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Wall Street Steward Blog

Retirement Repentance

What should I do if I am behind on my retirement savings plan?

One of the least rewarding parts of my job is meeting with someone who is behind schedule when it comes to saving money for retirement. Although these meetings are critical to the client, they are not fun conversations.

Before delving into the nuts and bolts of a conversation I lovingly refer to as the “come to Jesus” meeting, I would first like to mention that there are many reasons people could be behind schedule, from a major medical emergency to the bankruptcy of a family business. Others lack good reasons, but are behind nonetheless due to poor financial decisions. Either way, in order to salvage your retirement plan, one (or more) of these things has to happen:

SACRIFICE CURRENT LIFESTYLE (“save more money”)
Create a family budget, and then cut discretionary expenses like dining out or cable TV.  This releases those funds to be set aside for retirement, which can get you back on track. This is not easy, but eating Ramen noodles instead of Outback can make a major difference.

SACRIFICE FUTURE LIFESTYLE (“live on less in retirement”)
Instead of retiring in a country club home located on the golf course, consider renting an apartment and selling the CC membership. This frugal retirement will require a smaller income to sustain, which means you will not need to save as large of a nest egg.

DELAY RETIREMENT (“work longer”)
Maybe you were targeting age 66 for retirement, but now need to work until age 74. These additional years give you more time to save, and your money more time to grow.

TAKE MORE RISK
If a conservative investor targets 4-5% appreciation per year, they could consider a more moderate portfolio targeting 6-7% per year. Of course, this involves more risk of principal and should not be done without the help of your financial advisor.

None of the above choices are optimal, but if you are significantly behind on your retirement savings, tough decisions have to be made. Rank these 1-4, with 1 being the most desirable. Then, talk to your advisor about what effect tweaks in these areas will have. You will be surprised.