Apr 10
3
How Can I Afford to Save For Retirement?
In my practice of helping people prepare for retirement through proper tax and retirement planning, I often come across individuals who understand the importance and the need to prepare for their retirement and to receive tax-free income during their retirement. However, they are convinced that they simply cannot afford it, and knowing they need to do something they feel they cannot do, produces frustration. Many times this has caused them to shy away from the very people who can help them, investment advisor representatives, life insurance advisors, tax planners, ECT.
In this post I would like to address some simple steps that I have used in my practice to help people find extra money for retirement savings they simply did not know they had. However, before we do that it is imperative to understand a vital principle that is the foundation for any retirement savings program. That is the principle of sacrifice in regards to retirement savings. What do I mean by that? It is simple, you must voluntarily sacrifice a little today for your retirement savings plan or you will sacrifice a lot during retirement years. Almost every individual is given two basic cycles in life, the period of years when you have to work, and the period of years when you can no longer work, that’s it. In the 1st cycle if you will sacrifice a small portion of your earnings every month for your retirement savings with proper retirement and tax planning, there will come a time when you can decide whether to continue working or do the things you have always desired to do with your life. If you do not make that sacrifice during the 1st cycle for your retirement savings or you simple failed to establish proper tax and retirement planning you will have to work until you are unable to work and then it will be too late to enjoy your dreams.
(Many people have followed bad investment advice that left them subject to market risk, and made them vulnerable during down swings in the market close to or during retirement). (See video). Although I cannot stress enough the importance of proper tax and retirement planning through a qualified advisor, we will reserve that for other posts.
One of the first questions I ask a couple or individual when addressing the task of finding money for their retirement savings program is. When you file your taxes at the end of the year do you get a refund or do you owe money? With great consistency usually about 75% get at least $2,500 or more as a refund on their state and federal taxes. I then point out that they are allowing the IRS and the State to hold on to their money for a little over a year, and then return it to them with no interest. I then show them how they can take a portion of this money and apply it back to their monthly budget for their retirement savings plan with the possible benefit of tax-free income at retirement.
If they are unemployed through a recent lay off, they may have a 401K retirement savings plan from their previous employer. Many times, we are able to help them in a 401k rollover and provide them with options to protect their retirement savings from any downside market risks and at the same time take advantage of market growth; as well as provide the ability to receive their money tax-free at retirement.
If the client has a large amount of consumer debt, many times we can restructure the debt and free up extra money for their retirement savings program. This process varies from client to client so, please Contact Us for more information.
Probably the hardest area in working with a client to help them find more money for tax and retirement planning is with a budget. Many people just don’t know where their money is going every month. But when we spend the time to help them track where their money is going and show them what some expenses cost them in terms of retirement dollars, it is a real eye opener.
This next item goes along with the budget section; however, it deals with the hardest part of freeing up money for retirement savings, the perceived must haves of discretionary spending. For men sometimes it is their toys (boats, big screen TV’s, cars,) ECT. For women it can be various expenses (clothes, perfume, shoes, accessories, trips to the beauty salons) ECT. It is not that these things are bad or wrong as long as we are living within our means. If we are financing any of these items we must look at the reality of what they are actually costing us and compare that to retirement savings dollars. And that does not mean you cannot have these things but sometimes it is better to wait until we can pay for them in cash. Your retirement savings must come before any discretionary spending. If not, I guarantee if you are stuck working at Wal-Mart when your 70 years instead of enjoying your retirement, you will look back and wish you had done it different. Please feel free to Contact Us if you have any questions or comments on this or any other topic on this site.
Your Life Advisors
Dean Barwick / Manager (714) 244-0672