Right now many advisors are having a tough time helping clients plan for retirement income. Even with an economic recovery in the works, clients who have retired, or are about to, probably have less to work with than they had a few years ago.
That’s not a problem for people who can delay drawing on the retirement nest egg until account balances recover–people such as retirees who have pension income that can meet their mandatory expenses.
But what about those who can’t wait?
All businesses know that there are two ways to improve the bottom line: increase revenue and/or reduce expenses. Advisors helping clients plan for retirement typically spend a lot of time focusing on the “revenue” or income side of the equation. While it is true that finding ways to maximize retirement income is a very important part of financial planning for retirement, this might be a good time to focus a little more on reducing expenses.
Reducing expenses begins with determining the current status.
For clients who use financial software to record bills and track expenses, this is a simple matter. Even if they aren’t currently using the budgeting feature of their software programs (and one might ask, why not?), they can create a budget based on their entries.
Clients who still use paper and pen for budgeting can follow the same process, although it will be a little more time-consuming and less accurate. It goes without saying that the end result is written budgets, something that many clients don’t have or, if they have them, don’t use.
Next, help clients examine their budgets line by line, categorizing their expenses as mandatory (mortgage payments, car payments, and utilities) or discretionary (eating out, vacations, and entertainment). Some software programs allow users to do this quickly and easily.
Then they can examine each expense, starting with discretionary items, to see which ones can be eliminated and which ones can be reduced.
What are some discretionary expenses that might be eliminated or drastically reduced? Examples that come to mind are yard services, housecleaning services, car detailing, book purchases, magazine and newspaper subscriptions, telephone landlines, fast food meals, and going to the movies.