I was recently helping my fourth-grader with his homework on cause and effect. We talked about the actions people took that could cause alligators to become extinct when it struck me. Early in my career, I probably could have benefited if someone pulled me aside for a candid financial cause and effect discussion.
Like many other professional young women, my increases in salary paid for my passing passions. Things I considered pressing — like great trips, celebratory dinners, and must-have shoes and handbags — won out over long-term considerations. I wasn’t entirely frivolous in my 20s, but I certainly enjoyed life — with all of its lack of responsibilities — to the fullest.
Fortunately, business school abruptly ended my naiveté. Suddenly, the time value of money, the beauty of compounding interest and the power of tax deferred savings vehicles became real to me. Spreadsheets revealed how fundamental financial principles could help me achieve my goals. That knowledge was powerful for me because I finally got the financial cause and effect. For example, the value of retirement contributions became real to me when I saw the tax savings, growth year after year and could visualize the cushion it created in my financial life.
My life’s path is no different from most. College. Career. Marriage. Family. I care about the same things that many other women care about and fret over the big things just as they do, including have we saved enough in my son’s college account, and who will care for my son after my husband and I are gone?
What worries most me, however, is that many women’s concerns elevate to fear. I was struck back in 2010 when AARP came out with a study that three out of five retirees feared outliving their means than they worried about death. More recent surveys reveal some other common concerns that plague women at retirement:
» future of Medicare coverage (63 percent)
» paying for long-term care (46 percent)
» paying for health care (43 percent)
Whenever someone shares his or her financial fears with me, our approach is to go back to basics and discuss cause and effect. Our team uses the same principles that gave me my “aha” moments in business school. We model various scenarios. We show the cause and effect of saving for retirement starting in your 30s as opposed to your 40s, the long-term impact of deferring 5 percent of your salary instead of 3 percent, what your portfolio might look like if you reduce your household expenses, and how your retirement income could grow if you were to push back retirement one, two or five years.
If you’re concerned about outliving retirement savings, we measure your expenses against the interest you are expecting to generate from your retirement portfolio. If there is a shortfall, we identify areas that can be cut back without sacrificing what is truly important to you. We can also discuss the possibility of funding a product that will guarantee supplemental income throughout retirement.
Fear can be fought with facts. Retirement worries can be overcome with strategies. Go back to fundamental lessons of cause and effect so that you, too, can make the small changes in your daily financial life that may bring about long-term financial security.
Put your fears aside by dealing with them so that you can go on and live the life you imagined.
— Bibi Taylor, MBA, is a wealth manager for AmeriFlex, 3700 State St., Suite 310, in Santa Barbara. Call 805.898.0893 for more information.