Nearing Retirement and Falling Behind in Savings
Our Wealth Advisor, Franklin “Franko” Gay, is passionate about helping others achieve their personal goals by utilizing strategic financial and tax planning in their day-to-day lives. Since we all have an idea of when we would like to stop working, some of us sooner rather than later, Franko was able to illustrate some steps that someone with a wavering financial plan can take once a decade or less away from retirement.
The first step Franko recommends would be to take a good, hard look at your cash flow statement to see if there are any items that can be trimmed to increase your discretionary cash flow. These can be as simple as cancelling unused subscriptions, substituting your morning drive-thru coffee with something brewed at home, or spending one more night in on the weekends than you would have otherwise. Small incremental changes in your spending can create large amounts of discretionary cash flow over the years that you can put towards your retirement dream.
Once you’ve looked at your cash flow statement and discovered a few ways to increase your discretionary cash flow, the question is “What do I do with this extra money?” This leads us into Franko’s recommended second step which is figuring out where we want to place each marginal dollar that we can save from the cash flow statement. In Franko’s mind, this comes down to asset location and interest rate differentials. Effectively, where can I get the highest after-tax return on my dollars among all the possible places that my dollars can be used including investing as well as debt payoff.
Now that you are allocating each of your marginal dollars extracted from the cash flow statement in a way that achieves the highest after-tax return, Franko’s recommended next step is to consider your options in case it is still not enough. Options that Franko finds himself discussing with clients most often are Spending Less, Part-Time Employment, and a Reverse Mortgage (assuming the client doesn’t want to sell their home). Being able to control your spending, bringing in extra funds during retirement, and utilizing the equity in your home are all great tools to help get clients over the retirement hurdle.
In summary, shoring up your financials in the decade or less before retirement can be a daunting task when you feel you have a shortfall in assets. However, going back to basics and looking for ways to decrease your expenses and increase discretionary cash flow is a great first step in the right direction. Once you have scrutinized your spending, the next task is to ensure that the dollars you freed up are finding their most productive home. Be sure to look at the interest rate differentials here between all the landing pads for your cash and don’t forget to factor in those tax ramifications.
Lastly, when you feel like you’ve done everything you can and it’s still not enough, don’t lose hope. Retirement planning is as dynamic as life itself, be sure to reach out to a trusted Financial Advisor to ensure that all the variables that make your life unique are being factored into your retirement plan.