The Measurement Date

​By Brad Thomason, CPA
 
 
A frequent topic in discussions about retirement planning takes the form of questions like Am I on track, and How much money should I have at age X?
 
It’s not hard to see where questions of this type come from.  Getting in position for a successful retirement doesn’t happen overnight, so it’s only natural to want to get some gauge on the progress of the undertaking. 
 
Unfortunately, I think this may be an area (yet another one…) where firm answers are not easy to find.  Consider the following two cases.
 
Our first thirty-year old got a degree, got a good job, has worked diligently to take advantage of opportunities and has been among the most rapid advancers within her profession’s peer group.  She doesn’t have any debt to speak of other than a mortgage, has a written budget which she follows faithfully and already has material, positive balances in all of her savings and retirement accounts.
 
Our second thirty-year old has a job, but is in all respects just a mediocre performer.  A number of younger persons have already out-paced him in terms of career advancement.  He spends more or less what he earns as soon as he gets it, has a lot of toys to show for it, and a collection of credit card statements, as well.  His spending varies widely from one month to then next, and is far more likely to follow what he wants than what he needs, or how much cash is available to pay for the purchase.  Other than a few hundred bucks, he has no savings to speak of.
 
Now if I ask you which one it would be better to be, I think that the near-universal response would be the first.
 
Yet nothing in what I have just presented actually tells you anything at all about the odds of who will or won’t eventually succeed in retirement (where ‘succeed’ means something like having enough money to pay for everything that there’s a need to pay for).
 
What I have told you does not account for the possibility that our diligent subject, despite unassailably responsible behavior, ultimately fails because she lives to be 99 years old; while the other one succeeds – financially, anyway – by having a lethal heart attack at age 72, before he has a chance to go broke.
 
What I have told you does not account for the possibility that our second character wakes up one morning in his mid-fifties, realizes how careless he has been over the course of his adult years, and motivated by both shame and fear, goes on a fifteen year earnings kick the likes of which our buttoned-down first subject would have never even thought about for the simple reason that she didn’t need to think about it.
 
The point is, looking at someone’s “progress” a long way away from when that person will retire has little predictive value.  The further away, the less it has, likely to the point of telling you nothing at all.  Too much can change as the years go by, and some of the possibilities can be quite large relative to the pieces of the equation that were being examined before the event.  Just ask Jed Clampett.  Random events are not obligated to be one particular size or another; they are uncertain both as to occurrence and impact.  Which ends up being a really important, but not-so obvious, part of the equation.
 
Ultimately the measurement which matters most is the one you do at the point that someone is about to pull the trigger on retiring.  On the day you plan to retire, do you or do you not have the resources necessary to consider the upcoming task (of paying for the rest of your life) to be fully endowed?  Note that this is a binary question.  It’s either a yes or a no; whereas the same question, asked every other day leading up to The Day, would have to be answered as some sort of inexact maybe/maybe not (again, because of those random events being possible).
 
In practical terms, people are not going to stop wondering about what their progress is.  But in the midst of that exercise, I suggest that people keep two things in mind.
 
First, the appearance of being on-track is not a guarantee of a successful outcome in the making.
 
Second, being behind in your progress (by whatever method you wish to try to estimate that fuzzy notion) doesn’t impact your ability to make future progress, and do so for as long as you continue to try.  Nor does it preclude you from pushing your retirement date out, should you decide to do so.
 
The only measurement date that really matters is the one that coincides with the day of action, the day that you hang up your spurs and retire.  Even though you can check the score any time you like, remember that doing so is no different than checking in with five minutes left to go in the second quarter, the end of the fourth inning, after round six, etc.  Maybe it tells you something.  But it really doesn’t tell you much.  Although it can certainly lead to you think it means more – for good, or for bad - than it actually does.
 
So if you choose to check early, remember to proceed with caution.