How Much Do I Need to Retire? Or What’s “MY Number” Part 2
Who can tell me how much money I need to retire? The question everybody wants an answer to!
How much do I need to retire, Part 2
As I’ve mentioned in the past, developing and executing a successful financial goal plan to achieve the desired results is likely one of the more challenging things you will do in life. Part of the reason for this is that finances are an emotionally charged topic. If you are married, you probably already know that money issues are a significant cause of marital stress (Note 1).
As I look around myself and the country, I see varying examples of how people perceive their financial situation. How people perceive their financial situation and how their actual financial situation is may be quite different. Frankly, I am a bit more pessimistic than the data suggests, as I think people generally make decisions based on their feelings about finances rather than data-driven decisions that provide certainty. Statistics, as we know, can be spun to say whatever we want them to. Check out the information from the Federal Reserve in Note 2 and see what you think. In essence, the report states that approximately 72% of the population reports being at least okay financially. Within this number are wide variations based upon education, race, and other factors. As you ponder this figure or examine the chart to break it down, do you conclude that 72% of the population being just 'okay' with their financial situation is a formula for achieving their dreams and living their best lives? No, I don’t either.
And this is the reason I’m taking it slow and easy, trying to cover all the necessary bases so you can develop your own plan. In the process, I hope to educate you a bit and tell interesting stories to make the point. If you were taking the course with me in person, we would be able to have discussions, and you would be able to hear from others, and that would be helpful. So, please bear with me as I break all this financial planning down and you can have a firm foundation with which to build your own plan upon. Ultimately, you will be better for it.
Planning
Several weeks ago I whetted your appetite with the question(s) of “Who can tell me how much I need to retire? I compared how daily planning at work contributes to a successful outcome with how our individual daily planning affects our long-term success. I half-asked two questions and half-answered them. Let’s pick it up from there.
Your first clue on what we are going to talk about today came as I described daily planning. Like running a successful airline, big-box store, or simply ensuring that a grocery store is well-stocked to meet customers' expectations, it all starts with planning. In the previous post, “How Much Do I Need to Retire?”, Part 1, we discussed daily operational planning and the effect on the operation of the business, and I equated good business operational planning with running a successful business. However, by the time you attend a daily operational call, you are well along in the planning process. Let’s talk about that for a minute.
Strategic Planning or Hoshin Kanri
There are two basic types of planning, strategic (typically more than a year, long-term) and tactical (short-term, less than a year, and including daily planning). Before a person or a business can even discuss successful tactical planning, there must be a strategic, that is, long-term, plan and set of goals upon which to base their daily activities. If you are unsure of what I am talking about here, click on the link in Note 3 to learn more.
A business can use many forms of strategic planning. Because I am a Six-Sigma Green Belt (Note 4), I have been aware of the value of Hoshin Kanri (Note 5) for many years. Even before I became a Green Belt when I was a manager, I used Hoshin Kanri techniques. Not because the organization used Hoshin Kanri, but because I wanted to. I’ll explain more in a minute.
When I was at Spirit Aerosystems, Tulsa Division, we utilized Hoshin Kanri in our annual strategic planning process. Hoshin Karni is a Japanese term that simply means policy management. It aligns an organization, at all levels, from top-level strategic goals down to day-to-day work or individual tasks, and includes a measurement, typically expressed in Key Performance Indicators (KPI’s). When used and executed correctly, every worker’s production is aligned with the next level’s goals, which are in turn aligned with the next level, and so on, until everyone in the organization is working toward the same objective and all actions contribute to top-level goals. Ideally, KPI’s are developed at each level such that if the lowest level meets their KPI’s, the higher level is able to meet theirs and so on until the top level KPI’s of the company or organization are met. It’s beautiful to watch when I works and any high-performing organization will use some sort of strategic planning such as Hoshin Kanri.
As a manager and rising through the ranks, I utilized strategic planning sessions to ensure that everyone in the organization supported my goals, which in turn supported my boss. Each management employee or individual contributor was required to develop their own goals that supported my goals and those of my leader. Notice something critical here: I did not tell my reports what goals to establish. I allowed them to develop their own goals that supported the mission. They bought in by deciding what they needed to do and were held accountable for meeting those goals. How did that work? Yes, it worked quite well, and we periodically measured our progress, typically through mid-year off-site planning conferences. If you are a leader in an organization, consider this. If you are not a leader, consider educating yourself on this process and presenting it to your leader for discussion.
That’s great Dave, but I’m not a company, I’m a person
Yes, I get that, but what I want to tell you is that I used this same process as I developed my own financial (and other) goals, and I want to describe how you can use this process as well. What we want to do is develop strategic goals (that is, long-term goals that are more than a year) and then break those down into daily or short-term goals (that is, less than a year). Remember our financial template? That’s exactly what we did with it. We set our long-term goals of as many as 40 years (to reach our number and beyond) and we worked backwards. We broke it down into bite-sized pieces that we could understand, and then set progressively smaller goals, down to daily to-do action item lists, each in support of the next larger goal, and so on. We decided on what we wanted and developed a plan with specific action steps to achieve it. And it’s those big things, the strategic stuff, that I want to talk about going forward.
As I mentioned at the top of this post, successfully planning lifetime financial goals is not an easy nor quick process. It’s also emotional and if you are married, getting buy-in from your spouse could be difficult and you may even need to use what you learn here with him or her so that you are on the same page. In financial matters, I’ve been quite fortunate, as I’ve had the freedom to plan our family’s financial future. She supported me and trusted me, and we’ve had good results. I educated myself, monitored and adjusted as needed. When it was time, I brought in financial professionals to validate that what I did was correct and assist as needed.
So this post is getting quite lengthy, and we need to call it for this week. If you’ve been able to learn the lessons of the importance of strategic and tactical planning, along with the importance of measurement systems (KPI’s), then, using your financial template as a guide and starting to get your arms around what “Your Number” might be, then I would say you are well positioned as we go forward. If you are unsure you have all of this information, review the relevant posts and click on the reference links to learn more.
Next time, I am going to start by breaking down the basic considerations and assumptions I mentioned in Part 1.
That’s all for this week!
What’s in it for Me
We all want financial security, don’t we? Rather than leave it to chance, let’s get on a path so we can know for certain! And that’s what’s in it for you this week!
Call to Action
Review the previous post on How much you need to retire, as well as posts on templates, if necessary. Hopefully, you have begun to think about how you want your final financial template to look and are getting a general idea of what “Your Number” should be. That’s a lot, but now is a great time to ensure you are up to speed so you can benefit from all of these posts.
Recommended Resources
If you would like to learn more about strategic planning, either for your business or just yourself, consider purchasing an excellent book that details the process quite well. Click on the link in Note 6.
Up Next
How much do I need to retire? Or, what’s MY number, Part 3.
Notes
Please note that as an Amazon Affiliate, I may earn a small commission on the sale of any of these recommended resources.
Money and marital conflict: https://pmc.ncbi.nlm.nih.gov/articles/PMC3230928/
Federal Reserve report of household economic well being: https://www.federalreserve.gov/publications/2024-economic-well-being-of-us-households-in-2023-overall-financial-well-being.htm
Strategy and Tactics: https://www.clearpointstrategy.com/blog/strategy-vs-tactics
Six-Sigma: https://www.sixsigmaonline.org/is-six-sigma-certification-worth-it/
Hoshin Kanri: https://www.gembaacademy.com/resources/gemba-glossary/hoshin-planning
Hoshin Kanri for the Lean Enterprise: https://amzn.to/4mM6OQf