Do you currently own or are you considering purchasing a financial solution? Do you know if that solution will accomplish what your true purpose is for that money? Before you can determine what type of solution you should put in place, you need to start with a plan. With a plan you’ll have a better understanding of your household’s needs, including how much income you need every month and how much you need in retirement. Once you’ve figured this out, you’re ready for the next step.
The first and most important question that you and your advisor should discuss is: What do you want to accomplish with your money? This may seem basic, but it’s often overlooked. By truly understanding the purpose of your money, you can then determine where dollars are underperforming or misplaced. Most people are looking for some combination of safety, income, growth, liquidity, and legacy; unfortunately, there’s no product out there that will give you all those things. However, you can position each dollar to give you the best chance of accomplishing what you want it to do. You’ve worked too hard for your money for your money to not work hard for you.
Your working years are the accumulation stage of your life. You’ve been saving for retirement, paying for your kids’ college, paying off the mortgage, and still trying to build wealth. You’ve been focused on getting the highest market returns as possible, but also realize that this comes with a lot of risk (like the market depression of 2008).
Now that retirement is here, it brings new financial stages of life: wealth preservation and wealth distribution. These two stages are completely different than the accumulation stage you’re exiting. Retirement is all about preserving your life’s work and collecting income. The strategies and rules you have been using for the last 30+ years go completely out the window the day you retire.
While you were working and contributing to your 401(k), 403(b), IRAs, etc., hopefully, those accounts were growing. As you move into retirement, those funds must now pay you an income and that income can’t stop. I’m sure you can still remember what happened in 2008 and how your accounts were affected. Could you afford another 20% or even 50% loss at this stage of life? Absolutely not! Your biggest fear may be that you run out of assets before you run out of time. The good news is that if you positioned your money to accomplish a purpose, you can achieve financial security and retire with added confidence.
I had a couple come into my office who had been retired for a couple of years but just weren’t enjoying retirement the way they thought they would. On paper they had more than enough money to retire, but they didn’t feel comfortable with spending much of it. They had concerns about how long the money needed to last, health care costs, what to do if 2008 happened again, and how much they could take out. Even with these concerns, they didn’t have much of a plan.
Their plan was to just pick at the pile of money (4% per year) they’d saved and hope that everything worked out. After sitting down and talking to them about what they wanted to accomplish, we were able to properly allocate their money into a plan that gave them income they couldn’t outlive. They also were able to alleviate their legacy concerns with a smaller amount of money, which gave them more to spend during their golden years. By having a plan, they didn’t need to chase a riskier market return to meet their goals. This allowed them to reduce their stress about some of the other concerns they had about retirement. They now felt like they could enjoy it!
As you begin to prepare for life’s next stage, remember that having a plan first will then help you decide where you should place your assets. Without a plan you’re just buying products that may or may not fit your purpose. You should also consider finding an honest, independent financial professional that is focused on solving problems, not selling products. Once you’ve found someone you like and trust, you can then work on developing a plan.
Make sure you build a plan that provides guaranteed income for the rest of your life, even if the rest of your assets go to zero. Whatever is left you can use to position to grow safely to offset inflation, provide a solution for future health care costs, address the loss of a spouse, or provide for future generations. While you’re creating your plan, make sure you are minimizing taxes on your income and estate. Once you’ve determined the purpose for each dollar, you can begin to live the retirement you’ve always dreamed of!
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