As a Financial Advisor/Money Coach I continually find that common sense is a lost art when it comes to family finances, especially when it comes to planning for retirement. If you don’t pay attention to how you are going to pay the bills during retirement, you should begin to think about which of your children are going to take care of you. Here are some real-life examples of what not to do:
You have refinanced your first mortgage four times — and you have a substantial second mortgage on your home. Where did this money go? Good guess would be that a substantial amount went to pay for your overspending.
You spent more time planning your last two-week vacation than you have planned for 30 to 40 years of retirement. Time to plan and write down your retirement goals.
You come to me four years before your planned retirement, and I find out you now are overspending somewhere between $3000 and $5000 a month. Or, you really have no idea how much you spend each month (“How to Track Family Expenses”).
You think Social Security is supposed to pay for your expenses in retirement. Reality – the formula used by Social Security results in benefits that replace about 42% of a person’s earnings. Paying for retirement is a four-legged stool: pension/retirement savings, personal savings, Social Security, and earnings you receive on your portfolio after retirement begins. My article “Financial Road Map to Success” is designed to help you determine where the money will come from each year to pay for your retirement.
You have taken money out of your 401(k) to cover your overspending.
You designate (misuse) a credit card as your Emergency Fund.
You think all your investments are “safe” in cash accounts. (“Big Problem in Keeping Your Savings in Cash”).
You think of putting coins in a piggy bank when I recommend you “change” your spending habits.
You own more vehicles than there are licensed drivers in the family.
You are totally unaware that “retirement” means vastly different things to your spouse including where you will live and what you will do. Answer: talk to your spouse.
Your “catch up plan” is to rent out a room in your home.
You think Medicare will pay all your medical bills after age 65. Fidelity projects that in 2013 the average American couple will face $220,000 in healthcare bills after age 65 despite Medicare, not including dental expenses and Long Term Care
You don’t quite understand the concept that when you work for 40 years, each day you must earn enough to pay for that day plus one day in the future during your up to 40 years of retirement.
Come on America! You can do better than this. Let’s learn how to manage your finances and not end up staying with your kids when you retire. Start to plan your retirement by asking yourself these 10 questions.