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Facing a Retirement Shortfall—A Positive Plan of Action

| June 12, 2018
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Michael Parker, a 46-year-old sales executive and his wife Sandra, a 43-year-old nurse, live in Boise, Idaho. They are planning to pay for their children's college education and are reviewing their retirement needs, savings goals, and investment strategy. Their present concern is whether they will be facing a retirement shortfall. 

By using the following steps the Parkers took, you may be able to get an idea of your future financial situation. 

If you are facing a shortfall, you're not alone. It is likely that most American households will retire on less than half of the annual income they'll need to live comfortably in those golden years. An often used rule of thumb projects that you will need at least 70%-80% of your pre-retirement income in order to maintain your current lifestyle. 

Following in the Parkers’ Footsteps

1.  Make sure your assets are performing effectively. Identify your lowest performing assets by listing them in order of last year's rate of return. Consider improving the return on your portfolio by repositioning those at the bottom of the list. Conservative investments such as certificates of deposit (CDs) and savings accounts provide safe, reliable sources of income, but may not keep pace with inflation. Bear in mind, however, that with increased returns come greater risks. You will have to determine how much (if any) risk you can afford and are willing to take at this time in your life.

2.  Review your retirement budget, but don't compromise your retirement standard of living. Estimate your future expenses by asking yourself key questions regarding meeting medical expenses, housing costs, and, of course, travel and entertainment.

3.  Move to a more affordable location. You may free up additional retirement capital by lowering your housing, utility, and insurance costs.

4.  Do not overlook other resources on your balance sheet. Among these untapped sources could be: 

  • Highly appreciated nonincome producing assets such as stocks or real estate. Careful planning may convert these assets into income producers. 
  • Your valuable collectibles. Specialty items such as antiques, dolls, stamps, or a coin collection can be converted to cash, but only if you feel you can part with them. Evaluate what their worth may be in your retirement years. 

5.  Also, consider delaying retirement. Each year you wait will reduce your shortfall, and give you the chance to increase your savings. 

There are always actions you can take to deal with a shortfall. You need to determine what is the best plan of attack for your situation and put it into effect. If you start now (it's never too soon), the road to retirement should be smoother and any shortfall should be smaller or even nonexistent.

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