Does this sound familiar? You keep meaning to increase your retirement plan contribution, but there seem to be too many other financial priorities that get in the way. Fortunately, with a little planning, you can develop a strategy to cover those expenses and help stay on track for retirement. Here are some tips to help balance competing financial priorities.
List all savings goals.
Writing a list is an important first step, from both a practical and mental standpoint. It helps focus your thinking and motivation. Don’t worry about order or organization yet — just get it all down. The list should include both “nice-to-have” items (such as a vacation home or new car) and “must-haves,” such as children’s college costs and retirement. And don’t forget about preparing for potential financial surprises, such as caring for an aging parent, replacing your roof, or unexpected medical costs.
Estimate a cost and timeframe to achieve each goal.
Some goals may be easier to address than others, but even a ballpark estimate can help. Using your estimates, calculate how much to save each month to achieve the goal within your expected timeframe. A financial professional can help develop cost estimates for each goal — for example, establishing a retirement savings target based on projected future expenses and potential investment growth.
Calculate how much you have available to save.
Compare current monthly income with all household expenses, such as utility payments, food expenses, and so on. The difference between current income and current expenses is the potential cash flow available to put toward financial goals. If there is little cash available to put aside, consider working with a financial professional on ways to help tighten the household budget to free up additional money for savings.
Prioritize your financial goals.
Even after reducing expenses, there may not be enough to save the desired amount for every goal. In that case, you’ll need to prioritize which goals should receive full attention, and which ones can wait. You may need to consider eliminating or pushing out the dates for your “nice-to-have” items to ensure you can cover your “must haves.” It’s very important to remember that retirement should always remain a top priority, even if a nearer-term expense like a child’s tuition seems more pressing. Think of it like this: you can always borrow money for college, but nobody will loan you the money to finance your retirement.
Make saving automatic.
Automated programs allow for regularly scheduled transfers from a bank account into savings vehicles such as a Health Savings Account for medical costs (you must have an eligible high-deductible plan to be able to save in a health savings account) or a 529 plan for education costs — making it easier to stay on track with retirement savings goals.For workplace retirement plan payroll deductions, consider contributing at least as much as your employer will match (if available). Either way, certain financial professionals suggest saving 10%–15% of your annual salary for retirement.
Consider increasing retirement savings over time.
After meeting a financial milestone, such as helping a child make their final tuition payment, redirect the money you were saving toward that goal to your retirement plan. Are you age 50 or older? If so, for 2020, you’re allowed to make an additional “catch-up” contribution of up to $6,500 (beyond the $19,500 maximum) in your workplace retirement plan.
Refine your retirement income plan.
The process of reviewing and prioritizing goals provides an opportunity to revisit future income needs. For example, consider reassessing your investment mix, as people typically want to increase or shift savings into more conservative investments as they approach retirement. Also, review all potential income streams, including withdrawals from retirement savings accounts, any pension benefits, and Social Security. Look for ways to enhance income, such as delaying Social Security payout or, if appropriate, putting a portion of savings into a guaranteed* income source, like an annuity.
Stay Healthy & Stay the Course,
Your Advisors & the Team at OSC
* All guarantees are based upon the issuing insurance company’s claims paying ability.
© 2020 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this newsletter are those of Kmotion. The articles and opinions are for general information only and are not intended to provide specific advice or recommendations for any individual. Nothing in this publication shall be construed as providing investment counseling or directing employees to participate in any investment program in any way. Please consult your financial advisor or other appropriate professional for further assistance with regard to your individual situation.