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Your Financial Future: Determining ‘wants’ and ‘needs’ in retirement planning

4 min read
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The last two weeks we discussed some issues that would be a good place to make 2022 a better financial year: increasing the amount of emergency money available and reducing debt to improve your credit score.

This week we will look at some things you can do if you have not saved enough for retirement.

According to a T. Rowe Price study, there is a $4 trillion difference between what workers will need and what they have actually accumulated. Many people know they should be saving more, but life is expensive. This is especially true today when inflation is rising faster than it has in 40 years. Many planners suggest a saving rate of between 12% and 15% of gross income.

Saving more often starts with an analysis of your spending habits.

Determine if what you are considering buying is a want or a need. I recently had one client tell me that a family member talked them into buying a new car when their previous one was still in good condition and working fine. This new auto cost over $300 per month for the next six years.

How much do we spend on cellphones and cable television every month? Ads for cellphones seem to focus more on movie-quality cameras than communication devices. Sports shoes today cost much more than the Red Ball Jets we wore in our younger lives.

Another thing you can do is invest in an IRA. This gives you tax deferred growth. If it is a 401k, you may get a company match up to some level. Free money is hard to beat. Don’t make the mistake that many people do and end up with all of your savings only in pre-tax or qualified money. It is much better to have saving in all three types of taxable accounts.

The other two are tax-preferred such as a Roth or a non-qualified or after-tax savings. This type of account only makes you pay taxes on the earnings.

Another mistake many people make is having too much money in banks or money markets. While your emergency money should be readily accessible in a no-risk account, having too much money there at today’s high inflation is risky. I call this, “losing money safely.” I know this sounds like an oxymoron, but you are losing purchasing power if your return is not keeping up inflation.

If you have not saved enough to retire when you would like to, it may be necessary to work an extra year or two.

You are going to earn less money during retirement or you would have probably already retired. Working this extra time gives you more income, maybe extended health benefits and could increase your Social Security benefit. Every year before your full retirement age that you take SS reduces your benefit by about 6.5%. If you delay starting benefit after full retirement, your benefit goes up 8%. Next week we will discuss Social Security in greater depth.

Baby Boomers are the first generation where most workers do not get a defined benefit pension.

Only workers at government entities and big companies tend to get pensions today. Because of this, Boomers are more responsible for their own retirement. Make sure you are prepared before you quit your job. It may be a challenge to find one that pays as much. Make an honest assessment of your situation and plan accordingly. This will allow your family to have the best retirement possible.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.

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