By Cindy Diccianni, RN, CSA, CLTC, financial advisor
You are suddenly and without warning, 50 years old.
Wow, where did the time go? With the passing of this magical birthday you realize that the years you have left for working are rapidly coming to an end and you need to really focus on planning for your retirement.
How do you get started in this difficult process? There are several things to consider when planning for retirement.
Evaluate Your Current Situation
First, evaluate what you need in terms of real dollars in retirement. Be sure to factor in inflation as 4 percent to 5 percent. Inflation will erode any financial plan. Historically, the rates will run an average of 4.8 percent annually. Recent inflationary rates are 2 percent to 3 percent.
Look at your current debt and try to eliminate it as quickly as possible. Determine what your expenses will be in retirement. Will your home be paid for? Will you need to buy health care insurance or will your current insurance last into retirement? Health insurance can be a major expense in retirement and will go up substantially as time goes on.
Evaluate what you have already. Determine if you are getting a good rate of return on your money or if you need professional guidance. It is vitally important that you seek the help of a financial advisor who can evaluate your goals and objectives and guide you in you retirement.
Save The Dollars
Put every dollar possible into a tax deferred and tax deductible plan. Maximize your employer based plan and take full advantage of your catch up provision.
By maximizing your tax deductible contributions and taking advantage of the catch up provision, you will be accomplishing two important savings: the first is lowering your federal tax burden and second, putting more toward your retirement.
Monitor Your Spending
Create a new budget and start with the absolute essential expenses. Some financial advisors refer to this as a “zero based” budget. On this budget the very first entry is your retirement. Paying yourself first is the most important part of this equation. Then comes the mortgage and other debt payments or the required fixed expenses. Fixed expenses are the ones that you do not have much control over such as utilities, food and so on.
Cut back on your discretionary expenditures. “Discretionary expenses” are the ones you have some control over. This is the area where you have more flexibility over what goes out versus how much you can keep in your pocket. Keep track of all of the money you spend and learn to be more careful with how you choose to spend each dollar. It sounds rather basic but this is one of the most difficult aspects of life. Many people spend money for convenience or on impulse, and these are costly expenses.
Make More Money
Take a look at you current work situation. Is a raise or promotion on the horizon? Could you be making more money elsewhere or be working for a company that has a better retirement benefits (especially a pension plan, which benefits older workers)? Most pension plans are going by the wayside, but there are some companies that still offer this benefit. Would taking a second job now be worth it to you to create more wealth in the future? Could a nonworking spouse get a job now that your children are grown?
While you may plan to retire at 65 years of age, please note that many people are choosing to continue to work after retirement age. Either they need the additional income or they enjoy keeping their minds and bodies engaged through active employment. It’s a great opportunity to perform work, perhaps part-time, that you enjoy or find rewarding without the pressures and stress of your long-term careers. You may want to plan that in your mind now.
Be realistic in your projections and your dreams. Look over what we covered in this article and do some “what if” scenarios and projections. A good financial advisor/planner will assist you in achieving your goals. You do not want to find yourself retired and broke. It is never to late to start. Every dollar you can save today will give you more flexibility and options when you retire.
Cindy Diccianni is a registered nurse, a certified senior advisor (CSA), a registered investment advisor and a registered representative with leigh baldwin & company member NASD and SIPC. she is affiliated with Ortner, O’brien & Ortner advisory group and co-founder of nurturing your success.