Guarding Against a Retirement Shortfall
In recent years, with seemingly constant news of large-scale downsizings, corporate bankruptcies, and wildly fluctuating financial markets, you may have wondered if your nest egg will actually last through the entirety of your retirement.
It’s a serious question that should command your attention from the very beginning days of retirement planning. You’re probably all too familiar with the dire warnings of diminished Social Security funds going forward and the resulting burden upon each individual. To help deal with this, you may have had the opportunity to fund a 401(k) plan, a similar benefit plan through your employer, or a self-employment variation. These plans of course require investment allocation attention and decision-making over time, both on your own and with the help of a qualified advisor.
I’ve frequently covered the importance of saving; just plain old fashioned putting a few dollars away every pay period—no matter how much or how little. There are several different TV ads running currently with a narrator asking something like, “Can putting away as little as $40 a month make a difference to my retirement?” The answer generally has to do with when you started putting away that money. Obviously, over many years, $40 per month will make a significant impact in your effort to supplement Social Security or a pension income. However, when it comes to whether or not you will have enough set aside, the answer invariably comes down to the length of your investing timeframe and the vehicles used.
Discipline, selection, analysis, and review are important tools to successful retirement planning. Savings accounts, various investment products (including bonds, stocks, and annuities) and life insurance, are all useful tools for having enough to last, if used correctly.
In my family, a very strong savings ethic was ingrained early on; half of all gifts, baby sitting money, paper route earnings, and other revenue streams flowed right into savings and were never disturbed. Our children still have those funds today as the foundation to their financial plans, and they are into their 20’s. Our three children who have finished college and are actively pursuing careers have taken advantage of every employer-offered benefit, like 401(k) plans, Health Savings Accounts, and even transportation cost assistance. This discipline is imperative to getting a solid start, because after you commit to the various processes it becomes automatic: payroll deductions each and every paycheck. With continued discipline comes less motivation to dip in whenever you need a “few extra bucks.”
Payroll deduction instills much of the discipline necessary to succeed in reaching your long-term financial goals. An additional measure of discipline is required when making decisions regarding raises, bonuses, and even inheritance. There is a propensity to take “newfound wealth” and indulge in spending more than you otherwise would have. The discipline to stash away the various good fortunes you receive—or at least a healthy portion of them—goes a long way to insuring you don’t outlive your money.
Once you’ve established the ability to set aside funds on a periodic basis, the next task is to allocate those funds to achieve the greatest returns. This is easier said than done, since there are myriad choices. Because it can be overwhelming, I strongly suggest the use of professional help along the way. My children have elected to put their money in everything from cash certificates of deposit to mutual funds, to Roth IRA accounts.
BCU Investment Advisors is an ideal starting point if you’re looking for valuable advice on the multitude of choices. For example, they helped me purchase whole life insurance policies for each of my children when they were very young. Each policy came with future purchase options guaranteed regardless of any health problems that might have occurred. At first, my wife and I paid the premiums. Now our kids are each free to add more coverage at specified times and use their savings to cover future premium costs. Incidentally, one of the key benefits to whole life insurance is that it can continually build cash value for future years when you may need to supplement income. Because this just one of many alternatives, it’s always good to get professional help in making selections.
One set investment plan will not work for every individual or in every situation. Therefore, it’s necessary to analyze your plan periodically to make sure you’re still on course. Professional investment advisors and financial planners have many different metrics useful for this kind of analysis. Even without professional assistance, it’s wise to take stock of progress at least annually and make necessary corrections or modifications along the way.
The periodic analysis of your progress should be accompanied by a review of any applicable benchmarks or expectations you’d previously set. Logically, if you start retirement planning at a very early age, you have a far greater chance of achieving your goals. There is much more time to accumulate wealth, and also more time to do damage control if and when you hit stumbling blocks along the way.
This article was written by Patrick Catania.