by Steve Cyr
It is natural to view retirement preparation as strictly an exercise in asset accumulation. Most people narrowly focus their efforts on building a nest egg large enough to fund the retirement they desire.
For those who begin planning early in life and who are persistent enough to be able to stay on track over time, accumulating the necessary funds for their ideal retirement may be entirely realistic. But for the many people who approach retirement well behind, there’s little comfort to be found in some unreachable asset accumulation target.
Changing your retirement perspective
So what can you do at this stage of the game? First, acknowledge that your original target–if you ever had one–is out of reach. Second, realize that a financially successful retirement isn’t about some magic number nearly so much as the relationship of your income to your expenses.
This changes your perspective. You begin to focus less on assets and more on income and expenses. There is more that can be done late in the retirement planning process to maximize income and control expenses than to accelerate asset accumulation.
One way you may be able to increase your net income in retirement is by moving money from your traditional IRAs to Roth IRAs. This will likely be a taxable transaction. But by paying the taxes now, while you’re working and can better afford it, you can ensure that you will be able to withdraw the money tax-free in retirement.
Another attractive way to increase your retirement income is by waiting longer to claim your Social Security benefits. If long life spans run in your family, it may be worth waiting. Of course, if you can’t afford to retire without Social Security, waiting to claim it will mean working longer.
One of the best and most obvious ways to reduce retirement expenses is by paying off your mortgage before you retire. It’s common for people to build the most expensive house they’ve ever owned when they retire. That’s fine if you can comfortably afford it, but if you’re playing catch-up, it might make more sense to eliminate a mortgage payment that likely will eat up 25 or 30 percent of your monthly income.
Another common-sense method for those not concerned about estate taxes to consider for reducing expenses is spending the money in your taxable investment accounts first. By spending the money in your non-retirement accounts first, you can minimize your total tax bill, allowing retirement accounts to continue to compound on a tax-deferred basis.
Your Advisor can help
Starting to get the idea? There are viable strategies for maximizing your income and controlling your expenses in retirement. So, if you’re nearing retirement and don’t feel entirely confident that you’re on track, don’t spend a lot of time fretting over some online calculator. Sit down with your financial advisor and discuss what steps you can take to stretch your resources and get the most out of your retirement.
Steve Cyr is a financial advisor with First Command Financial Services. Steve is graduate of the United States Military Academy at West Point with a Bachelor of Science degree with a concentration on Economics and served eight years in the U.S. Army.