9 Easy Steps for Building Your Nest Egg
If you’re worried that you won’t be able to retire comfortably—or at all—congratulations: you’ve demonstrated excellent awareness of some frightening trends that have added new layers of complexity to retirement planning.
For starters, it’s likely that the financial downturn has taken a bite out of your retirement savings. Other economic changes, meanwhile, make it harder to keep putting money aside. You may have suffered a job loss, a pay cut, or both. And because grown and almost-grown children are having a tough time finding jobs, your kids may also remain financially dependent on you longer than expected. Also, aging parents are living longer; that means they may need financial help or caregiving that can force you to cut back on work. (We’re living longer, too, and need to plan to support ourselves well into our nineties.)
In this environment, retirement planning tends to take a backseat to more immediate financial concerns. One-third of workers surveyed earlier this year by the Employee Benefit Research Institute said they’d had to dip into their savings during the previous 12 months to cover basic expenses. The same survey found that Americans’ confidence about retirement had dropped to its lowest level in more than two decades: just 14 percent felt confident that they’d be able to retire comfortably.
The good news: retiring well isn’t impossible—even if you’re struggling to cope with aging parents, boomerang kids, market meltdowns, and general gloom and doom. The key is to take care of yourself first. “As women, we can get way too easily distracted by how much everyone else needs,” says Megan Poore, a financial advisor at Lucien, Stirling and Gray Advisory Group in Austin, Texas. If you focus your attention on the right things and stick to a disciplined strategy, you can build toward a retirement that meets your needs. These tips from three financial planners can help you bridge the gap between here and there.
Create a vision
You’ll be more motivated to save for a goal that’s clear and vivid, and makes you feel good every time you think about it. “Define what you are looking forward to,” says Diahann Lassus, a fee-only financial advisor in New Providence, New Jersey, and past chair of the National Association of Personal Financial Advisors. “Think about retiring to, not retiring from.” Consider what your passions are and how you might spend more time on them when you’re retired. When it’s hard to stick with your savings goals, having that touchstone image can keep you going.
Save early and often
Yes, you’ve heard this before, but it’s a piece of advice you can’t afford to ignore. No matter what your age, put away as much toward retirement as you possibly can. If your employer offers a matching contribution, set aside at least as much as will get you the maximum match. If you’re self-employed, examine your options for a SEP-IRA or a solo 401K plan. “Do something,” says Poore. “Even just (contributing) a couple of percentage points is a good start.”
Trim your everyday expenses
Making trims now can free up funds you can channel into your retirement accounts, possibly saving you money on taxes. And finding smart ways to cut your spending is a useful skill that can pay dividends for the rest of your life. Think of it as a muscle that gets stronger as you use it. The more you’re able to cut your expenses now, the less income you’ll need to replace when you’re retired.
If you’re at a loss for where to cut, call your cable company and tell them you’re thinking about switching; chances are the company will lower your bill. Increasing the deductible on your car or home insurance can free up a few dollars, too. Using Mint.com’s online financial management tools can help you target other ways to save.
Get a handle on your parents’ finances
Knowing the specifics of their situation can help you assess how their financial picture might affect yours. “It’s critical to know where the gaps are,” says Lazetta Braxton, a fee-only financial planner in Baltimore. Can your parents afford to cover the costs of in-home help or assisted living? If not, what’s the plan? If your parents aren’t comfortable discussing these topics, meet with a financial advisor—yours or theirs—to make the conversation a little bit easier.
Guide your kids toward self-sufficiency
If you’ve got an adult child living at home, make an agreement that he or she will pay rent. Even a token amount helps to establish that the child is a guest in your home and is moving toward full independence. If you’re helping pay for college loans, come up with a plan for gradually diminishing your contribution. “Caring for adult children financially is one of the biggest dangers to retirement success,” says Poore. “If paying your kids’ loans means that you can’t save for retirement, that may lead you to be dependent on the kids that are dependent on you now.”
Plan to take Social Security later
If Congress raises the full benefits age, you may not have a choice. Even if you do have a choice, it’s often smart to do this. Every year you wait is worth approximately an 8 percent increase in your future lifetime benefit, says Lassus.
Don’t overlook insurance
“Lacking appropriate insurance can wreck even the best-laid plans,” says Poore. The right mix will vary depending on your circumstances, but both disability and long-term care insurance are worth considering. If you become unable to work because of an injury or illness, disability insurance protects your income, so you’ll be less likely to tap retirement funds to cover expenses.
Long-term care insurance can be expensive, and premiums have been rising rapidly. But if you can afford to buy it—at a level where you can keep paying the premiums no matter what—it can be an important element of your retirement security. “Long-term care insurance will become more critical as health-care costs continue to rise,” says Lassus.
Consider investing more aggressively
The downturn and stock market volatility have spurred many women into investing conservatively. But that puts you at risk of outliving your money. “When I first got into this business, we used to plan to age 90, and people would laugh,” says Lassus. “Then 10 or 12 years ago, we said, okay, we’re going to 100: can your assets last to age 100?” Historically, the growth needed to keep up with inflation over such a long period has only been possible with some investment in stocks. A financial advisor can help you choose the right balance; Lassus often advises mixing eight to ten asset classes.
Establish an exercise habit
Speaking of living to 100, finding a form of exercise that you love and will stick with can cut your risk of chronic—and expensive—health conditions like diabetes, heart disease, and arthritis. Besides, it’s a proven way to ease stress. And in times like these, that’s no small thing. DW
Katherine Griffin is a writer and editor in the San Francisco Bay Area.