When it comes to retirement, you absolutely want to dream big. Just don’t forget how important it is to eventually get those dreams off the drawing board. Here’s a simple framework that can help. It’s called the 4 Disciplines of Execution (4DX for short) and was developed by several people at FranklinCovey and discussed in their book by the same name.
Discipline #1: Focus on the wildly important
The authors of 4DX write: “The more you try to do, the less you actually accomplish.” It you try to do too much, very little gets done and the things that you do, don’t get done well. Concentrate your efforts on a few wildly important goals so you can do them well.
It’s up to you to choose what “wildly important” things to
focus on when it comes to retirement. Here’s
my suggestion, informed by almost 25 years of helping people plan for
retirement: Focus on money and meaning. The
money will help you sleep at night (and fund the type of retirement you want). The meaning will give you a reason to get out
of bed in the morning.
Discipline #2: Act on lead measures
Once you identify your wildly important goals, you need to
measure your progress toward achieving them. The authors of 4DX suggest there are two types
of metrics you can use to measure your progress: lead measures and lag
measures. Lag measures track the thing
you’re actually trying to achieve. In our
example above, having enough money to fund your retirement was one of the
goals. A lag measure would look at
whether you’ve reached that goal.
Unfortunately, that comes too late to be helpful. Instead you want to track lead measures. Those are the behaviors that eventually lead
to successful lag measures. So in our
example of money, lead measures could be things like 401k contributions,
savings rates or investment returns.
Discipline #3: Keep a compelling scorecard
“People play differently when they’re keeping score,” the
4DX authors write. The scoreboard brings
out our competitive spirit, drives us to stay focused on lead measures and
gives encouragement when we see progress toward the ultimate goal(s). Returning to our example, maybe your scorecard
tracks each pay period that you were able to save a certain percentage of your
income. Or if you’re tracking meaning,
maybe your scorecard tracks every time you have a date night with your spouse,
take a trip or work at learning a new hobby.
Whatever your lead measures, keep a scorecard to track how you’re doing.
Discipline #4: Create a cadence of accountability
In the final discipline, the 4DX authors say that you need to put in place a “rhythm of regular and frequent meetings of any team that owns a wildly important goal.” Depending on your goal, that “team” could just be you or it could include others like your spouse, financial adviser, friends, children, etc. Meet regularly with whoever has a vested interest in the outcomes you’re trying to achieve so you can track your progress and hold each other accountable.
Dreaming without doing is a recipe for disappointment. The 4 Disciplines of Execution will help you
turn your retirement plans into reality.
Quick Note: I recently posted a video to YouTube on the 8 Habits of Successful Retirees. If you haven’t seen it yet, you can click the link to watch it and click “Subscribe” to see future videos.
When I heard about the fire at Notre Dame Cathedral in Paris
I, like everyone else, was extremely saddened.
I’ve been inside the church before.
Looked at the beautiful stained glass.
Listened to the choir sing.
Marveled at the ornate structure and priceless artwork. I’m happy I got a chance to see it, but sad
for the loss to the French people and future generations of visitors.
As I was thinking about it last night, however, another thought came to mind. The cathedral survived for 800 years and it was a shock to see it go. You and I will survive for only about 80 years and the end won’t really be a shock because we all know our time here on earth is limited. Someday, you and I will be the “lost cathedral” that those around us mourn. Subtract your current age from 80 and that’s about how much time you have. Some a little more, some a little less. Really understanding that should give you a sense of urgency and cause some important changes in your life. It should change your perspective, your actions, your relationships, your willingness to reconcile, your worries, your fears, your priorities and any number of other things. Don’t let that lesson pass without internalizing it and applying it in your everyday life.
“Show me, Lord, my life’s end and the number of my days; let me know how fleeting life is.” – Psalm 39:4
P.S. If you’re interested, here’s an article I wrote a while back on my trip to Paris.
Just a short post today. As spring arrives, I want to share one of my favorite poems with you and encourage you to use this time of warming weather, blossoms and new beginnings as a visual reminder to make the most of your time. The poem, by A. E. Housman, is below.
Loveliest of trees, the cherry now
Is hung with bloom along the bough,
And stands about the woodland ride
Wearing white for Eastertide
Now, of my threescore years and ten,
Twenty will not come again,
And take from seventy springs a score,
It only leaves me fifty more.
And since to look at things in bloom
Fifty springs are little room,
About the woodlands I will go
To see the cherry hung with snow.
You don’t need to be a poetry expert to understand what Housman was saying. Life is short. And when you realize how quickly years pass and you do a bit of mental math, you understand that there’s not much time left. So don’t wait. Don’t continue to procrastinate and defer your dreams. Decide what things, big or small, are important to you and then get busy doing them. Have a great week. And, as always…
P.S. I took Housman’s words to heart in a literal way last year and went out to Washington D.C. to see the cherry blossoms (see above photo). Sometimes the best way to “stop and smell the roses” is just to stop and smell the roses.
The sharp market selloff in the fourth quarter of last year was partially caused by investor concern over an inverted yield curve. Just last week we saw another big drop as the curve inverted again. What is the yield curve and why are people worried about it? More importantly, how could it affect your plans if you’re at or near retirement and what can you do to protect yourself?
What is the yield curve?
When you get a loan, the interest rate you pay is based (in part) on how long you need to borrow the money. All else being equal, the longer you borrow, the higher the interest rate will be. The same is true when the government borrows. They pay higher interest on 30-year bonds than on 30-day bonds. If you plot out government bond rates (e.g. 1-year, 2-year, 5-year, etc.) and connect them with a line, that is the yield curve. In a normal economy, the curve slopes up and to the right, because as we just discussed, rates rise along with time to maturity.
Why is everyone worried about it?
As we just saw, a normal yield curve slopes up and to the right because long-term rates are typically higher than short-term rates. Once in a while, however, conditions are such that short-term rates rise above long-term rates. This is a warning sign that the markets are anticipating trouble for the economy and they expect the Federal Reserve to cut rates. When short-term rates rise above long-term rates, that graph we talked about earlier shifts from upward sloping to downward sloping. In short, it becomes inverted. This is concerning, because it turns out that an inverted yield curve is a pretty good predictor of recession.
Does an inverted curve guarantee a recession?
Not every inverted yield curve has led to a recession, but every recession we’ve had since World War II has been preceded by an inverted yield curve. So when the yield curve inverts, it’s worth paying attention to.
Is the yield curve inverted now?
The yield curve flattened for most of 2018 as the Fed raised short term interest rates and long-term rates stayed low. Then, during the fourth quarter, portions of the yield curve inverted. It wasn’t entirely inverted, but even having portions inverted is a red flag. Rates normalized a bit earlier this year (and the markets rallied), but last week portions of the curve inverted again when 10-year rates fell below 3-month rates.
If a recession follows an inversion, how long does it usually take?
An inverted curve is a good predictor of recessions, but they generally don’t happen right away. The average time between inversion and recession is about a year.
What does the stock market typically do after the curve inverts?
Markets will usually continue to rise for a period of time after an inversion. For example, markets rose an average of 35% after the last 3 inversions (1989, 1998 and 2006), before ultimately falling as the economy went into recession. And returns on the S&P tend to be above average for many months after an inversion. So yes, an inverted yield curve can signal a potential recession, but it can also signal a period of strong stock returns before the recession arrives.
What should investors be doing?
A yield curve inversion isn’t a perfect indicator and it’s by no means the only economic indicator. There are plenty of signs that point to a strong U.S. economy and as we saw above, markets usually continue to rise for a period of time even after an inversion. That said, it’s a red flag, as are signs of slowing economic activity in Europe and China. The best thing you can do is to make sure that you are invested in a way that is consistent with your risk tolerance, time to retirement, goals and overall financial situation. Then, even if things get choppy, you’ll be able to ride out the storm. For further ideas on what to do, read: Should you prepare for a deeper downturn?
The general idea behind retirement is to reach a point of financial independence where work is optional and you control your time. How fast you get there depends largely on how much you save and how much you need to live on during retirement. The math is pretty simple. The more you save and the less you need, the faster you will be financially independent. How can you ratchet up your savings and reach your goals faster? For some ideas, let’s look at the habits and tactics of super savers (people who save 30-50 percent of their take home pay).
How to save half your
First, let’s address the elephant in the room. “Wait Joe, Did you say 50 percent!?!” Indeed I did.
That might sound ludicrous to most of you, but let me prove to you that
it’s possible. Think about how much
money you make. Got it? Ok. No
matter what number you have in your head right now, there are millions of
people in the U.S.—some of whom no doubt are your friends, neighbors and
co-workers—living on half that. Say
your income is $100,000. Almost half the
country is currently living on half that.
Or maybe your income is $50,000.
There are tens of millions living on half of that. So living on half of whatever number you have
in your head right now is not only possible, it’s apparently pretty easy. Millions of people are already doing it. The trick is to spend like them, even though
you’re making twice as much. Do that and
your savings rate will skyrocket. Let’s
look at how super savers do it and then consider how to apply those lessons.
Strategies of Super
They focus on maximizing income. Super savers focus on income, not just expenses. They realize that the more money they make, the easier it will be to cover a comfortable lifestyle and still have plenty left over to save.
They avoid lifestyle bloat. Most people allow lifestyle bloat as they get older. As income grows, so do expenses. Bigger paychecks mean better houses, cars, vacations, wardrobes and gadgets. If you spend everything you make, you’ll never be financially independent. Super savers try to buy their freedom as soon as possible by capping their lifestyle and saving the rest.
They have clear priorities
and goals. Super savers understand
what’s important to them and what’s not.
They have clear retirement goals.
They have a vision for their future.
They know what they really want out of life and they are taking those
plans very seriously.
They are self-aware
and secure. Because super savers
take the time to think about what’s important to them, they are less likely to
make purchase decisions based on expectations, peer pressure, vanity, a pushy
salesperson or the need to keep up with the Joneses. Instead, they spend liberally on things that
provide them with a solid ROI and miserly on things that don’t.
They make things
simple and automatic. Super savers
automate their savings by having the money automatically deducted from their
paychecks and/or bank accounts.
They are organized
and intentional. Saving large chunks
of your income doesn’t just happen. In
fact, the path of least resistance is to spend everything you make. Super savers are disciplined and intentional
about earning, saving and spending. They
track their progress and regularly try to improve.
They have aggressive goals. I have a theory. Our collective failure to adequately prepare for retirement is partly due to the fact that our target (mid 60s) is so far out in the future when we start our careers. There’s no sense of urgency. Super savers have aggressive goals that don’t allow for complacency.
They use debt
sparingly. Debt allows you to bring
future purchases into the present. You
get the fancy doodad now in exchange for the promise to keep working so you can
pay for it over time. Super savers
understand this calculus. They realize that
you don’t add debt, you exchange future years of your life for it. And since they hold those future years dear
and want to control their time, they use debt very sparingly.
It’s not about the
job. For the most part, super savers
aren’t trying to quit working. They’re
trying to get to the point where work is optional and they have greater
leverage in choosing the type of work or other activities that they do.
How to buy your
I wrote this article, of course, in the hopes that it would
inspire some of you to ratchet up your savings rate and thus buy your freedom
faster. Here are a few simple ways to
apply the strategies discussed above.
Inventory. The first step is a quick inventory of your
current financial situation. The goal is
to get an overview of how much you earn and where that money is going. Grab a pay stub and calculate your annual
after-tax income. Make a list of what
you’re currently saving in your different accounts (e.g. 401k, IRA, etc.). Review your budget to see where you’re
currently spending. Again, the idea with
this is just to get a clear picture of how much money is coming in and where
priorities. Next, think about what’s
important to you. What do you actually
want to do in this life? When would you
like to retire and how much money do you need to fund that lifestyle? What goals do you have? What types of purchases do you view as most
worthwhile? The idea here is to define
your priorities and goals so you can allocate your resources more efficiently. You want to invest in things that are
important to you and stop spending on things that aren’t.
Set an audacious savings
goal. How much are you saving? Nothing?
3 percent? 10 percent? Whatever the number, set a stretch goal to
drastically improve your savings rate. Something
that will give you a sense of urgency and force you to put forth major
Track. I’ve been experimenting with savings rates myself for the last two years. To help, I created a simple spreadsheet that has a column for my income, columns for each of my accounts and a column for my mortgage. Then each time I get a paycheck, I list my after-tax income in the income column and then enter the amount of savings in each of the other columns (e.g. 401k, IRA, HSA, etc.). I’m trying to pay off my mortgage quickly, so I count extra payments there as savings.
Reallocate. Increasing your savings rate takes time because the extra money you want to save is already allocated somewhere else. In some cases, it will be easy to reallocate it. If you eat out regularly, but that isn’t a high priority, then stop eating out and send that money to savings instead. Other things take a little more time (e.g. paying off credit card bills) or more effort (e.g. lifestyle changes like downsizing your house). As you get rid of past indiscretions and reorder your priorities, your savings rate will rise and you’ll reach your goals faster. Not only that, but you’ll also be less stressed about money and more satisfied with your lifestyle because you’re spending on things that matter to you.