The 5-Cent Retirement Plan

By: Jack Strulowitz

A few months ago, my four-year-old son discovered the bottle deposit machines outside Gourmet Glatt, and thus was born a businessman. We made a deal with him: if he collected the cans and bottles in the house, we would take him to the machines every other week to collect his 5 cents per can, so he could save the money toward the $30 digital camera he has been asking for. Since then, no one in the house can get away with throwing out a can or bottle. The second he hears a seltzer or soda can crack open, he comes running to remind you to hand it over to him when you’re finished. He has recruited his Mema, who graciously saves her bottles and cans for him, and he designated a super-secret spot to store his cash, and he’s already saved $14. As far as business models go, it’s a slow road to profitability, but for a four-year-old, he is remarkably determined to get that camera.

And all this from a boy who needs to be reminded to put his shoes on before leaving the house every day. So where does that determination come from? He knows exactly what he’s working toward. He’s not saving for “something fun” or even a “toy.” He’s saving for a very specific blue children’s digital camera that is sitting in our Amazon cart. He knows what it looks like, he knows how much it costs, and he knows that every bottle gets him a little closer to owning it.

There’s a lesson in that. Research on goal-setting has found that specific, challenging goals are more effective than vague instructions to simply “do your best.” The more clearly you define what you’re trying to accomplish, the easier it becomes to allocate your time, attention, and energies toward achieving it.

My son obviously has no idea that he’s demonstrating a basic principle of goal-setting. He just knows that there’s a blue camera waiting for him, and that is enough to keep him collecting bottles.

It is also one of the first things we do with clients when we begin building a financial plan. We do not start by telling someone they should simply “save more for retirement.” We start by asking them what they actually want their money to accomplish, and then we make those goals as specific as possible. If someone tells us they want to retire comfortably, that is a good starting point, but it is not yet a goal we can really plan around.

Instead, we might turn that into something like: “I want to retire in June 2030, when I’m 68 years old, and have $12,000 a month available to spend.” Now we have something we can work with. There’s a date, a dollar amount, and a lifestyle attached to that goal. And most importantly, there’s a finish line.

From there, the financial planning becomes a matter of working backward from the finish line. How much does the client need to save between now and then? How much investment growth is required? How should the portfolio be structured? What happens if markets perform poorly? How will Social Security, pensions, and other sources of income fit into the picture? What happens if the client lives longer than expected? Instead of making financial decisions in the abstract, we can evaluate them against a specific destination.

This applies to much more than retirement. We might work with a couple who wants to buy a vacation home in ten years, parents who want to make sure they can fund their children’s weddings, or someone who wants to leave a specific amount to their heirs. The more specific the goal, the easier it becomes to determine whether the plan is actually working. “We want to help our kids someday” is a nice intention. “We want to have $200,000 available for our children’s weddings” is something we can actually plan for. And ultimately, that’s what good financial planning is supposed to do. It takes the things that matter to you and turns them into measurable objectives. It connects today’s decisions to something in the future that you can actually picture.

My son does not know anything about inflation, investment returns, healthcare costs, or longevity. He does not need to. His entire system runs on a picture in his head, a $30 price tag and a machine that pays him a couple of dollars every other week.

For him, the goal is simple. There’s a blue camera in an Amazon cart, and he’s working his way toward it, one bottle at a time. Maybe that’s the simplest way to think about financial planning. Before you figure out how to get somewhere, you have to know exactly where you want to go. n

Jack Strulowitz is a Financial Advisor at Bernath & Rosenberg in Cedarhurst, NY, where he helps high–net worth individuals and families manage their investments and build comprehensive strategies for retirement, tax, and estate planning. For questions or to schedule a consultation, please contact [email protected] or 847-962-3352.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.