When Planning for Retirement, Where Do You Start?

When preparing for retirement, where do you start?  That is a question submitted by Tony.  Today, on Monday Morning Money we’ll answer it.

Video: Answering A Reader Question, Where Do You Start?

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What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

The Question:

“I’m 60 years old and want to retire in a few years. My wife and I have been saving in our 401k’s, but the thought of retiring seems overwhelming. I need to figure this out, where do I start?”

-Tony

The Answer: Where Do You Start?

This is a great question and one we hear quite often. 

Navigating retirement is about managing cash flow. And we need to follow one of the key rules for real-life financial success: spend less than what you earn.

In retirement, our income changes. We go from earning a paycheck to receiving Social Security or a state pension plan. It also means we need to use what we have saved to produce income. For most of us, there is a limit to how much income those resources provide.

So where do you start? Begin with understanding how you spend your money.

Many People Don't Create A Budget

Unfortunately, most Americans don’t know what they are spending.  They are happy if they have money in their bank account when the next paycheck arrives.

According to a survey conducted by the Certified Financial Planner Board of Standards, almost 60% of Americans don’t track their spending. So, unless you are part of the 40% who do, this should be your first task.

Getting Started

Get out those bank statements and credit card bills. It’s time to see where it all goes. It also helps to categorize those expenditures into 3 major categories. Fixed expenses, essential expenses, and discretionary expenses.

Fixed expenses include things which are difficult to change. This is going to include car payments, mortgage, rent, insurance premiums, prescription costs, and taxes.

Essential expenses are necessary items to living, but you do have some control. This will be groceries, your electric bill, cable bill, and other utilities.

Then the discretionary expenses include everything else. Hobbies, eating out, recreational expenses, vacations, entertainment. These are things you could eliminate.

Download Our Free Cash Flow Worksheet

To help you with the budgeting process, we created a free worksheet. You can download it by clicking on the picture to the right. It will help guide you through each of the categories mentioned above.

Where Do You Start

Why Should You Do This?

Why is understanding your spending so important? In our experience, overspending is the biggest threat to your retirement savings. When you can control your spending you improve your chances of longer-term success.

After you go through this exercise you can begin to work on the income part of your retirement puzzle. But that’s a topic for a different episode.

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Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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