Think small, a financial planner from Brunswick says. Even if you’re nearing retirement age, and your nest egg isn’t where you want it to be, it might benefit you to think small.
That’s because, says Eric Simonds, chief executive officer of Saltwater Harbor Financial, one of the biggest mistakes someone looking to boost savings can make is to make increases they cannot afford.
“For a person in that situation, a slow, incremental increase is the key,” Simonds said. “If people do too much, they start borrowing and increasing their debt.”
Some 80 percent of Saltwater Financial Harbor’s clients live in the greater Portland area, Simonds said. Most of the baby boomers who come to him with concerns regarding their retirement accounts either have debt or decreased cash flow, he said.
Again, Simonds urges caution.
“You can’t eat the elephant all in one bite,” he said. “You’ve got to kind of ratchet it up. I suggest that a person maybe two times a year increase their retirement account by 1 percent – just 1 percent, and they’d barely feel it. Not only would the taxes go down, but also it builds the balance of your retirement savings a little bit.”
In addition to the cautious approach to retirement savings, Simonds urges people approaching retirement to take a look at expenses.
“Budget on daily expenses,” he said. “There’s two ways to get a raise. One is to get paid more, and the other is to spend less.”
Simonds, who has a master’s in financial planning from Golden Gate University, says he looks at “every aspect of a person’s finances to make sure they all work together,” he said.
The people who approach him for help on their retirement accounts typically have decreased cash flow.
“Their decrease in pay is greater than their savings,” he said. “We separate needs from wants, and it’s a hard conversation to have with people.”
As another example, Simonds mentioned people who are considering selling their homes and moving to an “in-law” apartment with their children.
“That helps financially,” he said, “but it can be an emotional problem.”
In terms of employment, baby boomers have a much different outlook from younger people, Simonds said. Flexibility can work in the boomers’ favor.
“People no longer associate their jobs as a one-time thing,” he said. “I work with younger people who think of every job as a temporary job.”
Simonds urges caution, then, and not waiting until a crisis develops before looking into such matters.
Carrie Lorfano of Gorham had that mindset when she approached Simonds regarding her mother. Jean Shorey, 65, of Scarborough, is a retired teacher and is now working as an educational technician in the Falmouth school system. Her mother’s retirement account is not so much the issue, Lorfano said. But Shorey is single and still owns a home.
Shorey’s retirement savings is good, but it was her housing situation that worried her daughter.
Lorfano reached out to Simonds, asking him if it would be wise for her to purchase her mother’s home.
“I was concerned that, as her income goes down, she wouldn’t be able to maintain it,” Lorfano said. “Would it make sense to buy it, and rent it back to her? She’s not at a point in life where she’s earning enough to make repairs. She’s managing very well right now, but we were looking toward the future.”
But ultimately, she said, “We wound up not doing anything.”
“For me to buy the home, the payments would go up,” Lorfano said. “She owes so little, and banks insist on fair market value. We’ll reassess it in a few years, when she is not working part time anymore.”
Lorfano said that the whole process afforded both her and her mother peace of mind.
“He has the knowledge so that we’re not groping in the dark,” she said. “When you wait until it’s crisis mode, you end up having problems. Everything is so complex when it’s related to mortgages and taxes, and the cost of health care.”
Baby boomers, Lorfano said, face these challenges all the time. Concerned children of those boomers, obviously, can help.
“She took care of me and my sister, and I want to make sure she’s taken care of,” Lorfano said.
Larry Grard is a staff writer at Current Publishing.