A Conversation With ... Cody Mendenhall

At what age should a person start planning for retirement?
The simple answer is right away, as soon as they can. Studies continue to show people are not ready for retirement and it’s because they keep putting it off. That first job out of college, if kids can learn to start putting away some of their paycheck – it doesn’t have to be a huge amount – you can get used to the habit. After that habit is established, down the road you will be prepared to make changes, save more and do what you need to retire.

The first step is you have to start saving. The second step is how much do I want to save. You can calculate how much income replacement you want to have. Always look at company matches and take advantage of that free money that is available. The third step is helping them decide how to invest the money. The problem is, everybody always wants to talk about that first. You can’t invest what you don’t have.

What are the psychological hurdles for people in saving for retirement?
Why are people not saving? Why are young kids or people in their 40s, 50s or 60s not saving? Why do I see more people putting more people into a Christmas fund at the bank or why do I see more people successful at saving for the new car fund? The issue is they have a connection to it – they know they are saving for a new car, boat, house or something for Christmas. The work retirement account has become so commonplace, it’s like a savings account. People are thinking, ‘I should save this,” but what is that? It’s something, someday, maybe. I try to get people to connect. What is retirement for you? Before you get into all the financial things, think about what you want your future to be. Think about it as your freedom fund or spend time with grandkids fund or travel the world fund. Make a connection with it; don’t just dismiss it as your 401(k). Have purpose for savings.

Are there any large expenses associated with retirement?
People often talk about the medical costs involved, but I don’t think they understand how much they are going to be. For instance, a study in 2012 showed the average medical costs for a couple during retirement is $240,000. That’s just medical costs. That doesn’t include food, shelter and other things you need or want. Another study showed 70 percent of people will have to have some type of long-term care. The average cost per year is $81,000, that’s about $233 a day in a semiprivate room. A lot of that depends on the area, so here things are a bit less. Moving into a skilled nursing home can drain all of your assets. Then, you are left paying bills you can’t afford.

How can you calculate how much you will need for retirement?
There are two ways to calculate it. Early on in life, young people use a replacement ratio. The recommendation is you should replace about 70 percent of your income. So, if you make $100,000 today, then you need $70,000 for retirement. Adding in inflation, it may be $200,000 years from now, so the calculations can get complex. The other method is actually knowing what your expenses are going to be. Knowing you spend $2,500 a month for food and adding it all up. That is the most preferred, but 20 years out from retirement, you can’t know that.

How would you define a successful retirement?
I’ve seen people who have the money to retire, but two weeks later go back to work because they are bored. A successful retirement isn’t just getting there and having enough money. Retirement success is about truly enjoying the later years of life. Often times people think that’s the day I don’t have to work anymore or set my alarm clock, they don’t really think about what they are going to do.

We get a sense of pride out of what we do. If you go from being the boss to sitting on the couch all by yourself, you are not going to be happy. My silver bullet is to truly spend time thinking about what you want to do with the rest of your life.