You can’t plan for retirement without first thinking about the money you will be spending in retirement. Thus, your retirement planning–and everything that follows those initial plans–will focus on your nest egg. How you build that nest egg will have a monumental impact on what you can do when you actually most into your post-career life. If you take aggressive steps and keep on top of your nest egg, then you will probably have a good chunk of money ready for when you stop working. On the flip side, if you don’t take steps to properly build up a nest egg or make bad decisions when doing so, then you probably won’t have much flexibility in retirement or may have to work longer than intended to meet your goals. No matter how you slice it, your nest egg is essential to your retirement plans. Now, if your nest egg isn’t quite where you want to it be right now, don’t fret. You can always take steps to get back on track and then determine what’s realistic from there. There is no on-size-fits-all answer for that, but some steps would include re-evaluating your retirement goals, analyzing your portfolio and/or investment decisions, or working with a financial planner or wealth manager to really kick your saving into gear. Each person’s situation is unique regarding how much they need to save for retirement, so some may have a lot of work to do while others may be right on track. What’s key, no matter where you are in your saving journey, is that you never lose track of your nest egg and that you focus on building it up as much as possible. So, how big is your nest egg?
It’s well known within the retirement planning industry that about half of all Americans are having a tough time with their retirement finances. That’s a lot of people. Furthermore, uncertain economic times can push the number of those struggling north of 50%. Considering how many retirees are out there–and it’s impressive due to one of the largest demographics reaching retirement age (*cough* Baby Boomers *cough*) as we speak–that’s a lot of Americans struggling to either save for retirement or stretch out their finances in retirement. With all that said, I want to remind you that you are not alone if you are struggling to either save or make your nest egg last. Many people do and there’s nothing wrong with asking for help in doing so. If you can afford it, a good wealth manager or financial planner can be a huge help. Despite the tone some of my blogposts, I fully understand that saving for retirement is no easy task and it’s been particularly tough over the past 15 years or so. That doesn’t mean you should give up on it, though. In fact, I want to encourage you to save as much as you can and to take steps to maximize your saving, regardless of where you are in your life. Something is better than nothing. So, are you struggling with saving for retirement? You’re not alone, but what are you going to do about it?
Is it possible to save too much for retirement? That may seem like an odd questions. However, the answer is…yes. The answer isn’t so much focused on finances, but rather how saving for the future is impacting your life in the present. Sure, we all want to have that seven-figure nest egg, but what if getting requires forsaking a lot within your current life? I’m not saying you shouldn’t budget and be smart with your money, but don’t get carried away with it. In other words, don’t be afraid to take a vacation from time to time. Or go out to dinner once a week. Or don’t be afraid to buy a reliable, new car to get you through to retirement. What you don’t want to do is enjoy living your current life with your sole focus being on retirement. On the flip side, you also don’t want to live too much in the present and not save enough for the future. However, that is for another blog post. Right now, I want to make sure that you find that nice balance where you are saving for retirement, but also able to enjoy life in the moment. So, yes, you can save too much for retirement, but it’s not so much because you have too much stashed away in your nest egg, but rather because you are not living enough in the present. Remember, saving for retirement isn’t easy, but it shouldn’t consume you or be too much of a burden on your current life. If you need some help with planning for retirement or advice on how best to save, you should speak with a certified financial planner or wealth manager.
According to a recent study by the Treasury Department and the Joint Commission on Taxation, for every dollar that Americans under the age of 47 save for retirement, they withdraw 20 cents before reaching age 55. That may not sound like much, but that a fifth of a dollar. Furthermore, a 2019 report by the Government Accountability Office found that Americans during their prime working years withdrew almost $70 billion annually from retirement accounts–that is, before they reach retirement age. That’s a lot of money. I get it though, that retirement money can be tempting, especially if times are a bit tough. As the studies point out, many people don’t have the self control necessary to avoid tapping into their retirement accounts early. However, I strongly urge you to not be one of the people that fits within those studies and taps your retirement accounts too early. Ideally, you have some sort of emergency fund or financial plans to cover an emergency. I understand, though, that life can be unpredictable and an emergency can be costly, especially a medical emergency. Thus, tapping into your retirement savings should be an absolute last resort. Furthermore, there are penalties associated with early withdrawals if they do not fit within certain exceptions, which is even more of an incentive to not touch your retirement savings before you absolutely need to. If you need help with planning for a potential emergency or you want to avoid tapping into your retirement savings too early, you should speak with a certified financial planner or wealth manager.
Paying down your debts should be an important retirement savings plan. Yes, I know it’s not saving, but it’s vital to your retirement plans. First off, the sooner you pay off your debts, the sooner you can start diverting more money into your retirement accounts. That money going towards debt payments will be much more useful in an IRA or a 401(k). Secondly, your debts won’t go away in retirement and you don’t want them to eat away at your nest egg only you actually get to retirement. Also, keep in mind that debts often involve interest and that the longer it takes you to pay off a debt, the more you will pay. Thus, it’s always a good idea to pay off your debts as soon as you can and to make it a priority during your income-earning years. Even if you aren’t able to pay off all of your debts before retirement, you should make it a goal to pay down as much of it as possible. Yes, you can pay down your debts and save for retirement at the same time. This will take some planning and budgeting. Most likely, you will want to involve a financial planner in such aspects so that they can help you take advantage of your assets or portfolio in paying down debts. A financial planner can also help you discuss budgeting and how be efficient in your saving and paying efforts. So, what are your plans in paying down debt in preparation for retirement?
Many Americans don’t really put much thought into the difference between “financial” planning and “retirement” planning. After all, they both focus on retirement and saving enough to enjoy that period in your life. However, if you talk to a certified financial planner, they’ll probably tell you that there is a difference. Financial planning focuses on investments and saving strategies that will help you meet your retirement goals. Simply put, it’s the work and effort you put in as you save for retirement. Whereas, retirement planning tends to zero in on your spending once you enter into retirement and your paychecks stop. Financial planning tends to take a broad approach as it is focused on where you are currently as it takes into account both your retirement plans as well as future financial goals that you may want to hit before retirement (i.e. costs associated with sending a child off to college or paying off a mortgage). The focus tends to be on the ways to save (i.e. different retirement plans, contribution amounts, etc.) and making sure that you are saving enough. Retirement planning is much more detailed than financial planning as it focuses on your expenses and how you will deal with them once your income stops or becomes greatly reduced. It tends to be more focused on the details, such as how you will make your savings last in retirement as well as how you will cover expenses such as medical and housing. Knowing the difference between retirement planning and financial planning is important because it can allow you to better focus on both aspects and ensure that you are better prepared for when you actually do retire.
Do you know your options should you inherit an IRA from a spouse? There are often multiple choices regarding what you can do with the money. Furthermore, your options may be impacted by your spouse’s age when they passed, especially if they are under the age of 70½. Your age may also play a factor into your decision. One common option is to roll the IRA money into your own IRA and begin taking required minimum distributions (RMDs) either immediately if you are over age 70½ or when you turn 70½ if you are under that age at the time of the rollover. Another option is to create an inherited IRA, on which the RMDs don’t kick in until the deceased spouse would have reached 70½. The first option might be most effective if you are close in age and are either just at or very near to 70 1/2 because there really won’t be much of an opportunity for the money to grow before RMDs start. The second option works best if you find that you have time for the money to grow. Such a situation might be if your spouse passed in his/her late 50s or early 60s and you have a number of years for the IRA to increase in value. However, another option–and a creative one at that–is a combination of both the aforementioned possibilities. This option involves creating a inherited IRA and then rolling the money over to your account with a spousal rollover right before the date at which your spouse would have reached age 70½. This allows you to let the money in the inherited IRA to grow and not be hit with RMDs until you really need it. This option may be appealing a surviving spouse who is much older than the spouse who passed. This will allow the older spouse to use their own IRA money first and let the inherited IRA grow before rolling it over and taking RMDs on it. This last option might not be for everyone as it may not be worth it for everyone, especially couples who are close in age or where the spouse who passed was right on the cusp of RMD taking age. However, regardless which option you choose to pursue, you should talk with a certified financial planner or retirement specialist first to make sure that you are making the right decision and doing things correctly.
There’s nothing wrong with seeking professional help when it comes to formulating your retirement plans or building up a nest egg. In fact, it’s very common for Americans to turn to financial and retirement professionals to help them set their retirement goals and get on the right track for meeting those goals. Hence, the reason why I have a job! However, not all advice is created equal and, just like with anything, there are good financial planning professionals and not-so-good financial planning professionals. When you seek out a financial planner or professional, you need to make sure you properly vet them before you hire them so that you can protect yourself and your money. During this vetting process, don’t be afraid to have discussions with a financial planner about things such as how they operate, the type of products they tend to sell, and their investment strategies. Furthermore, be on the lookout for testimonials. If you’re being referred to a particular financial planner by friends or family, talk with that friend or family member about that financial planner and what they do and don’t like about him or her. Remember, it’s your future and your money at stake and you want to make sure that the person you hire to manage and grow that money is someone you trust and someone you a comfortable with. Beware of financial planners who are not certified (don’t be afraid to ask for proof or certifications) and be careful of those who tend to peddle certain products, companies, or investment strategies that are high risk or are known to be gimmicky. You want to hire a financial professional who will help find the strategies and products that work best for you and, most importantly, puts your interests above his or her own. A good financial planner will help you to meet–and possibly–exceed your retirement goals in a manner that suits your life, both presently and in the future.
Americans spend a lot of time thinking about retirement, but they don’t spend nearly as much time actually planning for it and taking steps to make those thoughts and dreams a reality. After all, it’s so much easier to think about things that it is to do them. However, if you want to reach that retirement of your dreams (or at least a comfortable one), you will need to take concrete steps and develop a plan and goals that will allow you to reach that. While I do not want to discourage you from dreaming–it can be an effective motivational tool–I do want to remind you that thinking about retirement doesn’t put money into your retirement account and it doesn’t build up your nest egg. Ideally, your should combine your thoughts and dreams regarding retirement with a strong financial plan to help you get there. If you need help with the physical side of planning–and saving–for retirement or want to explore ways to make your retirement dreams and goals a reality, you should speak with a certified financial planner.
By now, you’ve probably heard that General Motors is planning some massive layoffs that will impact thousands of workers in the United States and Canada. The fact that these layoffs are occurring right before the holiday season makes it all the more gut-wrenching. While you may not be facing layoffs with your job at the moment, that doesn’t mean that it couldn’t happen to you in the future. That’s why now is as good a time as any to put some thought into what you might do should you find yourself in a situation where you are not working–whether that be through layoffs or disability. The first thing you will probably think about when considering such a scenario is where will the money come from to support you and your family? How will you put food on the table, clothes on your back, and a roof over your head? These are important things to consider. If you’ve been prudent with your financial planning, you most likely have a plan in place. You know what assets you would sell off or maybe you have an emergency fund with enough money saved to cover living expenses for a few months. An emergency fund can also be used to cover unexpected expenses or just give you peace of mind. An emergency fund doesn’t necessarily have to be a stash of money, either. It can be a plan for what you may want to sell off or what you will do without should you need to tighten your belt or find yourself with no income. If you need help with conceiving or re-evaluating your emergency fund, you should speak with a certified financial planner who can offer tips and advice regarding what may work for you. Remember, the best time to set up an emergency fund is well before you find yourself in dire straits.