Americans approaching retirement have concerns and attitudes that are
very similar. Invariably, their attention centers on what to do with the
nest egg now that retirement is finally here.
Before the actual retirement date, workers are too busy with their
careers, families, hobbies and other interests to be overly concerned.
This is natural and should be expected. But the prudent financial path
leads to planning for the event well beforehand to facilitate a smoother
transition into the golden years. Here are a few general recommendations
that will make this task easier and help assure the best possible
outcome.
Get a written Retirement Cash Flow Analysis. This process allows
retirees to see things as they really are. The first step to a
successful retirement implementation is to seek the truth regardless of
the outcome. Even if there is some bad news, the sooner a pre-retiree
can become aware of any shortfall, the more time there is to correct it.
If the news is better than expected, then it may offer opportunities for
leaving a legacy to children or grandchildren or make way for that new
boat or retirement home. The RCA will answer many questions, including
the feasible amount of after-tax income available, whether or not to pay
off the mortgage early, and the most tax-efficient way to get money out
of the plan. More often than not, questions also arise that were not
previously considered. These questions could mean the difference between
having the desired retirement lifestyle and pinching pennies down the
road. At any rate, it is recommended that long-term investment decisions
on funds earmarked for retirement be put off until after the RCA is
completed. This will allow coordination in an overall plan of action.
Three to five years prior to retirement is an adequate time to start
this process. But even if this time has passed and retirement is looming
next month, it is never too late to get the right answers.
Get a written Investment Policy Statement. It is fairly common
for pre-retirees to take a turn at managing their own investment
portfolio or have it managed in some way through an employer retirement
plan. When the responsibility falls squarely on the retiree’s shoulders
for proper investment moves, most seek out professional help. The IPS
will give direction in this arena and facilitate proper diversification
and management. The fact that the policy is in writing helps promote
level-headedness in difficult markets. A retiree’s mantra should always
be protection first with moderate growth. That means protecting
the nest egg during difficult securities markets such as those
experienced in 2000 through early 2003. For the retiree, there is no
more time to go back and correct an investing mistake by working and
saving. If enough retirement funds were accumulated, there is no need to
take chances in the portfolio by trying to "beat" the market. As long as
principal is protected adequately and moderate growth is achieved,
retirees can maintain their desired lifestyle and stay ahead of
inflation.
Throw on the Security Blanket. The best made plans may go awry.
To that end, retirees must not neglect those items of proper planning
that will protect their future. These include taking a broader view of
their situation once the RCA and IPS are in place. This means
coordinating their investments and retirement with their estate plan,
making sure their wills and other legal documents are in order so assets
are adequately protected against law suits and taxes. Other items such
as insurance coverages—particularly health insurance, long term care
insurance and personal liability insurance—should be examined closely.
Whatever questions that may arise, a good written plan of action can
be invaluable for retirees as they undertake the task of protecting and
managing their serious money.
