- 2-Minute Article
- Aug 01, 2017
How to Balance Competing Financial Goals
Meeting financial goals while saving for retirement can be possible with careful planning.
In their 50s and 60s, most people are likely in the final push to
Writing a list is an important first step because it helps
The list should include both “nice-to-have” items — such as a vacation home or a new car — and must-haves, such as children’s college costs and retirement. And don’t forget about preparing for potential financial surprises, such as caring for an aging parent or unexpected medical costs.
A financial professional can help develop cost estimates for each goal — for example, establishing a retirement savings target based on projected future expenses and potential investment growth. Some goals may be hard to estimate, but even a ballpark figure helps. Using these totals, calculate how much to save each month to achieve the goal within your expected timeframe.
Compare current monthly income with all household expenses, such as utility payments, food expenses, and so on. Our Future Income Planner can help do this. The difference between current income and current expenses is the potential cash flow available to put toward financial goals. If there is little cash available to put aside, work with a financial professional on ways to help cut the household budget to free up additional money for savings.
Even after reducing expenses, there may not be enough to save the desired amount for every goal. In that case, work with a financial professional to prioritize which goals should receive full attention, and which can wait.
Consider eliminating or pushing out the dates for “nice-to-have” items to properly cover must-haves. Remember: retirement should remain a top priority, even if a nearer-term expense like a child’s tuition seems more pressing. You can borrow money for college, but no one will loan money to finance your retirement.
Automated programs allow for regularly scheduled transfers from a bank account into savings vehicles such as an HSA (for medical costs) or a 529 plan (for education costs) — making it easier to stay on track with retirement savings goals. For 401(k) payroll deductions, consider contributing at least as much as your employer will
After meeting a financial milestone, such as helping a child make their final tuition payment, redirect the money you were saving toward that goal to retirement instead. Starting the year you turn 50, you’re allowed to make “catch-up contributions” of up to $6,000 extra in a 401(k) or 403(b), and up to $1,000 extra in a traditional or Roth IRA2.
Although you might have started a retirement income plan with a financial professional already, the process of reviewing and prioritizing goals provides an opportunity to revisit future income needs.
For example, consider reassessing your investment mix, as people typically want to increase or shift savings into more conservative investments as they approach retirement. Also, review all potential income streams, including withdrawals from retirement savings accounts, pension benefits, and Social Security. Look for ways to enhance income, such as delaying Social Security payout or putting a portion of savings into a guaranteed income source, like an annuity.
Finally, don't forget to secure your plan. Talk to a financial professional about whether life insurance makes sense in your plan. Permanent life insurance can protect loved ones should anything happen to you, while growing cash value to tap for future expenses such as health-related costs.
Work closely with your financial professional to calculate the costs of your goals, prioritize those goals, and identify the best financial tools to help achieve them.