Prime Time Living - Page 10 - Planning ahead: money for retirement

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Planning ahead: money for retirement
Follow these steps for financial freedom

By Margit B. Weisgal, Contributing Writer

You have your crystal ball in front of you as you gaze into the future. Then panic sets in. Can I/we ever afford to retire? Will I/we run out of money? Have I/we made the right choices? And then you have one of those sleepless nights spent worrying. Take a deep breath and do some advance work that will at least take the edge off. Here are some thoughts to consider culled from financial planners who specialize in retirement.

1. Put money away now. Roy Hartman, CPA, says, “Pay yourself first. Before you do anything, take a part of your paycheck, around 10 percent, and start investing today. It doesn’t matter your age, though obviously, earlier is better. But pay yourself first. And it’s never too late.”

Why it’s important: Money generates money. Today’s investment options are so much greater than they used to be. Now you have access to more choices than you can imagine. In addition, some options use algorithms, which have a pretty good track record. You can start small and go from there.

2. Figure out what monthly income do you need to live. It seems like a simple question, but when you plan ahead, that number may be different than what you spend currently. And it’s not one number, it’s two. There’s the amount of money you’d like to have each month, but equally important is the amount you could live on if necessary. Ari Strait, a Certified Financial Planner with Schwab, says, “Need is a smaller portion of the want. When you know these numbers, you can change your strategy if you must.”

Why it’s important: Depending on the investments you have when you retire, the income generated may vary. Sure, you’ll have some with little or no risk, or that generate a steady return, but other investments may fluctuate. You want to be able to adjust your outgo based on income and, if needed, be flexible based on current economic conditions.

3. Don’t get locked in to the number you came up with. There is essential spending and discretionary spending. It’s nice to go on a round-the-world cruise, but could you settle for one to the Caribbean?

Why it’s important: Depending on when you started putting money away and how aggressive you were with your investing, you will probably have a combination of products in your portfolio – stocks, bonds, mutual funds, property and/or cash – and it generates a certain yield. But if you need more cash because of some emergency, you’re OK if you can be flexible. You won’t want to have to sell one of those products in your portfolio at an inopportune time, say, in a recession.

4. Choose your financial planner wisely.

Why it’s important: You’re not shopping for a new best friend, rather someone you can work with who will guide you wisely and holistically. Check this person out. Does s/he specialize in retirement planning? Is this person qualified? Experienced? Call references. How is the person compensated? Is the compensation based on how much and what he or she sells, known as commissions, or a fee, or another way? Ask.

5. Work with a financial planner who is a fiduciary. A fiduciary is someone who, by law, must, legally and ethically, put your interests first. Costs of working with one range from free to a monthly subscription fee to an annual fee to a percentage of your total investment. But you can get good recommendations – and even a plan – for free.

Why it’s important: A good financial planner can coach you on creating a realistic plan. Online brokerage houses now have local offices staffed by financial planners. They even have free tools you can use before you meet with that person so you’ve thought about the answers to the hard questions they’ll pose.

6. Get your documents organized.

“Too often, says David Scher, now retired from Morgan Stanley, “people stall on writing a will, a health care power of attorney, and an advanced medical directive. You need these documents in case something unforeseen occurs.”

Why it’s important: Scher recommends selecting as your personal representative a person or persons a generation younger than you are who you trust completely. Make sure they know your choices and what care you want if it becomes necessary. Get it done immediately.

7. Recognize there is an emotional component to your planning. Your future income will be a combination of your pension, your investments and social security. But there can be fear that you’ll outlive this money.

Why it’s important: Without sound planning, this very well may keep you up at night – or a lot of nights. But, as Buddhist monk and scholar Shatideva said, “If the problem can be solved why worry? If the problem cannot be solved, worrying will do you no good.” So, stop stalling and work on your plan.

Your investment options are many with extremely low costs. Planners used to take 1-2% of your total investment as a fee, and most wouldn’t talk with you if you had less than a million dollars. Today, brokerage houses offer products with consulting for a fee as low as 0.18%. That means every person can afford a financial planner now. In other words, you don’t have to face the future on your own.

Tomorrow eventually arrives, and you will retire. Do something in the present so that your future is sound and secure. You’ll sleep better. •