The Bad, the Better, the Even Better, and Common Surprises
Everyone has retirement dreams: Where are you going to live? How often are
you going to travel? How often can you go to a restaurant, a casino, a
concert, a show? Unfortunately, though, most of us have to face “retirement
reality,” especially given the recent state of the economy. Dreams, however,
are important and “great to haves” since they can help drive your retirement
savings upward. Here’s some sound guidance that can help you navigate
planning for your retirement and help you to avoid bumps in the road.
The Bad:
With inflation at an all-time high, the invasion of Ukraine, plus this whole
pandemic nightmare, many of us have had at least some of our retirement
savings diminished. Meanwhile, to make matters more uncomfortable, our
expected retirement expenses are even more unknown. It’s difficult to
plan during such tumultuous times, but don’t give up; do some tweaking
now to your savings plan and you’ll almost assuredly be in better shape
than if you didn’t take any action.
The Better:
John Pisapia, President of NYC-based Chelsea Financial Services, has some
great advice that guides many of his most successful investors. “Make sure
that your holdings are diversified, but feel ok about taking some
calculated risks. Calculated risks can sometimes create gains that help
offset past losses and offset present (and future) inflation. Just make sure
that you place the right percentage of your total investments in higher risk
instruments, based on where you are today compared to what your personal
financial goals are for your retirement.” stated Pisapia. “Diversification can
help you feel more secure, especially when you know that your riskier
investments are managed at a comfortable level.”
The Even Better:
To help mitigate “The Bad,” the most simple action you can take is to
increase your savings percentage now to offset any losses or
inflationary impacts. And the easiest way to do that? Find ways to cut
costs today and in the future.
Simple reductions to your expenses can make a huge savings impact
over time, like streamlining your streaming services, cutting back on meals
out (and take out!), price shopping/comparison shopping, buying in bulk &
vacuum freezing your bulk items (reducing waste), booking travel when the
prices are low or at least, booking well in advance, and using coupons/apps/
offers wherever and whenever possible. Use an app or a spreadsheet to
track all of your savings, and deposit that weekly or monthly into your
retirement savings account(s).
If you are employed and your employer matches your 401K, make sure to
save the maximum percentage that your employer matches. And if
you’re self-employed, pay yourself a bonus for every third or fourth project
or job that you do and deposit that right into your retirement plan.
Besides reducing expenses, consider creating another stream of income
or additional income, just for your retirement plan. There are great
affiliate marketing programs and internet marketplace opportunities that
require very little financial investment but can reap major returns on your
time invested. Or, if you can work overtime or get bonuses for additional
work or project success, that’s another great way to increase your income.
The Common Surprises:
Sudden Unexpected Expenses
Many retirees are taken by surprise by sudden unexpected expenses for
which they didn’t plan. Leave some room in your budget for these unplanned
items, things like car repairs, home repairs, increasing property taxes,
increasing utilities’ costs, dental work, health/prescription expenses,
insurance premium increases, pet care, and so many more unknowns. Plan a
budget, building in typical inflation, then add at least $500 monthly for
unexpected expenses.
Tax Bracket Woes
If you are increasing your income, watch your projected tax bracket and
its potential impact on your earnings. The worst thing to discover is that
you just passed the threshold for the next tax bracket after some months of
working extra, and that may effectively wipe out some or all of your
additional earnings. Planning with tax strategy in mind is paramount to
making any extra income successful for your retirement plan.
Conventional Wisdom Doesn’t Apply
The conventional wisdom was that you needed 70% of your
pre-retirement income to maintain your standard of living. With today’s
current rate of inflation, that apparently no longer holds true. In fact,
some retirees today are spending more than they did during their working
days. According to J.P. Morgan Asset Management, average household
spending for 65-69 year olds in partially and fully retired households with
investable assets of $1 to $3 million spent nearly $94,000 annually, and
75-79 year olds spent over $83,000 annually.
In summary, it’s not all “doom and gloom,” even though there’s been a
lot going on with the economy. With additional planning, a few extra
steps taken, and some budget tightening, you can be more in control
and more assured of a positive retirement outcome for you and/or you
and your loved one(s). Follow that up with continuous retooling of your
plan and you can hopefully mitigate the external forces out there to
make some of the Bad Better.
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