Ideas About Retirement Planning

Retirement has a way of sneaking up on you. I retired in 2009 after working more than 50 years. Many of my friends and contemporaries have preceded or followed my ride into the sunset. Not all have done a good job of planning their finances. A few have had the wind-luck behind their sails; most have had to fight off the opposing wind.

The Espoused Theory vs. the Theory in Practice

Financial analysts tell us that there are three distinct phases to achieving our financial goals: (1) making money, (2) saving a good portion, and (3) making what we save grow.

Easily said, but not so easily done.

Most people are good at making a decent living. Those with higher skills or better education tend to do better than those who have no special skills or education. Those with entrepreneurial abilities often outperform those who are more content with working for others. If a family has two earners, that family will do better than the household with a lone earner.

Except for the lower 25^th percentile, Americans enjoy one of the better standards of living in the world. Unlike some other countries, we do not have a mandated national pension system, just a meager social security system.

Keeping or saving a good portion of our earnings is where you find the biggest trap. We live in a materialistic society. We are encouraged to spend. We are also encouraged to keep up with our neighbors. Mortgages, leases, credit cards, and other debt instruments lure us to spend most of what we earn, and sometime more.

It is a well-documented fact that the worst investment people can make with any surplus is to do one of the three things: buy a second home or time share, buy a boat, or buy an RV. Why? First, they rapidly depreciate in value, and second, they incur taxes and significant upkeep costs.

Soon the government, banks, and insurance companies claim most, if not all, of what you earn, leaving you in the red or with a paltry surplus. Social security is the main savings outlet for most. A few will make sure they also put something aside in the 401(k) or IRA. Public employees probably can have the most generous t retirement nest egg.

Some employees in fast growing sectors of the economy can earn stock options that can morph into sizable nest eggs. Of course, not all stock options turn into blockbuster winners. In fact many lose their value once the company falters.

Growing your hard earned savings is challenging. If you did not save enough to begin, you are not going to be growing much. If you do not have a solid investment portfolio, you risk having your savings shaved off by inflation. If the equity in your home is your primary asset, you can only grow by the percentage appreciation of real estate in your geographic area.

Most of us are not financial wizards. Therefore, it is wise to have a reputable wealth manager advise us as to our options, risks, growth potential and tax consequence. What has worked for me is the following:

·      Invest a portion in tax-free high yield municipals.

·      Invest a good portion in stocks that pay qualified dividends (taxed at lower rate).

·      Invest a portion in high growth stocks.

·      Diversify the portfolio so that risk is spread across industries.

Upon retirement what really counts in my view is that your income stream be as high as it was when you were working and with fewer obligations. In other words, make sure you earn more than you did while actively employed.

Downsizing

I dislike the term. To me downsizing is not a strategy, anymore than outsourcing was during my working years. In fact, the need to downsize is the realization or admission that we did not plan ahead well and that we might have dissipated some of our resources.

Many upon retirement are forced to cut back on their standard of living, housing, leisure options, and move out of their home. So, in the golden years, they are encouraged to move to low cost areas, domestically or internationally, so that they can stretch their retirement income.

I can live with downsizing as a result of health issues. Moving to assisted living is certainly good for those who are in need of ambulatory and/or care assistance. Now that we live longer, this option is a must for some.

Rightsizing

I am all in on resizing our situation without sacrificing the level of comfort we became accustomed during our glory earning years. New rules must be put in place to make the transition work.

1.    Articulate your priorities. For me, it boiled down to a level of comfort I felt I had achieved during my career.

2.    Payoff your mortgages. Eliminate any cash outflows that include interest payments.

3.    Payoff your credit cards. You do not charge what you cannot pay off at the end of each month. Credit card interest is obscene.

4.    Buy out any leases you might have for a car, boat, or RV. You keep these toys because you enjoy them and you use them, not because they are good investments.

5.    Establish a pro-forma budget. I don’t like to fly blind. I want to know where my money goes, and whether I can afford to let it go there.

Retirement should be the culmination of a life well earned financially. You should be able to do what you always wanted to do and in the style to which you are accustomed. It is not a time to tighten your belt. It is a time to be comfortable.  After all, you cannot take your money with you. Give the excess to charities or to help others in need. Encourage your heirs to earn theirs. Give freely of your time to others who need to be mentored, coached, encouraged, and supported. Many might have done so to help you.

Remember, for you, the future is now, not next week, next year, or later. It is now! Don’t postpone your life. 

Empty as much as you can your bucket list!