Jim and Marie are in their mid-50’s and spend most every day worrying about their not-too-distant retirement. They are doing the best they can. They contribute to their 401ks and never carry a credit card balance. They even own 2 rentals. But they are sure they don’t have as much as they need to retire in 10 years as planned. Worse, they don’t know what to do about it and they are worried sick.
What do you do if your retirement savings aren’t quite where you want them to be but your retirement is right around the corner? If that describes you, don’t despair. It may not be as tough as you think to get on track:
1. Are things really as bad as you think they are?
Maybe not. Some people think they don’t have enough saved but in reality, their retirement investments are quite sufficient. That might describe Jim and Marie and they may not know it.
Before you blow a gasket fretting about your financial future, make sure you really know where you stand. Keep in mind that your successful retirement depends on three forces; how much you spend, how much you earn and how much your investments earn.
Do you know how much you spend every month?
If not, you can’t possibly know if you are on track to retire or not.
Do you know how much you’re going to earn once you retire?
Most people have a handle on how much retirement income they will receive. This is simply a matter of contacting Social Security and getting updated pension statements. Easy.
Are your investments earning as much as they could? Is your portfolio set up to generate the most income possible?
This is an area that trips up many investors. They don’t always understand how to create income from their investments – especially when it comes to equity portfolios. And if they own real estate, they may not have the right properties to pump out the maximum passive income.
More About Investments
If you have a 401k, your investment choices might be limited. But that doesn’t mean the available choices are bad. Among the choices, retirement plans typically offer moderate risk growth and value funds, international funds and bond funds. Make sure you have the right asset allocation that makes sense for you. If you are planning to live another 10 years or more, you should strongly consider adding equity to the mix rather than staying ultra-conservative.
Sometimes people go the other way. People who fear they don’t have enough set aside for their future sometimes make very risky investments to “make up for lost time”. MISTAKE.
It never makes sense to take on undue risk – never. My suggestion is to stay away from risky funds like country specific or commodity funds. Aggressive investments expose you to big swings in volatility and lots of sleepless nights. Just say “no” to super aggressive holdings in your 401k and IRA.
Put Spending On A Diet
Go through your spending with a very sharp pencil. If you are paying for your kids’ education, maybe it’s time to look at lower-cost alternatives such as junior college or state school. Can the kids come back home to live while they are in school? Worse things could happen.
Are you paying for extravagances that you can throw overboard in order to shovel more cash into retirement savings? Work together with your entire family to slim down the spending. If you are staring at a retirement short-fall, your spending is your best solution. If you reduce your spending you can save more now and you’ll need less to retire on (if you carry those spending cuts forward). That smells like a win-win to me momma.
If you are between a rock and a hard place, delay your retirement. This has a very large (positive) ripple effect. First, the longer you work, the longer you’ll be able to contribute to your savings plan. Next, you’ll have more time to get accustomed to spending cuts. Third, you might be able to afford to push back on taking Social Security and increase your monthly benefits for life. If you put more years in at the job that means you’ll have fewer years in retirement. That means you may not need quite as much money in your nest egg. Bonsai!
You can develop a side business now. You can downsize your house. You can take any number of steps to reduce your economic footprint and/or increase the cash flow to your retirement savings. The point is you have plenty of opportunity to prepare better for retirement. And if you make a few retirement projections and implement a few of these ideas if you need to, you really should have no reason to be concerned about your retirement.
What other steps can we take to get back on track financially? What one step has worked especially well for you?