Cut out coffees. Downsize the home. You’ve probably heard lots of advice about cuts to make when doing retirement planning.
In his recent YouTube video, certified financial planner Kevin Lum said there’s one cost that wrecks more retirement plans than you realize.
The Problems With Uncertainty
When you first hear it, the advice from Lum is going to sound too simple. He boils it down to one word when it comes to the cost to cut in retirement — it’s uncertainty. He said it can cause over-saving, stress and missed opportunities.
Per Lum, uncertainty leads to three major problems: You end up over saving and under spending; it creates constant stress and second guessing; and it causes you to miss opportunities to actually enjoy your life or enjoy your retirement.
“Uncertainty is solvable,” Lum said. “Unlike inflation or taxes, this is something you can have control over, at least somewhat. Anxiety is always going to be there, at least in the back of our head, but we can begin to make some different choices and begin to have some control over it.”
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Some Steps To Reduce Uncertainty
In the video, Lum introduces a five-part framework called the “Foundry Framework” to manage and reduce uncertainty to help enjoy a worry-free retirement. According to Lum, the framework includes the following.
Giving Your Money a Purpose
You can ask yourself what you really value in life and take it from there. After all, having a broader purpose can help you direct your steps in a direction that works for your goals.
Establishing a Clear Income Strategy
You need to know where your retirement income is or will come from exactly. This is more than just writing down the sources of income — it’s about coming up with a clear strategy so you can better manage your finances.
Planning Your Portfolio
Once you know where your money will come from and how much you can spend, you’re ready to make sure your portfolio will support your short-term goals and your income needs. In other words, you figure out how you’re going to allocate your resources.
Understanding Taxes
According to Lum, you need clarity around your tax plan. The plan may mean paying more taxes today to avoid taxes in the future.
Evaluating Risks
The final step is to evaluate risk and put it into the plan. You can name your fears and put the risks on paper to better evaluate them and prepare for your financial future. If you need help getting started, Kiplinger noted that some of the biggest retirement risks include outliving your savings and letting inflation take over your purchasing power.
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This article originally appeared on GOBankingRates.com: The One Cost To Cut in Retirement, According To Kevin Lum
