Balancing Retirement Savings and Other Financial Goals
As a family, we often need to find the right balance between saving for retirement and funding other major life expenses. With competing priorities and limited resources, couples need a comprehensive strategy that addresses long-term and short-term financial goals.
One of the primary challenges is the tension between saving for retirement and allocating funds for other significant expenses, such as purchasing a home, taking family vacations, and covering healthcare costs.
As life expectancies continue to rise, the need for robust retirement savings has become increasingly paramount. According to a recent report, the average American will spend nearly $1.5 million on retirement expenses. That’s gone up by over 50 percent since 2020!
At the same time, the escalating costs of homeownership, travel, and medical care have placed immense pressure on family budgets, with the average household spending over $77,000 per year on these expenses.
“Balancing retirement savings with other financial priorities is one of the biggest hurdles our married clients face,” explains Roderyck Reiter, Vice President at David Lerner Associates, “Couples have to be strategic and intentional about how they allocate their resources to ensure they’re adequately prepared for both the short and long term.”
This competing dynamic has led many married couples to re-evaluate their priorities and explore creative solutions.
Another trend is the growing popularity of alternative financing options for major expenses. For example, instead of depleting retirement savings to fund home improvement projects, travel, or debt consolidation, a home equity loan or line of credit taps into the equity in their property without jeopardizing their long-term nest egg.
Similarly, the use of travel rewards programs and credit card points has enabled some couples to subsidize vacation costs without significantly impacting their overall budget.
However, even with these innovative tools and strategies, married couples still face the challenge of determining the optimal split between retirement savings and other expenses. Factors such as anticipated retirement timeline, desired lifestyle, and projected healthcare costs can significantly impact the appropriate allocation strategy.
To help navigate this delicate balance, experts recommend that married couples take a holistic, goal-oriented approach to their financial planning. This includes:
- Work with one of our experienced investment counselors to plan your future financial goals.
- Clearly define retirement and other financial targets based on your unique circumstances and timelines.
- Analyze cash flow and identify opportunities to maximize contributions to both savings and spending buckets.
- Explore creative financing options, such as home equity loans or travel rewards programs, to supplement major expenses.
- Regularly review and adjust the strategy as life events and financial conditions evolve.
Consider a married couple in their 40s with two young children. They may decide to prioritize funding their 401(k) plans to the maximum allowed contribution limit while also setting aside a portion of their monthly income to save for a down payment on a future home. At the same time, they might explore ways to reduce the costs of family vacations, such as using travel rewards or seeking out more affordable destinations.
On the other hand, an established married couple nearing retirement age may shift their focus to maximizing their retirement savings, while also ensuring they have adequate resources set aside for potential healthcare expenses in their golden years.
This could involve scaling back on discretionary spending, downsizing their home, or even exploring part-time work to supplement their income.
By taking this structured, collaborative approach, married couples can develop a comprehensive plan that meets their retirement needs while supporting their desired lifestyle and addressing other significant financial obligations.
With diligence and flexibility, it is possible to balance the competing demands and achieve long-term financial security.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.