In life there are few things that remain the same. My daughter probably gets tired of me reminding her that how she feels at this moment is only temporary, it will pass and things will change. Often my clients need to be reminded of the very same thing. When you are planning a future where change is the only certainty, flexibility is your only option. This applies not only to life in general, but also to financial planning – including your retirement.
One area that merits greater consideration early on is how you are going to retire. If you are in your late thirties, forties, or fifties, some financial solutions may already have expired, passed by, or been greatly impacted by the country’s current financial landscape, so further delay in retirement planning is not your best option. Many of us have been spoiled, living in a flourishing economy and surviving on credit for most of our adult lives. Now things have changed and we find it necessary to rethink our finances, particularly our retirement plans.
First, make sure you take advantage of any matching funds that may be available from your employer in pretax deferred compensation plans. Matching funds are like a raise in income, so don’t leave any money on the table. Increase your contribution to the full matching amount whenever possible. However, be aware that most of the time those funds alone will not suffice for your future retirement, and as you spend the money in retirement from these accounts you will be responsible for the related tax.
Fine-tune your retirement plans by creating an after-tax saving strategy. Just like a diversified portfolio with different asset classes, the concept of diversity applies to how things are taxed. This is extremely important because we have no way of predicting where tax rates are going to be when we retire. Also, money that has been invested after tax allows for more flexible access and use of funds.
One more important note to parents: Don’t make the mistake of putting college savings for your children ahead of retirement plans for yourself. Everything we do affects our children positively or negatively, and the best college education in the world will not spare your children from the burden of you having to live with them in your elder years. In our current economy, retirement pensions are fading away and social security is being pushed back later and later in our lives. Our ability to remain independent in retirement is shrinking. Your retirement plan with a long-term goal of financial independence is truly the best gift you can give your children. Most of us will still be working while our children are in college so we can turn to other resources to help pay for their education: our working income, loans, grants, and the list goes on. This is the better alternative to emptying our retirement funds – or postponing them altogether. Otherwise, when we’re ready to retire, we’ll have to keep on working indefinitely and perhaps crowd their household because we didn’t have enough money saved.
Few things remain the same in life, but do you find yourself viewing your financial plans the same way you did before 2008? Are you flexible enough? Are you seeing things how they are, or how they were? Be proactive and get satisfying results. Plan today for tomorrow’s retirement. One day, sooner versus later, you and your family will be glad you did.
