Feb 19, 2019
Rachel M. Hawili, AIFA®
Planning for the future with your life partner is something you should enjoy doing together. Decisions made about retirement will play key roles in your overall success. That’s why most advisors tactfully prefer both partners being present and involved, not only so they both have their say, they both understand the process, but also so the advisor knows where they both are coming from.
Unfortunately, there is more to retirement than whittling away the hours together. Retirement is about time and money – two good reasons why goal planning and monitoring must be of the utmost importance to making the relationship and the finances last for years to come.
To fund your retirement, you smartly and methodically contributed to a 401(k) plan at work, an IRA, and diversified investments and index funds without duplication.
Like you, most people do save something for their retirements, but in many 401(k) plans, they are not saving enough.
If you are between 50-59, you might currently have an average balance of almost $180,000. So before you retire, and while you still can, are you going to increase your contributions? Some people think they can’t afford to save more.
“Knowing the right thing and doing the right thing don’t always go hand in hand,” said Gina Harbison, Retirement Plan Coordinator from Hefren-Tillotson Corporate Services Department. “If you know the amount you need to live on in retirement, you are able to develop habits to motivate your actions.” If you don’t know, you are blindly saving.”
“We help people determine what they should be saving and how to budget. You can see where you can cut back on spending and easily take that savings and direct it into your 401(k).” Harbison’s comments were featured on Ask The Advisor, the financial Q&A podcast, presented by Hefren-Tillotson.
Real returnable income
Truth is, not everyone has the same retirement needs. And since this is real money, with real meaning, that must follow a real plan and a set of goals to fund the next chapter of your lives, take a look back at your life before proceeding forward.
You worked hard and paid your dues; you did it without inheritances, profit from selling a business or a stock market windfall. You earned it from 40+ hours a week and 35 years of paychecks. You paid the bills, insurances for the car, home and health, living expenses and a whole lot more – none, of which, is returnable income to you.
In addition, though, you paid for a home, a car, assorted personal items, material things and perhaps to learn a skill, all considered returnable income – you can be paid for them. Where that income goes and how it benefits you in retirement is up to you. But does your investing cease when you retire?
You also invested outside of your 401(k), and these assets along with years of paying into Medicare and Social Security, will come back to you in dollars and services. Consequently, once your retirement goals are in place, your “real money” supervision is essential. Keep a close watch on these particular items:
- Real rate of return – after taxes and inflation, this is the true value
- Purchasing power – your dollars will buy less in the future than they do today
- Longevity – regardless of your life expectancy your plan is to not run out of money
- Legacy planning – if you plan to spend most of your money in your lifetime, or give a big part of it to the kids, grandchildren, charity or other organizations you feel strongly about, then stick to it
- High-interest debt – key word is “high,” but some low interest debt is good to keep
A reality check meeting
One way to derail your plans is if spending patterns change and unscheduled withdrawals are more frequent. Your portfolio value will drop dramatically. This is why your advisor first develops an understanding of your needs and wants: to break down what you need by guaranteed withdrawals, what you want, which will fluctuate from year to year, to what you can realistically afford to cover additional wants.
Furthermore, if spending reaches unmanageable levels, the plan to allocate money at previous levels falls apart. So it is then that your advisor must then call a “reality check” meeting, to communicate to the family that the money they are counting on may not be available as intended.
These are difficult meetings to have because of the noticeable distress to family members your advisor knows personally. Remember, your trusted advisor is also part of the family.
Additional family consulting might be necessary to move families from emotional to rational because if the parents run out of money, the kids will have to support them.
At Hefren-Tillotson, we know retirement is littered with obstacles. From high medical costs, basic living expenses, unexpected occurrences, emergencies and more, we provide proper planning and annual reviews to get you through the rough patches. Contact us today for more information.
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