with time, taste and circumstance. Retirement is no longer a binary “yes or no” financial achievement. The number that each person needs, or thinks they need, is fluid, making adherence to a rigid plan or goal highly impractical.
Here are some simple considerations:
- The greater the age you call it quits, the lower the financial goal for retirement. It’s a matter of life expectancy charts, and even though I foresee these statistics rising substantially over the next few decades, mortality is still something everyone must face.
- Many of us will probably continue to work in some sort of capacity for a number of years after retirement. This tiered approach, where there is less income rather than none at all, also reduces the strain on a rigid fiscal goal.
- Interest rates have a significant bearing on your number. We are in a period of strangely low rates. It used to be that you could safely look at a 5% rate of drawdown on savings as a benchmark for an annuity. Drop that figure by 1% to 1.5% and you have to ratchet up your number by a quarter. Meeting with a financial planner to thoroughly understand this cause-effect situation is highly advisable.
- For many, the equity in their home is a critical part of their savings plan. While the housing market is showing signs of resilience, for many markets, there’s still a long road ahead to restore the values attained before subprimes went belly up. By that time, any home will be a decade older and may require considerable renovations or tech upgrades to stay with the times. Also be mindful of the natural boom-bust cycle that has sharply affected the housing market since the proliferation of modern economic practices.
- Families put pressures on savings. It is no longer a guarantee that your children will get high-paying jobs immediately upon graduating from high school, college or any other post-secondary educational pursuit. Continued support in at least some capacity is becoming a defining factor of the Millennial generation. You might also be responsible for aging parents, putting further pressure on your strict financial goal.
- Different cities have different costs of living. This applies to your monetary plan, of course, so changing locations can have a major impact — one you might not wholly realize until the move is already completed.
When I was just starting my hospitality consulting firm, I asked a CFO client about retirement. Even though I was nowhere near the half-century mark, I wanted to know what he thought. His comfort factor (remember, this was some 20 years ago) etched in at $8.3 million. How he got that figure, I will never know. But, he said with all confidence that this was his goal, and once he achieved it he would no longer be working.
Fast forward to now, and he’s living the retirement dream while I’m still working. Perhaps thinking long-term and solidifying your number early on can help guide your work life and motivate you to reach a loftier goal.
So, what’s your number?
I ask this question to you personally, but also as something to consider for your hotel. The number that a retiree decides upon will also determine his or her monthly allotment of free cash for such luxuries as dinners out, clothing, events and hotel guestrooms. If you plan to cater to baby boomers, you have to consider their monetary thresholds as well as what promotions or packages would help persuade them along these lines.
(Article published by Larry Mogelonsky in HOTELSmag on September 23, 2013)