Adjust your saving, spending to narrow retirement gap

It's been a while since I was in London and rode the Underground. Passengers are warned to "mind the gap" when boarding a train.

If you have never taken a subway, that first time can be intimidating to navigate the route, figure out how to get a fare card, then determine on which side of the platform to wait. I also remember how disorienting it was to get off at my stop, go up to street level and then not know which direction to head to get to my destination.

I think boarding a train is an apt metaphor for retirement. We leave the comfort and confines of the known and step willingly unto an unknown future with many possible destinations.

Retirement planning can be a little more complicated than planning a subway ride. According to the Employee Benefit Research Institute and Greenwald & Associates' 2018 Retirement Confidence Survey, 64 percent of respondents feel confident about their ability to afford a comfortable retirement, 59 percent reported preparing for retirement makes them feel stressed, and only 62 percent have tried to calculate how much money they need to save for a comfortable retirement. Chicago Tribune columnist Jill Schlesinger wrote, "If you are worried that you will not have enough, then doing nothing only makes the problem worse."

Defining and prioritizing what matters most in life is the essence of financial planning and is applicable at any age. A friend of mine told her children growing up, "It's not that we can't afford something, but we choose not to spend our money on that." Spending is a choice, and understanding what is essential for your individual happiness helps frame those choices.

A lot of assumptions in financial planning are beyond our control-for example, inflation, longevity, stock market returns and health care costs. Focusing on the levers you can control-how much you spend, how much you save, and how long you plan to work-increases your confidence moving forward.

Once you have an idea of how you choose to spend your money, and add some costs associated with those goals, you begin to answer the question of "how much is enough." The next step is to look at current resources and future income streams. This is the "minding the gap" part of planning-looking at what you already have and what you think you will need in the future to determine whether there is a gap and, if so, how big it is.

While one of the levers in our control is how long we plan to work, it is not always totally within our control. According to the RCS, 79 percent expect to receive income from working in retirement, while the reality is that just 34 percent of retirees actually receive income from work. The RCS has consistently found that 40 percent of retirees leave the workforce earlier than planned due to some type of hardship, such as a health problem or disability, company downsizing, or the need to care for a family member. This is another reason to start planning soon.

Looking at spending and saving is the easiest way to balance the gap. I often have clients go live on the planned retirement income for the next six months to see if it is realistic. That does two things: It lowers current spending while freeing up additional money for saving. In addition, they generally discover they can live on less than they currently spend. For others, the realization is that they will need to continue working.

The first subway ride can be intimidating, but once you learn the system, you are more confident for the next ride and the ultimate freedom of reaching your intended destination. Just "mind the gap" getting on and off·

Hahn is a certified financial planner with WWA Planning and Investments. She can be reached at 812-379-1120 or jalene@wwafp.com.