Are you on track to reach your retirement goal?
Submitted by Oram & Kaylor on June 2nd, 2016
As I approach yet another birthday, I often ask myself if I am accomplishing all that I can in this short life … I have yet to become fluent in Spanish, I do not have a PhD nor have I come up with the next revolutionary toaster oven. Is this to say that I haven’t accomplished anything or that I am not an expert in a particular field? Of course not, but it would certainly be nice to add a few arrows to the quiver.
Along the same lines, we do not expect our clients to be experts in all things financial (I want to keep my job), but we do expect individuals to pay attention and find a planning process that works for them. While we offer sophisticated software programs, fancy charts and graphs, and colorful statements to help educate our clients on various financial topics we still see many making very basic mistakes as it relates to their 'retirement plans.' With more than 30 years of combined experience in the financial industry we have compiled some of the most common, 'basic' mistakes that we see individuals making day in and day out.
- Have you set goals? It’s sad to say that the average person spends more time planning his or her annual vacation than they do working on their retirement plan(s). Establish realistic and “targeted” retirement goals!
- Do you know the provisions of your Employer Retirement Plan? Study and understand the provisions of your Retirement Plan (usually a Defined Benefit Plan or 401(k)). Be sure that you understand the formula that will determine your ultimate retirement compensation. Remember, no matter how good your plan may be, additional savings will be necessary in order for you to adequately replace your income the day you “walk off the job.” You will need to make regular contributions to a 401(k), 457(b), or other options available for your “voluntary contributions.”
- Do you understand our Social Security System? While Social Security is an important part of retirement income for many, it is not equal for everyone. There are a number of factors that can influence or even reduce your Social Security payout, especially if you are a “governmental employee,” subject to the Windfall Elimination Provision (WEP)!
- Have you matched your investments with your personal needs? A “poor” investment is not necessarily one that has underperformed; rather, it is an investment that is inappropriate given your specific goals. The best investment in terms of safety cannot meet the needs of one with a long-term need for growth. Likewise, the risk and volatility associated with more aggressive investments may undermine the stability of someone needing safety and/or income. Your personal knowledge of investing and level of desire to be active in managing your portfolio are also considerations.
- Have you allowed for inflation and tax considerations? Inflation and taxes can adversely affect the best plan. When inflation increases, the need for increased return is critical. Your future purchasing power will be strongly influenced by your ability to keep up with inflation and properly use the various retirement savings vehicles available to you.
- You need to have realistic expectations. The proper allocation and management of your portfolio will determine your success in retirement. Remember that your life expectancy is increasing year by year and you will need to plan for many more years in retirement than you may have originally anticipated. Set your “investment return” expectations realistically!
- Do you understand levels of risk? Your “time horizon” is the length of time remaining before you will need to begin drawing on your investments for living expenses during your retirement years. The longer your time horizon, the more risk you may be able to take. It is important to understand that someone in his or her mid 40s today is 20 years away from retiring. You can add another 20-30 years of life expectancy from the date of retirement.
- Real diversification. You must diversify in a manner consistent with your objectives. Overall portfolio performance can be driven by your diversification and asset allocation decisions, so be careful to avoid looking only at fund performance or return.
- Seek competent, objective counsel. Our society promotes the need for expertise, and then chastises those that seek to use it. We are told that seeking help is a sign of weakness. If one is ill, he or she quickly seeks medical assistance. When our car doesn’t run, we quickly seek out a good mechanic. Yet when it comes to our financial present and future, we often try to do it all ourselves.
- Failure to begin. Procrastination turns attainable goals into impossible ones. The longer we wait to establish meaningful personal goals and implement a realistic plan to accomplish them, the greater the difficulty we will have achieving success. The best time to start was yesterday, but today is better than tomorrow.
Anything sound familiar? How does your plan stack up?
Until next time....