Book Club: 5 Years Before Retirement by Emily Guy Birken
The first step in any plan is determining where you are now. If you don’t gain clarity over your current situation, then you will have no idea how much farther you have to go. You would be aiming at a dart board with a blindfold on, which isn’t practical and very DANGEROUS!
To plan for your retirement, the book: 5 Years Before Retirement asks: What is your income gap? The income gap is the amount of money saved up now versus the amount you need when you retire. Let’s explore the 3 main areas any Strong Woman needs to tackle. Take the time to read through each one, and then review them again, they’re that critical! During your second review, jot down each and every question that comes into your head, to help you sort through the confusion. You’ll want to have an honest and detailed discussion with a financial professional to give you not only a plan but peace of mind!
Part One | Your Money Balance
Fortunately, you can still grow your money in retirement. Once you determine your income gap, you can implement simple strategies to bump up your savings. Here are a few ways to increase your savings and your income:
1. Maximize your 401k if your employer matches.
2. Contribute to your IRA or a Roth IRA, after you have maximized the amount of money you can
put away in your 401(k) or retirement plan at work.
3. Lower your expenses. List each of your expenses and rank it on a scale of 1-5, with 5 being most important in your life. Spend time figuring out a viable action plan to reduce the expenses that rate low on your scale. You might be wasting money on items you don’t truly need or care
about: the items rated as 1s and 2s.
Major strategies to lower your expenses are to:
a. Downsize your home.
b. Pay off your mortgage.
c. Welcome a boarder or roommate, Airbnb
d. Move to a less expensive state/town
e. Become a one car household.
f. Reduce your restaurant and entertainment expenses.
g. Pay off debt.
4. Start a second income stream. Take inventory of your talents and flexible time to consider:
a. Part time work.
b. Pet sitting/ dog walking
c. Tutoring
d. Freelance writing
e. Consulting
It all comes down to figuring out your expenses and start prioritizing your money better. Find which expenses and purchases you cannot live without, which ones bring your enjoyment, and which ones you can eliminate. Use the extra money you saved when you eliminated expenses to pay down debt, put away more in your savings, and you will also have lowered your expenses for retirement, which means your money will go MUCH FARTHER. Don’t set your budget on autopilot: make a habit to check it every month. This will help you continue on your path towards your goals. Try sticking to your new budget before you retire. That will be one less stress and unknown.
Part Two | Be Proactive About Taxes In any plan, you will need to know about taxes. There are 2 guarantees in life: death and taxes, and in retirement, you will be paying a lot in taxes. YIKES! 5 Years Before Retirement makes a great point of the benefits for tax planning. Why let so much of your money go to Uncle Sam if you can help minimize it as much as possible with a few strategies?
1. Diversify your tax burden with different types of retirement accounts. Utilize Roth IRAs and Roth
401ks along with your Traditional IRAs and 401ks. The money in your Roth accounts will come
out tax free since the money you contribute to them is after tax money.
2. Annuities will let your money grow tax deferred like other retirement accounts, and if the
money is non-qualified or not IRA money, a portion of the income will be taxed.
3. Know when to use what in which account. Let me explain a little better: bonds are taxed
differently than stocks and tend to have higher tax burdens, so it might be better to put bonds in
your tax deferred accounts such as IRAs and 401ks and use your stock allocation in your non-
retirement accounts.
4. Your social security payments could be reduced AND taxed. That’s right, they will tax the tax.
Knowing the income and age limits will help make the most of your social security payments.
5. Any extra savings you come up with from lowering your expenses can be put into a Roth IRA to
help your tax savings down the road.
Part Three | Your Retirement Lifestyle
Do not overlook your desired retirement lifestyle. You want to make the most of your new life,
right? The one HUGE question I hear a lot is moving. Do I downsize, move out of state, rent or buy,
house or condo?? The list goes on, and you are not alone in feeling the frustration!
If you are thinking about moving, Trulia is a website that will help you compare the cost of renting
versus buying. If you are single, renting can be a viable option since you won’t have to worry about
selling your house if you need to go to an adult living residence.
Here are some questions to help you figure out where to move to:
1. What community resources do you need nearby to feel at home?
2. How far away will you be from family and friends? What expectations do you have for visiting?
3. Who do you know and can call in your community?
4. If you need to stop driving, how will you get around?
5. How easy or difficult will it be for family and friends to visit?
6. What maintenance tasks will you have to take care of? Who will do those tasks if you can no
longer manage?
7. Will your spouse be able to stay at home if you pass away, be comfortable alone?
8. Is it important your children inherit your home?
9. Who can help you move?
10. What aspects of living comfortably are most important to you?
11. What items in your home are most important to you?
12. If you decide to sell, how quickly do you need it to be sold?
There’s a lot going on here, examining these 3 pieces of the retirement puzzle. This is the kind of life-impacting decision-making I help my clients with every day, so have no fear, I’m here to help. I welcome you to schedule a conversation with me to provide some clarity around your situation and options.
May’s Strong Woman Stronger Assets Action Step
Building your ideal life:
Take a moment from your crazy hectic day to think about what you’d rather have your day be like. It’s
amazing: when we start thinking about what we’d like to be doing with our time, you will actually start
doing those things. You can get rid of the things you despise doing by outsourcing them and add in what you love doing. Sound good? I did this exact thing and now outsource my blog postings, maintenance, and monitoring so now I can do more of what I love: writing posts, researching solutions to my client’s problems, and connecting with more women! So let’s get started – take out your notebook…
Career:
Describe an ideal work day.
o You:
o Your Spouse:
Describe an ideal weekend.
o You:
o Your Spouse:
Describe an ideal year.
o You:
o Your Spouse:
Describe an ideal family time.
o You:
o Your Spouse:
Retirement:
Describe an ideal day post-retirement.
o You:
o Your Spouse:
Describe an ideal week post-retirement.
o You:
o Your Spouse:
Describe an ideal month post-retirement.