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Question: I retire in four years with an income of $3,100 per month, according to my calculations. How can I stretch this amount as much as possible and should I hire a professional planner to help me? (Looking for a financial advisor too? This tool can help you find an advisor who might meet your needs.)
Respond: It is good to see that you are asking yourself this important question several years before planning your retirement. And $3,100 a month can be stretched for a single living in an inexpensive area watching every penny, says certified financial planner Jim Hemphill of TGS Financial. “We have a client whose situation is not entirely different,” he says, noting that she moved from a more expensive location in Philadelphia to “a much cheaper apartment in a nearby state college town and that she has an old paid car.
That said, your situation might be different. “First, you’ll want to look at the sources of your retirement income. Will your income increase as the cost of living rises once you retire, or will it stay at $3,100? Will you pay taxes on any of the income or will the income be tax exempt? says Certified Financial Planner Mark Humphries of Sentinel Financial Planning. Indeed, if this income increases, it will be easier to stretch it as prices increase; likewise, if the $3,100 is yours, free and tax-free, it’s easier to live with than if it isn’t.
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The second thing Humphries points out is that it matters where you live and what lifestyle you’re used to. “If you live in a low-cost area, you might be better off than in a high-cost area. If you lead a modest life, you can potentially make the income enough,” he says. You also need to factor in unforeseen costs like health care, he adds.
If all of this makes you feel like you can’t make it on $3,100 a month, probably the biggest lever Hemphill says you can push is to work longer or work part-time in retirement. “If this is an option you’re considering, be honest with yourself about the type of work you’re doing and how long you can do the work,” Humphries says.
If you can’t work in retirement, use “any savings or part-time work to try to delay applying for Social Security until 70,” says Hemphill – who, he adds, “can make a huge difference.”
According to Certified Financial Planner Steve Weiss of Buckingham Strategic Wealth, another great way to maximize your money is to live below your means and make sure you’re saving for rainy day expenses. “Certain costs like a new roof and certainly medical care can be quite significant. Since you don’t expect to retire for 4 years, you can test your plan now and see if you can live well on $3,100 a month,” says Weiss.
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There are other potential solutions to consider, such as a home equity conversion mortgage (HECM), which is a type of reverse mortgage that allows seniors to convert their home equity into cash insured by the Federal Housing Administration. (FHA). “While understanding the program is important to determine if it’s right for you, a HECM could allow you to tap into the equity in your home to supplement your income if needed,” says Weiss.
Basically, Certified Financial Planner Lauren Lindsay of Beacon Financial Planning says you have two options: “Earn more or spend less. If you’ve looked at all the reduction options, working to supplement that income might be necessary.
Do you need a financial planner to help you?
It may be a good idea to hire a professional planner to examine the situation and determine if there are any glaring problems to be solved or opportunities to be exploited. “Some planners will create a one-time plan, which can be a good start to at least know if you’re on the right track,” says Weiss. (Looking for a financial advisor? This tool can help you find an advisor who might meet your needs.)
When it comes to working with a planner, which can be a significant cost to you, certified financial planner Philip Mock of 1522 Financial says it can be beneficial to find a planner who works on an hourly or project basis so that you can get help in the areas. you need without having to pay for help in areas you don’t need it. “A planner would be able to do a cash flow projection of your income, expenses, taxes, and inflation to give you an idea if that level of income is enough to meet your needs and goals,” Mock says. Lindsay adds, “Someone who specializes in cash flow could be very helpful in working on this, but not all financial planners are.”
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