What to Expect When You’re Expecting Retirement: Tips on Building the Nest Egg

April 16, 2015

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In the iconic movie Lost in America, Albert Brooks’ character offers a useful, angsty perspective on how to think about the nest egg during this scene. In the first of many lectures to his wife Linda, who gambled away their savings, he explains, “The egg is a protector, like a god, and we sit under the nest egg … and we are protected by it. Without it? No protection! … It pours rain. Hey, the rain drops on the egg and falls off the side. Without the egg? Wet! It’s over.”

When it comes to building a nest egg, the challenges are recognizing that there are many competing interests and balancing or prioritizing these interests. You are always making a decision about how much you should enjoy in the short term, and how that affects what you will have in the long term. Do you buy a Honda or do you buy a BMW? Do you live in the most affluent neighborhood or do you buy a modest home with a lower mortgage so you can set aside monthly savings toward the nest egg? Do you send your kids to private school or do you make the decision that public school is the way to go?

Very few people have an unlimited amount of money, so the need for a nest egg is always competing with myriad more immediate life goals.

Find Your Deeper “Yes”
It can be difficult to say no to lifestyle pleasures when it seems like much of our economy is designed to encourage us to spend more. In order to become more deliberate about your spending, it’s critical to evaluate the question: What are my deeper goals? Whether these goals are traveling the world, leaving a job to follow your career passion, serving on new boards, volunteering in the community, or starting a new business, retirement is not a one-time destination. It’s more about reinvention than moving from an active state to a passive one.  Assess what financial sacrifices you need to make now in order to be in a position for reinvention later. Next time you reach for a $5 coffee or that extra purse, you might ask yourself, “Do I want these lifestyle pleasures more than the capital I will need to turn my job into a new career of passion?”

Appreciate the Magic of Compound Interest
Do you ever find yourself thinking, “Oh, I’ll start investing once I’ve saved more money?” If you’re working to build a nest egg, it’s time — not just timing — that will help you reach your goal. Starting a sustainable portfolio today allows you more time to benefit from compounded interest.  It’s better to start earlier with a small amount than to wait too long and try to play catch-up. Imagine a 25-year-old woman and a 45-year-old woman both want to retire at age 60 with a $1 million nest egg. Assuming 7 percent growth, the 25-year-old would need to save about $555 a month to reach this goal, but the 45-year-old would need to save closer to $3,155 a month. Over the course of a year, that’s a $31,200 difference! Starting to save at a younger age packs the additional benefit that your savings plan is less likely to be interrupted by child or parental care.

Educate Yourself
As Benjamin Franklin said, “An investment in knowledge always pays the best interest.” We are all more comfortable acting from a base of knowledge. Since schools don’t teach financial literacy in grades K through 12, you may need to head to a local university and look into any investing and retirement planning courses they may offer. As I mentioned in my previous article, women are less confident than men in investing, even though their performance results are the same. Women tend to lack confidence, not competence.

Establish an Annual Nest Egg Review
If you’ve found a meaningful reason to save, made the choice to start saving, and brushed up on your finance skills, you’ll need to return to the realm of specific numbers. It may be ineffective to save money without a specific dollar amount in mind. Typically, you will not have a steady income during retirement, so with longer life expectancies and a rising cost of living, you may experience some sticker shock at the amount you need to save. For instance, if you determine that you’ll spend $40,000 each year during retirement, you will need to save $1 million dollars for income, making it all the more important to start saving as soon as you can. Don’t worry! I’ll go into more detail about how to begin building a portfolio in Part Three of the “What to Expect When You’re Expecting Retirement” series.  

Respect the Nest Egg
In Lost in America, Linda gets caught up in the excitement of Las Vegas and inadvertently gambles away the vast majority of her and her husband’s nest egg. Once you’ve taken the steps to start building your nest egg, avoid taking huge risks with this safety net. For Linda, that means avoiding casinos and any other get-rich-quick schemes. For most of us, it means making deliberate decisions about lifestyle pleasures, and honing in on our deeper “yes” among all of the competing interests as we make financial decisions throughout our lives. Keep the nest egg separate from any money you save for emergency funds or living expenses. Consider your nest egg a vault, and only enter the vault if you are using the money for the purpose you intended.

Following these tips will not only help you build a secure nest egg, but it may also prevent you from enduring Albert Brooks’ infamous nest egg lecture.

Securities offered through FSC Securities Corporation, member FINRA/SIPC. Advisory and insurance services offered through Stavis & Cohen Financial, a registered investment advisor not affiliated with FSC Securities Corporation.

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Although this information has been gathered from sources believed to be reliable, it cannot be guaranteed and the accuracy of the information should be independently verified.

Deborah Stavis is a member of the DailyWorth Connect Program. Read more about the program here.

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