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Unit 10: Retirement Planning-II

retirement contributions. A number of financial pressures can arise to make the process difficult, Notes
but fortunately there are ways that you can tilt the odds in your favor.
First of all, set up automatic payments from your checking account (your bank should be able to
help you do this) into the investment account you are building your retirement fund with. This
is commonly referred to as “paying yourself first”. Once it’s set up, each time you get your
paycheck, your desired savings contribution will go right out to your investment account before
you have a chance to spend it.

Automatic savings will make it a lot easier to avoid spending your contributions on things you
can realistically do without. And if serious financial problems do crop up that require the use of
your investment funds, you can usually access those that are deposited to an after-tax account
without incurring penalties. The point of the automatic contribution is to avoid any instances of
spending too much and missing out on your contributions unnecessarily.
If you do dig yourself into a deep hole of credit card debt, however, it’s important you deal with
the problem as quickly as possible. Create a feasible budget to pay down your debt and stick to
it. Consider consolidating your debts into one account - this can lower your overall interest rate
and help you pay off those debts quicker.

Other problems may crop up, but provided you’re able to maintain your monthly contributions,
you should be in good shape. If you are having prolonged difficulty following your plan,
consider seeking the help of a financial planner.

10.2.5 What If I’m Late Getting into the Game?

If you are beginning your retirement savings late in life, you will need to work hard to catch up.
The first thing you can do is create a budget for your current expenses so that you can maximize
monthly contributions to your retirement fund. With budgeting, a little goes a long way, and if
you track your expenses for a month you will likely find that skipping the occasional dinner out
can save you hundreds of dollars, which can go a long way to boosting your retirement savings.
The main goal is to ramp up your savings rate as much as possible.
You might also consider alternative ways to boost your financial situation. Second jobs are an
option, but not a particularly pleasant one. If you own your own home, consider renting out the
basement or taking on a roommate in order to lower your living expenses. Converting part of
your residence into an income-generating asset can do wonders for your overall retirement
plan.
Once again, part-time jobs during retirement can be a feasible way to catch up. If you’re able
to earn a modest income during your retirement years, your financial picture can change
drastically - especially if you are an active type of person. You may actually prefer semi-
employment during your golden years instead of 100% leisure time.

10.2.6 Your Home may be a Source of Funding for your Retirement

If you own a home, it could serve as one of the means of financing your retirement - either by
selling it and moving to a smaller, less expensive home or by using a reverse mortgage. A
reverse mortgage allows you to convert a portion of the equity in your home to tax-free income
while retaining ownership (of the home). A reverse mortgage can be paid to you as a lump sum,
as a line of credit and/or as fixed monthly payments. If you decide to pursue a reverse mortgage,
be sure to factor in the costs, which are similar to those that would usually apply when a house
is being purchased. This includes origination fees and appraisal fees.

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