What is your retirement bailout plan?Written by Nolan Baker Mark Clair | | firstname.lastname@example.org
Close your eyes and picture the perfect retirement. What do you see? You might see yourself on a beach, feet in the sand, waves crashing down in front of you. It’s a nice thought, but the reality is the only thing that seems to be crashing down lately is the economy. And for many retirees and those getting ready to retire, this can be very scary, considering the money you have saved for retirement needs to last throughout your lifetime.
If a fluctuating economy has got you in a panic, breathe. It’s not as bad as it sounds. At the same time, don’t be paralyzed; the economy has experienced some substantial changes in recent months and it may be time to make some financial moves. You cannot afford to be paralyzed with fear when it comes to your retirement savings.
Generally speaking, in retirement there are four areas that you need to address: your current needs, future inflation, mid-term investments and long-term growth. If you have accounted for all four and have proactively rebalanced or re-allocated your retirement portfolio to prosper in the current economy, then you should be alright.
Signs are indicating that the worst may be over, so try to think rationally and strategically rather than emotionally. Emotion may cause you to sell all of your current investments now and put your remaining retirement savings in cash. Doing this without a strategy in place will only guarantee that you will suffer a loss. Keep an objective perspective and use the following information as a general guide to structuring your retirement savings and investments.
If you need to withdraw an income from your investments now, consider keeping some of your money in “safer” accounts that are not influenced by the stock market. Cash accounts, FDIC-insured CDs or immediate annuities can assist you with meeting your current and short-term income needs. It is recommended that you keep one to three years’ worth of money to cover living expenses in these types of accounts and for the case of an emergency.
Inflation happens and unfortunately it’s not going to stop when you enter into retirement. It is important that you plan for it and set money aside now to give yourself a pay raise in the future. By utilizing a basket of CDs, all of which mature at different times, bonds or other fixed accounts, you can strategically create and plan for pay raises in the future. It is far more calculated approach than subjecting that money to the lottery returns of the stock market.
Diversifying your assets will help keep your money safe by lowering risk. First determine how much of your money should be at risk. A good rule of thumb to use is the rule of 100. If you take 100 and subtract your age, that is the approximate percentage of money you should have exposed to “riskier” investments.
Next, consider investing some of your money into alternative investments. Alternative investment returns are usually not directly tied into the performance of the stock market. Some alternative investments include real estate investment trusts, commodities, limited partnerships, direct participation plans and more. These types of investments can help your portfolio become further diversified, hedging your investments, lowering your overall level of risk and increasing the potential for return.
The money you need in 10 or more years should be set aside for growth in equity or stock market accounts. Remember, to increase the chances of success in the stock market, you need to have time on your side.
If you don’t need this portion of your retirement savings for five, seven, 10 years or longer, then you have more time on your side. With that time, you can afford the ups and downs of a fluctuating market, making today’s market performance a lot less important and less impacting on your overall financial future.
If the economy is keeping you up at night, and your perfect picture of retirement on a beach turns into you drifting out to sea, consult a qualified financial professional to make sure you are on track. If nothing else, you’ll sleep better.
Nolan Baker is an investment professional, and Mark Clair is an estate planning attorney. Tune in every Saturday at noon on 1230 WCWA and every Sunday at 11 a.m. on 1370 WSPD to hear The Retirement Guys or visit www.retirementguysradio.com.