02-10-2014 10:17 AM
Content provided courtesy of USAA.
by Scott Halliwell
CERTIFIED FINANCIAL PLANNERTM practitioner
Did your retirement train get knocked completely off the tracks as it passed through the Great Recession of 2008? If so, you’re not alone. Despite officially ending in mid-2009, our country’s most recent financial fiasco left countless retirement plans in ruins. Four years later, many people are just starting to get their bearings again. I know this because I get questions from them every day.
Many ran up debt, stopped saving, used their savings and investments, or in a panic, pulled their retirement investments from the markets. Sound familiar? While some of these moves were probably unavoidable or at least understandable, each one may have played a part in derailing your retirement train. But rather than dwell on the past, it’s time to move forward.
Here are my six steps to get your retirement back on track.
1. Focus on logic, not emotion. We’re all human, and sometimes we indulge in a little self-pity when things don’t go our way. You may even be tempted to just give up. But what’s done is done. Now is the time to get busy and move forward. The longer you wait, the harder it will be to take the initiative and regain the momentum.
2. Assess your situation. Before you can begin moving forward, you’ve got to be honest about where you’re starting. Critically assess your situation. Look at your lifestyle and cash flow for places to adjust so that you’re spending less than you earn. Ask yourself, “If I keep spending at the same level, will I be able to save enough to get back on track, or do I need to make some changes?” Bottom line: Get a firm, honest handle on where you’re sitting.
3. Fix whatever needs fixing. If the recession left you in a financial hole, get busy digging out and rebuilding a solid financial foundation. For many people this will mean reducing consumer debt and rebuilding emergency savings. To make this happen, you’ll have to cut expenses or find additional income — or do some combination of the two. If cutting costs is your answer, make sure you rein in your spending enough so that you have extra money to either pay off high-interest-rate debt or save and invest.
4. Revisit your retirement vision. Once you know where you stand, you then need to take a serious look at whether your former retirement vision is still a possibility. Maybe you’ll now have to work a bit longer or live on a bit less. The key is to set a realistic vision based on where you sit today, not where you sat five years ago. Not looking good? Refer to step 1 and then create a new vision for yourself.
5. Figure out how to make your plan happen. Now that you’ve got a revamped vision in place, you’ll need to do some number crunching to see what it will take to pull it off. And what if the numbers just don’t work even with an adjusted retirement vision? Adjust it again. Remember, you’re trying to build a realistic plan that you can achieve, not strive for something destined to fail.
6. Play catch-up. Finally, one of the best ways to make up for lost time is to simply use new money more wisely. If you get a pay raise, put it toward your retirement instead of letting it add to your lifestyle. Tax refund? Use it. Bonus? Use it. Sold something? Use it. Car paid off? Use it. Take any extra money and use it to strengthen your financial and retirement plans.
Recessions stink (that’s a technical term). And Great recessions stink even more. But here’s the thing: Recessions and other financial setbacks happen all the time. The sooner you assess the damage and develop a plan to get yourself back on track, the sooner you’ll be able to get the train rolling again.