Having spent quite some time talking with client about their retirement plans, I have realized that there are numerous misconceptions and assumptions surrounding the process of planning for retirement. From the top, many think that two months before retirement is a good schedule. This is positively not the case. Judicious investors recognize that they need to be thinking about retirement twenty or thirty or more years before that time.
Why? Planning retirement requires beginning to invest in a time scheme long enough to allocate funds way before they are needed. I have often told young people about the powerful statistics suggesting that a few dollars per week starting at a young age have resulted in people retiring with fortunes. Promising fortunes is never a good idea but preparing while young certainly is.
At all times, it is good business to consult with someone whom you can trust and for whom you are not another commission check. During my time in the financial services industry, I have long advised clients not to use the Uncle Izzy process. “My Uncle Izzy has a friend who works for ABC Financial Services and he says that investing in CDs or municipal bonds or X is the only way to go.” God bless Uncle Izzy and his friend but this is no way to create a retirement plan. We all have different investment capabilities, risk tolerances and preferences and Uncle Izzy’s friend is just not a legitimate resource.
Another good opportunity to look at your retirement is a life event of some type – marriage, birth of a child, graduation from college, movement to a new job or city, giant bonus – numerous events qualify. If you see a sudden change in your financial picture, positive or negative, take a look at your portfolio. Instead of buying a new big screen apparatus, think about a 529 plan for a child or grandchild. Any major life event is an occasion for introspection, planning and preparation.
Age milestones need to be recognized as well. Turning 30, 40, 50? Take a look at where you are versus where you wanted to be. Do you need to find ways to put away a little extra? Did life circumstances deplete some of the funds on which you were relying for your retirement. This will be a good motivation to take a look at your lifestyle and savings philosophies. Numerous methods exist for deferring funds, either on a pre- or post-tax basis. Exercise your options and consider it an investment in your own future.
Finally, what is the market doing? Don’t be shocked to learn that your funds are invested the same way at age 50 that they were at age 30. Your risk tolerance has changed since that time and traditionally, the older we get the more conservative our investment choices, if only because you probably don’t have the time to recover from market losses at 50 than you did at 30. Please don’t employ the Chicken Little philosophy – “The sky is falling!!!!!” By no means should market declines trigger pulling out all your funds and hiding them in a coffee can. But do take a look at how they are invested and the possibility that they should be invested in more conservative funds. Take a look at IRAs, Roth or Traditional, as means to put away some extra money while you’re still working, possibly with tax advantages.
Without looking at an individual portfolio, it is impossible to do responsible analysis and recommendations. But any of these times are opportune ones to have someone with expertise look at your retirement portfolio. If they’re worth their fees, you’ll get sound and reasonable information. Please don’t wait until you’re about to retire to examine your retirement plan. By that time, your options will be severely limited and you may discover that you won’t have the ability to spend your retirement years in the manner that you planned and to which you are entitled.