The common financial wisdom making the rounds these days is that we all need to be saving more money and spending less. While this is true, forgoing the latte isn’t going to move the needle very much on your retirement goals. What never seems to be mentioned is how making more money can have a far greater impact on your retirement than frugality.
What Can I do to Gain Financial Confidence?
Despite all of the gains women are seeing in politics and social capital, women’s confidence in financial matters is actually decreasing, according to a new study by Allianz Life Insurance Co. of North America. More than half (57%) say they wish they were more confident in their financial decision-making.
For anyone who has dealt with an aging parent or grandparent the concept of long term care is likely a familiar one. Those unfortunate enough to suffer from Alzheimer’s or other cognitive illness can end up requiring nursing care that can reach and exceed $80,000 per-year depending on the quality of care.
Whether you like it or not, your credit score can determine how easy or how difficult it is to buy a car, buy a house, get cell phone service, or even get a job. A bad credit score can negatively impact just about every area of your life. Sometimes, a bad credit score can result from events entirely out of your control such as illness, disability, or from the loss of a job.
Nest Egg “Numbers”
Does anyone else remember those commercials about your retirement “number”, where people were pushing around an egg with a number on it? Or maybe you’ve seen the recent article about which multiple of your salary you should have saved by each decade of your life. While rules of thumb can be very helpful, I think they are most useful for those who are still decades away from retirement. For those of us who are closer to retirement than not (I’m looking at you, Gen Xers) a more specific understanding of your situation is necessary. One thing I’ve learned running retirement plans for people whose financial position runs the gamut from “broke” to “flush” is that there is no specific amount of money that everyone should plan to reach by the time they retire. Obviously, everyone’s situation is different.
What does your ideal retirement look like?
You need to figure out what you would like your life to look like in retirement and work backward from there. A woman with a pension whose house is paid off will need a smaller pool of investments from which to draw in retirement. If you have big travel dreams, and children who will still need your assistance (and let’s be honest, maybe parents) you will need to have more saved. I can’t promise you that you’ll achieve your ideal retirement, but you definitely won’t be able to prepare at all if you don’t figure out what it is. I’m not talking about specific numbers here, but I’m referring to figuring out what kind of life you would like to lead. Advertisements geared toward retirees (or those who would like to retire) mostly show ridiculously fit, white-haired people sailing, cruising, or otherwise frolicking in the sun. This may be exactly what you have planned, or you might prefer to stick closer to home. The point is that your dreams have a different price tag than your neighbor’s. Figure out what it is that YOU want, and then work on some advanced planning with an advisor to determine what price tag that will have.
But how will you know how much to save and when you can retire?
Of course you need to plan; I’m not advocating “winging it”. At the most basic, you need to figure out how much money you plan to spend each year, how much recurring income you’ll have (social security, pension, rental income, part-time work, etc.) and calculate the difference. Then figure out how much of a nest egg you will need to generate income equal to the difference. Working with an advisor on developing a retirement plan is strongly advised, as the above doesn’t factor in inflation, fluctuating health care costs, and the fact that spending in retirement isn’t usually a straight line. The bottom line is that there is no one number, no rule of thumb that fits everyone. You don’t need to know a “number”, you need a plan.