Don't Be Scared and Unprepared for Retirement
Today's comment is by Larry Grossman, Certified Financial Planner, managing director of Sovereign International Asset Management Inc. and a member of The Sovereign Society Council of Experts.
Dear A-Letter Reader,
It's becoming clear to me that many future retirees, particularly Baby Boomers, don't understand retirement. Oh they understand the concept of retirement well enough - meaning no work and all play - but they don't understand the specifics. They don't know the best time to retire, how big their retirement funds should be or even how long their retirement funds will last.
In my 20+ years of experience, I've found that people often fear what they don't understand - especially when it comes to money. So it's no wonder Baby Boomers are scared.
Plus, to complicate matters, these same misguided Boomers don't even agree with their spouses or partners about their retirement. I just read a recent study which indicated about a third of those married or living with a partner agree on what they should save for retirement. However, one in five couples have not even discussed how much they should save. This is obviously a problem.
So here is what you can do to ensure you'll have a long, well-funded retirement...
First, assess where you stand on reaching your retirement goals. How much money have you saved? What will it likely be worth in the future? How much do you need to save and or earn now to be properly funded for your retirement? Questions like these can put you on the right path towards your retirement. For more guidance, try using a financial calculator. (See the further resource section for a link.)
Next, decide how much in today's dollars you will need to live on when you retire. The rule of thumb is between 60-90% of your pre-retirement income per year. But only you can be the judge if that's really going to be enough. Statistics have shown that most people underestimate their spending, so keep that in mind as you're calculating.
Also, make sure you are putting away as much as you can possibly afford. Find out if there is another retirement plan available, which would allow you to make a higher contribution than you are currently making. Every dollar counts.
Finally, make sure your retirement assets are appropriately invested and in the best investments vehicles possible. If you are in a company plan and can't control your own investments, then talk to your plan administrator about modifying the plan to allow for self-direction and greater investment flexibility. If you are in a decision making position, consider taking part of your plan offshore for greater investment flexibility. Or, diversify part of your portfolio into nontraditional investments, which don't only rely on a constantly rising stock market - things like precious metals, commodities, alternative investments, real estate and principal protected notes.
LARRY GROSSMAN, CFP, CIMA and