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CPA's, Are You Preparing For Your Golden Years?

Posted by Dr. Phil Yaeger on Dec 4, 2017 1:33:49 PM

What comes to mind when you think of retirement? For many of us it's our grandparents. We watched them retire into their golden years with style, vacationing around the world, and relaxing at home. We enjoyed nights being dropped off and spoiled while our parents enjoyed some time sans kids. We loved those times and will cherish the memories forever. The thing is, this was brought on by years of successful planning towards retirement, something that many of us look forward to, but often look past the details it takes to get there.

While we may not be experiencing our grandparent's world and retirement preparation looks different now, it is still possible. People who are looking to retire in 30-40 years also have other factors to consider. They will spend longer paying off their college loans, so they have less time to save and invest their money. This new generation of retirees may expect to be retired longer due to increased life expectancy. Along with the longer life expectancy comes an increase in living expenses and medical bills, which are already more expensive than they have ever been. This may mean deferred retirement or different standards of living post-retirement. Otherwise, many of us might outlive our retirement savings.

There are many ways to prepare the same as previous generations. Some of these areas fall into a less popular more conventional way of living. Although some practices may make you cringe, we can learn from our parents and grandparent's generation, glean wisdom from their choices, and apply successful concepts to help solve our retirement dilemmas.

1) Buy a home - but only the one you need

Now more than ever, young professionals spend a lot longer in rental units than buying homes straight out of college. While many Millennials don't expect to be homeowners until their 30's our grandparents often purchased a home right after high school or college. The reality is that working in a city may make this completely out of the question due to high cost. Even purchasing a condo is outside the feasible budget of any new professional. This doesn't mean you need to stick around the city for as long as you work in the city. It may mean sacrifices, but within a couple years it's likely you could get a mortgage on a house in the suburbs or a small unit in the city. This means a change of lifestyle, but it also means you can start putting your money in an asset you will eventually get back. Being out of the city also translates into going out less and spending less on food and entertainment. Once you qualify for a loan, your mortgage payments may be less than rent was. If you are smart and prepare right, you can combine those savings with your lifestyle change savings to invest. All in all, if you are paying $1,200 a month in rent, moving from the city when you're twenty-five vs. thirty could save you $72,000 in rent alone.

When it is time to buy a home, don't overspend. We see our grandparents downsize all the time, so upsizing unnecessarily should be avoided. Don't agree to a higher loan with payments further into the future if you aren't going to use the space immediately. More square footage means more maintinence. The spare bedroom might be nice to have, be realistic about how much it will be used. The same goes for the basement, extra storage space, and three car garage. Don't let your eyes get too big and cause more stress in the future when you realize you're stretching out your career for a few years due to space you never used anyways. The biggest temptation is to prepare for the future of kids and family by buying a bigger home than you need. You should do your future family a favor by going with a smaller place and saving money to invest safely. We often see or remember our grandparents or parents house and want what we know right away. However, ask them about their first few places. It's likely they lived somewhere small or less than ideal before getting their dream home.

2) Don't give your kids what everyone else does so you can give them what no one else can

It can be easy, especially for first-time parents, to want to give your young child the world. The reality is, they don't care if they have the nicest designer shoes as a toddler. Spending a lot of money on them may not break the bank, but it does add up. Some parents fall into the trap of treating their kids too well as a form of caring that sets back the family and the child themselves in the long run. According to CNN the cost of raising a child in lower-income families was $174,690. High-income households showed to be around $372,210 while the mean was $233,610. This variance shows what is necessary vs. what is possible. You don't want your child to go without, but cutting back on some of the non-vital expenses can help make better investments in their future and yours. Saving for their college now vs. paying for it later means saving on interest. Even if you don't plan to pay for their education, you can ease the burden by investing the money yourself and giving them a loan they can pay back interest fee, allowing the money to stay in the family rather than go elsewhere. One of the greatest gifts you can give your child are valuable lessons on budgeting.

3) Spend smart even when you splurge

We see this common problem all the time. People work for a long time, saving up a great deal of money, and then spend it all within a few weeks on extravagant vacations. There's nothing wrong with getting a little rest and relaxation, but you don't need to be flying first class or staying in the nicest hotels. Fly economy and stay in an Airbnb instead and enjoy the financial cushion rather than financial stress. Also, remember in every endeavor that money saved is money you can invest and don't have to make later. The best way to retire younger is to spend less money early on in life.

While you're not going to get to live your grandparent's retirement, you can have a good one for yourself. Just be realistic and recognize the changes early on so you don't need to scramble and worry later on in life.

Tags: Accounting News, Accountants Creating Budgets, Accounting Career Advice

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