Advising about retirement strategy involves consideration of several pieces of data, including: accumulated assets, income from other sources (pension, social security, etc.), retirement income needs and life expectancy. In addition, a financial advisor would look at what is owed(debt), what is owned (assets) and many other aspects of a client’s financial situation. With the Retirement Analysis Checkpoint series, we have set out to share some details from a real person, then to highlight a couple of areas where they could improve and a couple of things that they are doing well. This is NOT a comprehensive review. If you are interested in a more comprehensive approach or have questions about your specific financial situation, you may want to consider hiring a financial advisor. You can read an article about choosing a financial advisor here.
A member of the Barclaycard Ring Community, Patti, answered the following questions. After that, Megan Poore, a financial advisor in Austin, TX, gave Patti a few tips. Thanks, Patti, for your participation!
Responses from: Patti from Massachusetts
Tell me about your vision for retirement. What will you be doing? With whom? What do you expect it to cost?
Our vision for retirement is to be able to stay living in our home, being able to pay the bills and live the lifestyle we would like, which includes going out to dinner and/or a show, traveling (we LOVE to travel), keeping our vehicles in good shape, and being able to possibly help our daughter with some of her college loans. I will hopefully be doing all of this fun stuff with my husband of almost 30 years. We are hoping our mortgage will be paid off by then (or close to it) and we just will have the usual bills that come every month. I have no idea what this will cost!!
How confident are you that you are well-positioned for those things?
I am quite confident in my husband’s retirement funding; he has been with the US Postal service for over 25 years and has always added the maximum amount to his retirement fund. I am a self-employed daycare provider and have saved absolutely nothing for retirement.
Which resources have been most helpful to you in planning for retirement?
We have not used any resources in planning for our retirement.
What has been frustrating in your planning?
The most frustrating part is that I have not put aside money for me. I feel like a financial failure and that I will be using my husband for all of my financial needs!
Looking back, what advice do you wish you had gotten? What advice did you get that you wish you had followed?
I never received any advice for myself as a self-employed person. Maybe if I had I would be in a better position. My husband had the foresight to get into his thrift savings plan right away. I am truly grateful for that!
Bravo to Patti and her husband for thinking about retirement before getting into their 50’s! It is never too late to start preparing for retirement, but it sure is an easier task for those who start early. In other good news, Patti is self-employed which gives her access to retirement options unique to business owners. It also sounds as though Patti and her husband have discussed how they would like to spend retirement, which means that they are better positioned than the rest of us who may have a spouse with a differing strategy for how time will be spent in retirement.
While they do have some good things going for them, there is also room for improvement and we will address a couple of areas in this post. For starters, many couples end up in the situation that Patti and her husband find themselves in. One partner may have saved for retirement, while the other has not. While the money, in most states, technically belongs to both, it can feel better to have retirement savings in names of both spouses, so it may make sense to open a retirement account in Patti’s name and begin contributing. A couple of options include:
- Roth IRA – Depending upon their combined income, Patti may be able to contribute to a Roth IRA. Under current laws, Roth IRA’s are not tax-deductible, but they do grow tax-deferred, which means that they can be used in retirement without paying taxes on the growth.
- Traditional IRA – Patti may be able to claim a tax deduction for a contribution to a Traditional IRA. For both Roth and Traditional IRA’s, the maximum contribution for 2014 and 2015 is $5500 for people under the age of 50 and $6500 for people who are 50 or older.
- Depending upon her income and whether or not she has employees, Patti might consider a SEP or a SIMPLE IRA, which could allow her to set aside even more than the IRA. While a little more complex, these options are definitely worth the effort to explore for people who have additional capacity to invest.
Beyond investing for their future, Patti and her husband should take a good look at whether or not they are realistically able to help their daughter with her college loans. While many college grads are struggling with college loan debt, many parents are struggling to set aside enough assets to cover their own retirement expenses. While it often does not feel right to us as parents to watch our children struggle, it is likely in everyone’s best interest for parents to shore up their own finances first. This is what I call the “I’m not planning to live your in basement” talk! Another important component of this is to consider how much longer we are living in retirement. While the average retirement age has gone down by a few years in the last four decades, the average life expectancy has gone up by several years during this same timeline. This means that living a long time, and dealing with rising costs from inflation, is a much bigger retirement concern than it once was. This may mean that helping adult-aged children early in retirement may not be in your best interest, nor theirs (for the long-term, at least!).
Finally, and perhaps most importantly, Patti said that she has “no idea” how much retirement will cost. This is one of the most important pieces of information when planning for retirement. The best place to start is by tracking current spending. Historically, retirees were told that they could live on 70-80% of their current income. That was back when people retired, sat in rockers on their porches and whittled wood while drinking iced tea. Now retirees want to travel, have adult children who may need financial help and are, in general, living much more expensively than their parents or grandparents did in retirement. As such, it’s vitally important to get a grip on current spending, then to begin to plan some retirement expenses (price out the bigger trips, for example).
With a few tweaks, Patti and her husband can make some big gains. Keep up the good work!
Megan Poore, is a Financial Advisor at Lucien, Stirling and Gray Advisory Group, Inc. in Austin, Texas. Megan helps both women and men take control and navigate changes in income, retirement assets, business ownership and other matters related to major transitions, and their effects on a client’s lifestyle and family responsibilities.