An article in the WSJ, addressed a late starter’s ability to adequately save for retirement. The author made it clear by suggesting it isn’t easy, but it is certainly possible to achieve some financial security by working a little longer and by being consistent with your saving efforts. He warned about the temptations to pick investments paying a higher rate of return, a strategy that could “backfire” by inflicting losses that may never be recovered! (Do you think anyone has had such an experience lately?). Well stated!
The suggestion of more savings and retiring a little later than originally planned is good advice. The sources of the author’s information fell short, however, as a more complete strategy is necessary. The suggestion of larger percentages of one’s income going to savings may be prohibitive and thus cause the late starter to just give up and do nothing! The suggestion of downsizing your home may be an option, but it should not be a priority in a financial plan, especially in this market. There is so much more to preparing a strategy for such an individual! Let’s start by finding money being transferred away unknowingly and unnecessarily. Is the client paying more taxes than he/she needs to? Are they paying higher rates of interest than they need to? Can money be found in these areas which would lessen the percentage of savings necessary from their income?
By finding money that could be saved for retirement or college savings, one can divert that money directly to savings without any change to their lifestyle. Granted, it may not be enough, but it makes sense to start there! Like many, I am not receptive to a planner whose first comments are to invest my current savings in better investments paying higher rates of return or to suggest that he will find ways to reduce my current lifestyle to save more. Ironically, people in general, think that is what financial planners do. They find ways to cut back on lifestyle so we can save more, something we know we should already be doing! But, most are not ready and / or willing to cut back on their lifestyle to do so. Others have already cut back and cannot tolerate further cuts to the budget. Still others say there is nothing left to cut in their lifestyle budget! So, what to do???
If you work with a planner who understands wealth transfers, is able to find money being transferred away unknowingly and unnecessarily, understands opportunity costs and how to consolidate debt, they will teach you the strategies you need to understand in order to adequately manage your money and save for your future. If you only concentrate on saving more, you will take on unnecessary levels of risk, which is unnecessary! Sadly, your debt, interest payments and opportunity costs will grow right along with your savings, further complicating your financial affairs.
We tell our clients that there are two ways to fill a bucket with holes in it. First, pour more water in or plug the holes and the bucket will fill even if the water is slowed to a trickle. Substitute the water for money and the bucket for savings. The holes represent wealth transfers as mentioned. If you can eliminate the transfers of money, by plugging the holes in the wealth bucket, you will be able to save more and stress less without change to your lifestyle. So, before you seek out investments paying higher rates of return, seek to eliminate the wealth transfers by working with someone who understands the damaging effects those transfers have on your ability to grow your wealth. Watch this seven minute video for more insight on avoiding wealth transfers before you begin putting more money into your financial strategy!
