Work, work, work! This is the metronome of our lives for more than 40 years of our existence. My father was an excellent instructor on life as he dispensed exorbitant amounts of wisdom to me while growing up. Some of his sage advice, not original to him, was “you don’t have time to do it twice so make sure its done right the first time.” Or, the excellent mode of always staying focused on the task at hand as he framed in the statement, “the idle mind is the Devil’s workshop, therefore, if you have time to breathe, you have time to work.”
My father is not moving as fast as I remembered from my early childhood but at the young age of 83, he continues to mete out wonderful statements and quotes about work being good for a person and building character. Recently, he made a statement during our telephone conversation that got me to thinking. His comment was regarding his longevity in life and his admission that he would have taken better care of himself had he known he was going to live this long.
Many people initiate savings for retirement in their employer’s benefit plan. Whether it is a SIMPLE Plan or 401(k), most of the participants establish the allocation of the underlying investments and forget about them. Every pay period the funds are deposited in their account and a statement is produced every quarter which may, or may not, be reviewed with an eye toward the ultimate goal of retiring.
It is critical that a change of mindset be adopted toward the processing of saving for retirement and investing during retirement. These are two distinct functions with differing goals. While accumulating wealth it is a goal to invest in growth as well as value stocks. Perhaps a younger person may invest a greater allocation of their savings in equities and allocate bonds in greater percentage as they age. Further, additional risks may be assumed by younger investors that allow for non-traded investments to be a diversification strategy for their portfolio.
As a person gets closer to their targeted retirement date, a different thought process must be invoked. For example, it is imperative that a pre-retiree understand their income streams which will be needed to support their lifestyle when their salary is no longer an option. Understanding your Social Security benefits, pension options and Medicare plans are the basics for preparing for retirement.
To potentially increase your cash flow in retirement, many investors will allocate a portion of their portfolio equities to value stocks which, generally, pay a consistent and higher dividend than their growth counterparts. Bonds become more prevalent in a retiree’s portfolio than during the accumulation phase. It is also important to review or stress-test your portfolio for potential market contractions to determine if the income streams generated will be sufficient for your lifestyle. Remember, if the markets decline in performance, you costs of living do not cease or lower.
Two of the most negative consequences to a retiree’s portfolio are mostly uncontrollable – inflation and taxes. Certainly you can plan your finances in a manner that reduces the impact of inflation and taxes but you can’t remove them as an influence on your budget. Inflation applies to every good you buy such as groceries, gasoline and clothing. Taxes are assessed on most everything you own or touch – property, automobile, consumer goods, etc.
The best method of being prepared for retirement is to seek out an independent opinion as to your plan for the future before you retire. We advise our clients to meet with us approximately five years before their planned retirement date to allow time for them to implement their plan and feel comfortable with the intended outcomes.
One of the most empowering processes we developed for our clients is called The LifePlan Solution™. This unique process analyzes the resources you have available for retirement, provides a comprehensive approach to lifetime income and instill confidence by consistently communicating potential changes that are necessary to maintain your desired lifestyle. To gain confidence in your future plans, seek a complimentary consultation with a Certified Financial Planner™ professional. It is much easier to hit a target that you have defined and stay focused on for your life.