Tag Archives: budgeting

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5 Steps to Successful Retirement Planning When You are Living Paycheck to Paycheck

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Those of us in the business of helping people have a successful retirement continue to scratch our collective heads when we see statistics like these:

  • 37% of Americans with household income above $100,000 who are living paycheck to paycheck
  • 50% of Americans with household income under $100,000 who are living paycheck to paycheck

Thanks to Money’s Americans and Their Money study for these statistics. Can we really conclude that 87% of Americans are financially strapped? Do these numbers account for contributions to 401ks and other retirement plans? The statistics raise more questions than answers.

Let’s assume the statistics are accurate and that they do account for pre-tax contributions to retirement accounts and IRAs. Mintel, another financial services research company, conducted their own study, Consumer Attitudes Toward Retirement Planning, and asked Americans about their retirement savings and their study found that over 60% of Americans were contributing to 401ks and IRA accounts. Unfortunately about 30% were not saving for retirement at all which supports, at least in part, the “financially strapped” theory of why Americans are struggling to save for retirement.

So let’s get practical here. Chances are you are struggling to save enough to be able to retire on your terms as well. What can you do right now to beat the odds and increase you retirement savings? Here are 5 things you do right now:

  1. Put a budget together. Yes, that painful subject again. My theory is that people are financially strapped because they never put a budget together and so they live on hope that there will be enough money at the end of the month without any plan to live otherwise. Check out my free new eGuide My Guide to Personal Budgeting for a step by step process by clicking here. I believe that most people can and will find extra dollars to save for retirement when they put a budget together.
  2. Work with a Financial Advisor – Yes, another of my drum-beating themes. Why? Because it works and the task ahead is too much for you to try to do by yourself. A good advisor will walk you through the budgeting process and help you lay out a path that will lead to you being able to retire someday.
  3. Become informed – You don’t have to become a financial wonk but you should have a basic understanding of topics like investing and estate planning so you are not in the dark when it is time to discuss these issues with your trusted advisor.
  4. Work your plan – Legendary management guru Peter Drucker once said that a plan is worthless until it is “violently executed”. Drucker may have overstated the importance of acting on a plan yet a good advisor will work with you in partnership to develop a plan that is specific to your needs.
  5. Enjoy the journey – It doesn’t make sense to put a plan together that leaves no room for fun. Yes, you will have to make some sacrifices along the way but you can and should still make allowances for things you enjoy.

    Retirement will arrive one day anyway so don’t stress too much day to day until then. A solid plan will relieve a lot of the stress. Most Americans are stressed over retirement because it remains a mystery for them.

    The reality is that you may still be living paycheck to paycheck after putting your plan together. At least you will know that part of your monthly “out-go” is going toward funding your successful retirement journey and that you have a game plan to maximize every dollar. Who knows, you might even break away from the paycheck-to-paycheck crowd when all is said and done! If you want more info on putting your personal budget together, you can click here for my FREE Ebook!

     

     

    Time Out! What money concerns keep you awake at night? You can leave a comment here.

 

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4 Keys to Financing Your Retirement if You Plan to Work Longer Than Expected

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A recent survey by Charles Schwab found that 95% of baby boomers say they won’t be willing to spend less in retirement. According to the Schwab survey people are coming to the realization that they want to have a good lifestyle in retirement even if it means they have to save more and work longer. Some of the frugality of the post 2008 meltdown appears to be wearing off. Some other survey figures show that 47% of workers age 65 and over are prepared to work in retirement.

Against the backdrop of those survey results it makes sense to look at some ways that boomers can maximize their income when they plan to work longer than perhaps they originally planned.

  1. Take Advantage of Your Salary Benefits. As long as you are making a salary you can continue to contribute to a retirement plan i.e. 401(k) or IRA. It’s a good idea to max out your contributions if possible. That way your accounts can continue to grow and take advantage of time and compounding before you start drawing on them for income once you retire. On the debt side you can also start using your salary to pay down debt before retirement. This will help lower your expenses once you retire.
  2. Higher Social Security benefits. As a general rule waiting to take Social Security benefits makes sense. Applying for Social Security benefits at normal retirement age produces a 25% higher benefit than applying for early benefits at age 62. If you wait until age 70 you will more than double the benefit compared to taking benefits at age 62. Keep in mind that Social Security is based on your highest 35 years of earnings. So if you work longer at your peak earnings you can replace some of those zero earning years early in your working life. You can get more details on Social Security in my FREE Guide to Social Security.
  3. Higher pension benefits. If you are fortunate to have a pension then your ongoing employment will likely boost your retirement payout since most pension payout formulas account for earnings and years of service. If your company has a 401(k) with a match you can continue to earn that match the longer you work. Again, put time and the compounding effect to work for you.
  4. Save on health insurance premiums. Always a big concern. Prior to Obamacare delaying retirement to ensure continued company-paid health care was an important consideration. Even with Obamacare affording pre-65 healthcare coverage can still be a concern. The chances are your company-provided plan is less expensive than an Obamacare plan.

Not everyone will be able to work longer to help finance retirement. The number one reason people are forced to retire early is health issues. Still, many boomers will decide to work in retirement by choice as well as by necessity. In either case it makes sense to take advantage of the benefits of earning a salary pre and post retirement. Plan well. Live better and enjoy retirement on your terms by taking advantage of the time you have now to finance it.


Time Out! How do you feel about working longer to finance your retirement? You can leave a comment here.

 

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Why Willpower is Key to Your Financial Success

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I have been reading “Willpower: Rediscovering the Greatest Human Strength” by Roy F. Baumeister and John Tierney. It is fascinating reading to understand how as humans we set ourselves up for failure essentially because we exhaust our willpower. Consider these key findings from Burmeister’s research:

  1. The #1 reason people feel they fail is because of a lack of willpower.
  2. We spend 25% of our daily existence resisting temptations (which depletes willpower)
  3. People succeed about half of the time when it comes to resisting temptation.
  4. Willpower requires energy (which is why you don’t feel like working out when you get home from work).
  5. Stress depletes willpower
  6. The “Believe and Achieve” philosophies professed by people like Norman Vincent Peale and Napoleon Hill fueled the stress that achievers and wannabe achievers feel. (Again, stress depletes willpower)

The implications from Baumeister’s studies revealed in his book serve to explain why so many Baby Boomers have a hard time developing any sort of retirement plan. As I discussed in my blog post “5 Ways to Build Retirement Planning Momentum” 60% of Americans who were surveyed stated they don’t do any financial planning because they don’t have enough time. Being too busy on too many conflicting goals leads to stress and as Baumeister discovered stress depletes our willpower. It’s why millions of Americans will start our 2014 with a list of New Year’s resolutions and will promptly quit in frustration in March. It’s why the health clubs are packed in January and back to the normal crowd at the end of February.

No one has enough energy to get in physical shape, start a financial plan and start a woodworking hobby. As the saying goes, “something’s gotta give”. So you end up doing one or none with reasonable success and end up getting frustrated that you can’t do all three. You have lost your willpower.

So how do you keep your willpower and get some momentum in 2014 as it relates to your retirement plan?

  1. Give yourself a chance to succeed. Just because you don’t have a retirement plan doesn’t mean it’s too late and/or you can’t have a plan. Yes you can! Start today. Quit beating yourself up over what you didn’t do and put a stake in the ground and proudly say, “I’m starting here”. Check out my posts on budgeting for a great place to get started.
  2. Pick one goal to start working on it and forget the other “resolutions” for now. Use your willpower to get going on the most important goal and enjoy your progress with that goal instead of getting stressed over all of the goals you set yourself up to carry around like a big gorilla.
  3. Get rid of the conflicting goals. You can start saving more for retiring once you put a budget together. Those are compatible goals. Trying to stop smoking and trying to lose 20 pounds – those are conflicting goals and you will certainly deplete your willpower while trying to tackle both of those. Again, pick one and go for it and succeed!
  4. Know your limits. If you find putting a budget together or working on some other part of your financial plan is taxing then take a bite out of it when you are refreshed. Maybe that’s Saturday morning or first thing in the morning. If you try to tackle it when you get home from work I guarantee it won’t get done unless…that is a time when you find you have a burst of energy. If you find yourself getting frustrated then your willpower is depleted.

Think of the times when you have enjoyed success either at work, at home or with a hobby or other interest. You succeeded because you had a store of willpower and you could exercise self-control at will. It reminds me of what one of my former football coaches at Stanford told me. It was the late Bill Walsh who said, “Nobody performs best under stress. You need to minimize stress to have the best results.” If it works for world class athletes then I say it has to work for us. Plan well. Live better and keep your willpower topped off!

Time Out! What one thing do you want to accomplish this year regarding your retirement plan? You can leave a comment here.

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5 Ways to Build Retirement Planning Momentum

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A recent study by Northwestern Mutual Insurance Company revealed some interesting reasons why people procrastinate when it comes to planning for their retirement. Among the findings:

– 24% of those surveyed stated they don’t have enough time

– 21% said they don’t have enough interest

– 20% find the whole process confusing

– 19% said they don’t know where to find help

Here are 5 ways that you can overcome these roadblocks and start some momentum toward your retirement goals:

  1. Take baby steps. Carve out 20 minutes a week to do something that will move you toward your retirement goals. The best place to start is with the “big picture” which leads to:
  2. Take a mental snapshot of what retirement looks like to you. Forget the TV advertisements or what your friends and coworkers talk about. You have to “move in” to your retirement dream so make sure that you like what you “see”. Start a retirement notebook. Include photos, magazine articles, and your own notes. Make this notebook your retirement “playbook”. This should help you develop an “interest” in your retirement by making it personal.
  3. Put a budget together. No, it’s not easy but use one of those weekly 20 minute sessions to start writing down what your income is and what you spend each month. This is a key step because before you can gain momentum with your savings and investing you need to know what you have to work with. You can use my Budget Tracker tool to help you with this step.
  4. Put a team together. I believe people find the process confusing because they think they have to do it alone or that they have to have “a lot of money” in order to get help. That’s why I am here to help you along with other CFP® professionals out there. You can also find a CFP® in you areas here.
  5. Start small. If you feel like you are behind in saving for retirement you are in good company. The average 401(k) balance for Baby Boomers is around $77,000. That’s hardly enough to last 20-30 years in retirement. So, we have two choices. We can throw up our hands and say, “Well I guess I will have to work until I drop dead.” Or we can put a stake in the ground and say, “I can’t relive the past so today I am beginning the momentum to carry me through “my retirement.”

Even a few dollars can have a dramatic impact on you retirement savings. Take a look at the power of time and compounding here. You may also find the SaveDaily platform a great place to start and/or increase your savings.

By just getting started you will jump to the other half of Americans who have some semblance of a “plan” for their retirement. Start small. Invest a few minutes a week to pick up your retirement “playbook” and take small steps toward your retirement goals.

Do this and before you know it you will have a clear picture of what retirement looks like for you and you will have at least an informal plan. Build retirement momentum and you find yourself less stressed out about what should be the time of your life.

Time Out! Which of these steps seems the most difficult for you? You can leave a comment here.

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5 Things You Can Do if You Will Run Out of Money in Retirement

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When you consider that half of all Americans have no financial plan perhaps it is no surprise that many American feel resigned to a retirement that is out of their control. According to a Northwestern Mutual 2013 study exploring the state of planning in America, 63% of Americans say their financial planning needs improvement and the number one obstacle is not having enough time. 69% say the pace of society makes it harder for them to stick with long-term goals.

Well, perhaps once you realize that it is not an all-or-nothing proposition you will make time and join the 50% who have a plan in place. Just by taking that step puts you in elite company. While there is never a guarantee, having a plan definitely puts the odds in your favor. You may recall from my blog “6 Questions Baby Boomers Need to Answer Before Planning for Retirement” that I mentioned the Red Line Solutions. Those are the ways you can avoid running out of money in retirement.

Before you know which one might make sense for you, or if you even need them at all, you need to put a pencil to paper. This step is a critical part of the planning process – to determine how long your assets will last in retirement. So if it looks like your savings and investments won’t last your lifetime, here are 5 solutions to help fund a successful retirement:

  1. Work longer, retire at a later date. Don’t forget, each year that you continue to work increases not only your Social Security benefit, if you have a pension it could increase that benefit as well. It will also allow your retirement investments to continue to grow (401(k), IRA accounts, and taxable investments).
  2. Work a second job or part-time after retirement. The first step is to figure out what your income shortfall will be and then you can start considering the type of part-time work you will need to supplement your other sources of income in retirement.
  3. Reduce monthly expenses. Yes, this can be a painful process but in many cases it will be necessary. This is why the budgeting step is so crucial. You don’t know what needs to be reduced if you don’t know what you are spending. Check out my Budget Tracker tool to get started. Most retirees don’t need to live on their pre-retirement standard of living. It will probably be somewhere between 70-80% of what you are spending now. Once you have your budget you can figure out what can be reduced or eliminated.
  4. Increase the contributions to retirement accounts. Use the power of compounding and time to work in you favor. Even a small increase of $50 to $100 a month can have a dramatic effect on your retirement savings depending on how long you have until retirement.
  5. Sell an asset. Again, probably a tough decision. Maybe not, if that vacation home is going unused now that the kids have grown and are not as interested in using it as they were once upon a time. Or maybe you want to downsize and get a smaller, less expensive home or move to a part of the country that is less expensive than where you live now.

Perhaps none of these solutions appeal to you. I understand. I find that once people realize that it doesn’t have to be such a daunting task to cut expenses or increase their 401(k) contribution they are willing to make the sacrifice. Many retirees look forward to working longer at their current job or taking on a part-time job. Whatever your situation is you need to start with a plan. Then you can determine if any of these Red Line Solutions make sense.


Time Out!
What will you do if you need additional income in retirement? You can leave a comment here.