Financial Strategies Group

FINANCIAL STRATEGIES GROUP 8 One area that is lacking for many preparing for retirement is a BUDGET. Creating and maintaining a budget will allow you to understand how much you will need to maintain your lifestyle in retirement. This also allows expectations to be set and, if necessary, adjustments to the plan to be made. One of the simplest ways to understand what you are spending right now (aka your budget) is to understand how much is coming in each month. If you take your net paycheck and subtract any dedicated savings or liabilities that will be paid off, you can get an idea of your spending habits. For example, if your net pay each month is $6000 and you save $500 to savings, and your mortgage is $1000 a month but will be paid off before retirement, then your income need is $4500 a month. ($6,000-$500)-$1,000= $4,500. Once you know your income needs (aka budget), understanding your time frame and income sources is critical. What specific age do you want to retire? Retirement at 60, 62, and 65 all look very different. At 60, you cannot collect Social Security or Medicare. At 62, you can collect social security but not Medicare, so we have to budget for additional health insurance expenses. It's important to understand what your income sources are and if they are fixed or variable. Your social security and pension would be considered fixed income sources. The difference between your fixed income sources and what you need in total income is known as the "income gap." For example, if your social security is $2,000 a month at age 62 and your pension is $1,500, then your total fixed income is $3,500 a month. If your expenses are $4,500 a month, you have an income gap of $1,000 a month. Your investments need to be able to cover the income gap. With a financial calculator and some assumptions, you (or a financial planner) can then calculate if your investment portfolio will be able to cover the income gap. "By knowing they have a solid financial foundation, retirees can feel more confident and secure about their future."

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