Since its original publication in 1989, more than 25 million copies have been sold. The book's effect on business in the 1990's was profound, and personally I believe some of the simple items listed helped me in my career as well. Implementing behaviors that do actually put first things first help ensure that regardless of how easy a task may be, those with priority are what you should really focus on and complete.
When people think of where being effective is most important, the knee jerk reaction is to think about work. Decisions made at work are typically thought to be important...they have meaningful impact on society. Certainly that can be true in many cases: decisions a surgeon makes are definitely very important. A bus driver's decisions are very important. And even in certain rare cases, decisions made by a Vice-President are actually important.
So it should come as no wonder that upon its release, The 7 Habits of Highly Effective People was thought to apply very specifically to situations that dealt with work. Corporate big wigs tried to digest and apply the knowledge imparted by Covey's book so that with any luck their next shareholders' meeting would go well. And that knowledge may have actually made an impact: the S&P 500 enjoyed a nearly 5-fold increase in the 10 years following the publication of the book starting at $285.40 in 1989 and ending at $1,425.59 in 2000.
But to most individuals, being effective matters most when planning for retirement. Too often we're cavalier with this challenge, and downplay the future impact of how we spend our money today. So let's change that thinking, and see how being effective can help when thinking about retirement.
The 7 Habits of Highly Effective Retirement Planners
Retirement planning is all about details. People too often romanticize retirement, forgetting that even if they have saved enough to safely withdraw based on today's understanding of expenses, inflation will make things like your hydro bill increase throughout your retirement. And planning by paying off your mortgage doesn't eliminate your never-ending obligation to pay property taxes. Paying attention to the details of the costs you will need to cover during retirement will help in your planning efforts.
3. First Things First
Personally, I've always been a little confused as to why this is #3 (assuming these 7 items are ranked in order of importance). To me, prioritizing is a critical skill to master and its applicability is comprehensive. I focus on prioritization in my personal finances as well as with respect to projects at work. As it relates to retirement, prioritization is key. Whenever you get paid - even if you do not draw a regular paycheck - the first withdrawal should be to your savings or investment account. It is so trivial to set up automated funds transfers with online banking today, you could stop reading right now, make an investment and be back before 5 minutes are up. And if you don't yet have an investment account, you should seriously consider investing in index funds at one of these brokerages (listed according to the benchmark measured by the American Customer Satisfaction Index):
Retirement planning is also about balance. Saving 65% of your take home pay for retirement is great - if your lifestyle allows to you live within the remaining 35%. If instead you find yourself accumulating debt to make ends meet, your pursuit of retirement savings is causing you to lose today. And when that day does arrive when you believe you are prepared for retirement, if you have a huge pile of debt, you may find yourself having to return to work. The opposite is also true, of course. By spending what you earn today and not planning for retirement, you are setting yourself up for losing when you can least afford it. Elderly people are more prone to healthcare costs, and let's face it - physical jobs get more difficult with age. Returning to work at a physically demanding job may not be an option during your retirement years.
If you think win-win, your retirement plan will allocate as much savings as you can bear while not jeopardizing your current financial position.
5. Seek First to Understand, Then to be Understood
There is so little comprehension in society today about the demands of planning when thinking about retirement, even advisors often gloss over critically important details, like inflation and property taxes. The amount of money you save is important in planning for retirement, but so too is the amount of information you gather. Being knowledgeable is your best defense against sharks who see your retirement savings as a target. Only upon careful examination of the details of retirement should you consider advising others.
However, its not required that you obtain a comprehensive picture of what retirement planning fully entails for you to understand a critically important component of it. Passing on those details to others is a valuable service you can provide, particularly in severe situations - like if you detect fraud.
6. Synergize
In the original text, this point was summarized as "combine the strengths of people through positive teamwork, so as to achieve goals that no one could have done alone". This concept can apply to your retirement planning is a couple of key ways. The first is to view your retirement as a shared experience with your spouse and ensure that he or she is completely on-board with the decisions you make in your planning. Going back to the earlier example of savings, if your spouse does not agree with putting aside 65% of your take home pay, odds are very good they won't.
The next logical example of teamwork as it relates to your retirement is via the help of a retirement planner. There are cases where this can be effective, but as with all advisors in the financial services industry, you should approach their assistance with a healthy dose of skepticism. Particularly as you age, and your nest egg gets larger, you should keep your advisor in a tight leash and watch out for investment recommendations that do not match your risk profile. A fat commission may be putting his or her allegiance at odds with your best interests.
The final way in which teamwork truly applies to retirement planning is through the use of an index fund for your investments. Over the long term of a working career, you do not need to beat the market. You need to keep up with it, and nothing more. In some years that will mean your investments go down. But if you are keeping your investments in place for an extended period, no one year will have a significant downward impact. Index funds mirror the performance of indexes such as the S&P 500, and since 2008, the average annual return of that index has been 10.388%, and that includes the return of 2008 which was -37.00% - the worst performing year in over 30 years. Because you are benefiting from the definition of the index itself, there is virtually no management required, and that means most index funds have a management expense ratio (MER) of 1% or less (which is very low for mutual funds).
7. Sharpen the Saw
Effective planning needs to consider not just financial preparation, but a broad view that includes how you will spend your days. Sure, some of that time may be on vacations, but those are going to be rare events, even in retirement. You might hate your job today, but it may be keeping you sharp in terms of current events or details about your co-workers' lives. In retirement, it is actually possible you will miss that interaction (even if you find that hard to believe today). Truly planning for retirement means to consider how you will find that same stimulation once you are not obligated to go into the office every day.
Furthermore, as you age, exercise and a healthy diet become even more important than they were in your youth. With more free time to spend as you like it, the last thing you want to be held back by is failing health. Determining how you will incorporate activities that help sharpen the saw both mentally and physically in retirement are critical to ensure your retirement is a success.
Summary
So there you have it, the lessons of the book The 7 Habits of Highly Effective People mapped to planning for your retirement. These are techniques that originally were interpreted to have applicability to business. But hopefully you now see how each of them very specifically can enhance your retirement planning efforts, and perhaps even adjust your lifestyle if you are retired today.
Do you have experience applying the principles of The 7 Habits of Highly Effective People to your retirement planning? Knowing these ideas will you change how you look at retirement?