3 Ways to Approach Retirement Like a College Entrance Exam

Remember sweating right out of your flip-flops as you waited in line to take your ACT or SAT test as a high school student? Recall how your heart raced and how much you wanted to melt behind the dumpster in the parking lot? (Or, if you didn’t take a college entrance exam think back to how you felt about taking some other big test during school.) 

At the risk of reliving your worst nightmare, let’s talk about how to approach retirement like a college entrance exam — without the extreme nervousness. Unlike an interminable test, retirement can even be a fun prospect to envision — whether it’s 30, 20 or merely five years away. 

Retirement = ACT or SAT/Differences between them?

(See how I tried to make that header look like a math problem?) 

So, these days, the ACT test has four required sections: English, math, reading and science. Naturally, these are done in order and the test supervisor is instructed to utter every single word verbatim from the ACT-provided app. Everyone has the same amount of time, the same number of questions and is allowed the exact prescribed break time (depending on the stinginess of the proctor).

Luckily, retirement planning doesn’t have to be so rigid. After all, none of us has the same goals, risk tolerance or timeline — so our asset allocation should reflect that.

So, if retirement savings is so much more flexible, how does it have anything to do with a standardized test? 

For both, preparation is key. For example, if, on the day of the exam, you oversleep, careen into the parking lot on only two of your car’s wheels and forget your #2 pencils, how well do you think you’ll do on the test?

You probably won’t get a 36 (the highest score possible on the ACT).

Same with retirement. If you approach retirement with the equivalent of tousled hair and sleep in your eyes, the preparedness factor goes down a couple of notches. Here are some steps you can take.

1. Actively participate in a prep class.

A lot of high school students take an ACT or SAT prep class prior to taking the test. Why not flip that idea toward retirement? Consider taking an actual class. For example, Dave Ramsey’s Financial Peace University offers lots of great ideas about money and retirement. 

Don’t forget to iron out your goals. Obviously, if you take an ACT prep class, your goal is to get the best score possible. What are your goals in retirement? Jet-setting around the world? Babysitting grandkids in Iowa? Figure out what you plan to do early on so you have a savings goal to aim for. 

Most experts say you’ll need roughly 70 percent to 80 percent of your current annual income in order to live comfortably. You might consider sources like Social Security, but it’s probably a good bet that your personal savings will provide your primary source of income.

Set yourself up for success in reaching your goals. Read. A lot. If you feel like you need person-to-person financial advice, consider reaching out to a financial advisor. And get a broker. Benzinga offers a great list. Blooom can help you untangle your investments, too.

Aren’t sure of your goals or are nearing retirement age? It’s never too late to formulate a plan or start saving. The more you can save at any age, the better off you’ll be. So go ahead, take that prep class — and drink in the actionable steps the class recommends. 

2. Practice: Envision lots of scenarios.

Let’s say you’re a high school kid and you’ve taken your ACT prep class. What should you do next? Your guidance counselor would probably recommend checking out one of those massive test books from the library or getting a few practice ACTs off the internet. Then, you’ll go home, have your sister squeak her chair while you take the test (to get used to distractions) and launch into various timed tests. 

It’s obviously hard to “practice” for retirement, so your best bet would be to do some math. There are lots of retirement calculators available (just Google it) but also seriously consider all of your scenarios: “If X happens, then Y will happen.” (See? It’s just like a math problem on the ACT.) 

What are the scenarios you might want to envision? 

  • What if you changed your retirement age?
  • What if you upped or decreased your retirement spending? 
  • How about changing your asset allocation?
  • What if your income sources change? (Maybe you’ll take on another job or generate passive income through rental properties instead of fully retiring). 
  • If you’re married, what if one of you decides to work longer than the other? 
  • What if you tried to withdraw Social Security later?
  • Will you decide not to move? Or will you have the moving van parked in the lot, waiting for the second your retirement party ends?

I’m sure you can think of an endless number of possibilities here that depend on your personal situation. What scenarios can you envision transpiring? It’s important to articulate the possibilities to help you pinpoint even more closely how much you’ll need to save for retirement. 

3. Follow through: You’re in the homestretch!

Once you’ve taken the practice tests and strategized how long it’ll take you to finish all the math problems in 60 minutes (is it truly possible to do one per minute?) it’s time to (eek!)… take the test.

Similarly, now that you’ve thought about retirement, planned for it and have even gone so far as to envision yourself on a beach… or wherever you’ve decided you want to land, it’s time to put your plans into action. 

Save, save, save, save, save. Make sure you save at least an hour of your take-home pay per day, and make it automatic. A portion of your paycheck must automatically move into your 401(k) plan or savings so you don’t even have to think about it. Depending on your age and what you already have in savings, you may need to save a bit more. 

After you’ve saved for a while, there’s truly nothing more exciting than logging into your retirement accounts to see the nest egg you’ve built. And with compound interest (the addition of interest to the principal, or in other words, interest on interest), multiple trips around the world may be closer than you think. 

Pencils down

You may now close the test booklet. Okay, I’ll stop making you relive a terribly unpleasant experience but the point is, it’s possible to approach retirement in a series of steps. Like the ACT, you don’t take every test at once. You divide it into fourths — so do the same with your retirement planning.

Remember, retirement planning can be fun — and when you’re living your best life in your golden years, whether that’s in Costa Rica or the Midwest, you’ll be glad you prepped hard for the “real-life” test. 

 

About the Author

Melissa Brock is the lead gen editor at Benzinga. She spent 12 years working in the admission office of her alma mater, Central College. She knows a thing or two about giving ACT tests to hundreds of nervous college-bound students and is bummed that the ACT (or high school algebra, for that matter) doesn’t include real-life examples of compound interest and how it works its magic on investment savings.  

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