We are less than two weeks away from the end of 2020 (which we can all agree, probably can’t come soon enough!). As the year wraps up, now is a good time to review your budgeting and expenses over the past 12 months and see where, and how, you spent your funds. If you had a budget you were working in, did you meet your benchmarks? Did you spend more than intended in certain areas or less? Where there legitimate reasons for overspending? If you don’t have a budget, did you find yourself spending more than you thought on particular items/services? Do you want to get your expenses in order or under control? Use the answers to these questions to help guide you as you prepare your finances for 2021. If you find your expenses or spending habits make you a bit uncomfortable, you may want to consider getting more serious about budgeting. If you need help with getting your finances in order, I encourage you to meet with a certified financial planner or wealth manager who can help you both organize your money as well as place it in a spot where it can grow or help your future.
Having a life in retirement is important. Many retirees struggle with staying busy and avoiding boredom in retirement. Suddenly they find themselves without a daily purpose that a job/career can provide and without the social network that an office can provide. It’s no surprise that depression is an issue for many retired people. I’ve talked about it here occasionally here, but one of the most important things you can do in retirement is find something to keep you busy. That could be finding a new hobby, perfecting a hobby you already have, or getting a part-time job–just to name a few ideas. However, hobbies can be expensive endeavors, so you need to make sure they fit within your retirement budget. For example, let’s say you want to up your golf game in retirement. You might go out and buy new clubs, maybe get some lessons, and probably a country club membership. That can easily add up to over $1,000. If you have some freedom in your retirement savings, or a form of passive income during retirement, that might not be an issue. However, if you have a tight retirement budget that can really pose a challenge to your savings. While I’m not trying to discourage from pursuing your interests or passions, but I am trying to make you aware of the costs and how it can impact your retirement plans. I also encourage you to get creative and find affordable ways to pursue your interests. If golf is it, maybe try to buy a quality used pair on Craigslist or try to find a public golf course that has low fees to use. And, of course, if you have questions about whether a big purchase might have an impact on your retirement savings, you should speak with a certified financial planner or wealth manager.
We are less than a month away from 2020, which means you need to start thinking about your future retirement account contributions for the upcoming 12 month period. If you have more than one retirement account, this may include deciding when and how much you will contribute to each account. For example, if you have a traditional IRA and plan to max out your contributions, will you be making the contribution in one big lump sum or do you plan to spread that contribution out throughout the year in smaller sums. If you have a retirement account with your employer, do you plan to increase your contribution amount (if you aren’t already maxing out) or do you plan to remain the same? Decisions about how much you will contribute–as well as when you will make the contributions–will be determined by your budget and finances. If, say, you have a goal of paying down a particular debt (i.e. a credit card) or know that you will be making a large purchase over the next 12 months (i.e. a used car for your teenager who just got their license), then you may want to take that into account when deciding when and how much you want to put into your retirement account. Obviously, if you are maxing out your contributions, you can’t increase them, and I’d encourage you to do everything you can to keep up those maximum contributions. However, if you feel that you may need to reign those in a bit, then you can do that too. There’s also the topic of catch-up contributions, if you find yourself of the age when you can do so. If you reach that magic age next year–or did so this past year–you may want to budget that extra catch-up amount into your planning. As always, if you have questions about your contribution amount, you should speak with a certified financial planner or wealth manager.
Many Americans tend to splurge when they get into retirement. After decades of working and saving, they’re reached the promised land and want to make the most of it. That spending usually comes in the form or vacations and luxury items (A new Mercedes anyone?). While it can be nice to treat yourself to a retirement present, you need to be careful about how often you do so and how much you spend, especially during that first year or two of retirement. As I’ve stated in recent blog posts, those first few years of retirement are crucial to setting the tone for the rest of retirement and can have a huge impact on how long your nest egg lasts. This doesn’t mean you have to be super frugal when you first enter retirement, but rather that you should be smart with your money. For example, you know that you want to take a nice (or prolonged) vacation during the first year of retirement, then make that decision a few years in advance. As part of that decision, save money separately for that trip or cut back on certain expenses to free up some extra money for that trip. Also, try to set a realistic budget for the trip so that you don’t overspend. Remember, chances are that once you get to retirement, you won’t have income to make up for any overspending. However, that doesn’t mean you shouldn’t give up on your retirement dreams either, but rather that you should just be smart about them. Budgeting can be a very helpful in making your dreams a reality while also not breaking the bank. If you need help with getting your retirement expenses in order or want to better organize your nest egg so that you can take that trip-of-a-lifetime, then you should speak with a certified financial planner.
Whether or not you will have enough money saved to live a comfortable retirement is a concern for many retirees. It’s a legitimate concern. After all, it’s almost impossible to predict the future and who knows what medical expenses or sudden emergencies may lay ahead as you age. However, this concern also allows people saving for retirement and retirees to get creative when it comes to making sure you will have enough money to get you through retirement. Since you’ve been diligently saving throughout your career and most likely have a sizable nest egg, you may want to focus on making that nest egg last. There are a multiple ways to do that. You could delay retirement, which actually may have added benefits when it comes to staying active and happy. You could also create and develop alternative income streams to help fund your retirement, such as rental properties or turning a hobby in a side gig. You may also want to look at your expenses and budget and see if there might be areas you can either cut out or tighten the belt around. Cutting back your expenses can also help you determine what you really need to make you happy and can help you to put into practice good spending and saving habits. Finally, if you have multiple retirement accounts, you may want to consider prioritizing what money/accounts you want to use first and what money/accounts you may want to use later. Prioritizing give you a chance to choose custom investment strategies for particular accounts and also may allow your money more opportunities to work for you. If you need help with determining how to make your retirement money last longer, you should, as always, speak with a certified financial planner.
Do you have trouble keeping track of withdrawals from your checking or savings accounts? Do you not want to ever have to worry about whether you might overdraft from your checking account? Then you may want to consider building a “cash cushion” into your finances. A cash cushion is an account limit that you set for yourself and use to protect yourself from overdrafting or incurring insufficient fund fees. That amount can be anything your are comfortable with. For some it may be $200 dollars, while for others it may be $1,000. Basically, when your account hits that number, you know you’ve reached your balance for that account. This may require rethinking some expenses or exploring your budget. If you are young and living paycheck to paycheck, having a cash cushion can be a great way to practice budgeting as well as give you some breathing room with your finances. If you are nearing retirement, a cash cushion can provide a bit of a security blanket and allow you peace of mind regarding checking and savings accounts. It should be noted, however, that a cash cushion is not an emergency fund. The amount you set aside as your cushion is not intended to keep you afloat during a difficult financial period and should not be viewed as such. It is really just a safety measure for your bank accounts that will allow you to avoid costly fees and penalties.
Traveling is a popular way for many retirees to spend their post working lives. Whether it’s going to a foreign county or a weekend getaway on a whim, traveling can be a great way to spend retirement. However, travel–no matter where–is not cheap and vacations can add up, especially if you are traveling for weeks at a time and staying at nice hotels. Those trips can also quickly become longer than intended, particularly when you have no responsibilities at home (i.e. kids, work, etc.) and have the freedom to stay out on the road for weeks at a time. If you’ve done proper planning for retirement and know that travel is something you want to do during that time, then you’ve probably budgeted some money for travel or at least set limits on how much money you will spend on travel each year. Preparing and following such a budget can help to protect your retirement savings and allow you to enjoy travel while keeping it in perspective. Those vacations and trips can quickly add up, so why not keep them under control?
Having a financial budget is a responsible and efficient way to control your money and expenses. Budgeting can also help to make sure that you meet your short-term and long-term monetary goals through allocation. As with anything involving money, budgets need to be reviewed from time to time to make sure they are still working and to figure out whether they may need to be changed. As life happens, you may find that your goals change as well and that you may need to allocate money to new places or accounts. Also, budgets can become inefficient over time as well. Over time, your budget may spring “leaks” as you find that your money isn’t being spread out on the most efficient or reasonable manner. For example, you may find an expense that you once made good use of but eventually stopped using (i.e. a club membership or a subscription to something) but continue to pay for. That would be an example of a leak in your budget and something you will want to rectify so that money ends up being put towards more pressing and important goals. Another way a budget can leak money is through investment and account fees. You should review your retirement and investment accounts from time to time to see what your fees are and what you can do to lower those costs. When you review your accounts, you should also see what resources to have available to counteract those fees. Do you have other accounts (i.e. an employer account) that have lower fees into which you could roll the money from a higher fee account into? Taking advantage of such resources can free up money in your budget to be put towards other purposes. When was the last time you checked your budget for leaks?
Christmas is a mere three days away. By this point, you should have most, if not all, of your holiday shopping done. Now that the money has been spent and the gifts wrapped, you may want to take some time to review your budgets and financing to make sure that any holiday spending didn’t mess with those plans. It can be easy to go over budget this time of year, between the parties and gift-giving requirements. While going slightly over budget isn’t the end of the world, going massively over (or doing so consistently every year), can eventually wreak havoc on your monetary plans, especially if you have a tight yearly budget. If you went under budget with your holiday shopping, you should consider putting that leftover money into your retirement account as a little gift to yourself. This time of year can be a good test of your budgeting and financing skills and help you determine whether you may need to work on those skills in the future.
It should come as little surprise that many Americans are not saving as much for retirement as they should. There are so many other payments and expenses out there (i.e. mortgages, student loans, etc.) that the prospect of putting away even more money can seem daunting, especially for those who are living on a tight budget. As daunting as the prospects might seem, they shouldn’t keep you from saving for retirement, though. It’s not easy, but making sure that you are budgeting for your retirement, especially as young professionals, is very important in the long run. Sometimes you may find you are unable to put away as much as you’d like, but the government (the IRS) knows this and has put in place “catch-up” provisions for later in life that allow for you to make up for some of that lost opportunity. It’s hard work, but saving for retirement is one of the smartest things you can do for yourself.