 Wakefield, RI, March 16, 2009
The big question that many of you are asking is, “Will you outlive your money or will your money outlive you?”
There are some things in life that you don’t want to come up short for and outliving your money is one of them. Outliving your money is more possible than you may think (sorry!) and I’m on a mission to make sure that you don’t. The challenge is that, as a financial professional, I only see a small fraction of people that can fully sustain the forces of the financial future that will challenge the ‘houses’ that they have spent their blood, sweat, and tears building. Our souls crave for more people to join the survivors…and I want to make sure you have the right lifeboat to make it through the perfect (financial) storm.
Many of you have heard of the “Perfect Storm”, a major storm that hit in October of 1991 that was the result of three weather events coming together at one time to create it. There are financial forces at work and they can be much nastier than you may want to think about, but you have to think about them and plan for them or you could be leveled - and at a time in your life where you are powerless to do much about it.
Alarming? I know. But there are lifeboats for you and your loved ones….so long as you take control and know how to build the survival kit that can help you get you all the way through the storm.
Social security issues, pension plans (or lack there of), rising health care costs, inflation, the recent equity market downturn and longer life expectancies are fusing the “Perfect Storm” for so many people – whether they are aware of it yet or not. Based on a 2002 Retirement Confidence Survey completed by The Employee Benefit Research Institute, retirees today expect that social security makes up about 44% of their income. However, currently employed people in the survey expected it to be an average of 13% of their retirement income. Pension plans have dramatically declined to the point that the currently employed people surveyed expected that only 21% of their income will come from a pension plan. This would require that 66% of a future retiree’s income would have to come from savings, investments, or other sources. Furthermore, the research shows that only 1 in 5 employees currently have a pension plan. This will mean that for the 4 out of 5 employees without a pension plan, 87% of their income for retirement has to come from a retiree’s employment income, savings, investments, or other sources for most people. Do you think that most people have a pool of personal income, savings and investments to cover 87% of their income for the possible decades of retirement that they will need it?
Which leads us to health care costs, inflation, and longer life expectancies, and you may want to sit down for this – it’s going to hurt a little. Health care costs have grown at an alarming rate. This issue alone has caused significant challenges for our community’s retirees. But remember, these challenges are being faced now by people that are more likely to have social security, pension plans, and a lower life expectancy than today’s work force. I know it may seem overwhelming, but it’s too important to not plan for. You may get a part-time job when you are 65, but you probably can’t get a part-time job or a loan for retirement when you’re 87. So you need to take control of every angle that you have – today. Grab for that “lifeboat”.
And lastly, need I say more about the past 18 months of the equity markets and what their dramatic drop in value has meant to all of us.
Your ‘lifeboat and survival kit’ is made from good planning, time, discipline, and putting your investments to work for you. Plan for today’s reality, not the one you had the perception of 20 years ago.
Be careful of your memories of watching your grandparents, or parents, in a rocker talking about how their pension plan and social security provided a comfort zone. It played a bigger role for them than it probably will for you, and certainly their expenses were lower than yours will be. You can’t solve that issue very well without planning for it and preparing.
Now that I’ve given the financial “weather report”, here is how you put together your “lifeboat”.
- Know what your expenses are and what you will need to live on in retirement. If you don’t know what you will need, how can you plan for it! Many financial professionals are recommending taking no more than 4% of your savings/investments out per year
- Maximize your savings into tax deferred accounts, IRAs, 401(k)s, etc.
- Save, Save….Save
- If possible, pay down your mortgage so that you have little or no mortgage left when you retire.
- Know your tolerance for risk. Many people ignored the risk in the market and have paid the consequences.
- Make sure that your investments are well allocated and a portion that you are comfortable with is in equities to earn returns that have the potential of beating inflation.
- Set realistic expectations for your age when you will retire.
- Consider working with a financial planning professional to help you understand and implement your retirement strategy and help you build your ‘lifeboat’.
Working with a CERTIFIED FINANCIAL PLANNING™ professional is extremely helpful for knowing what you’re facing and how to make the very most of your resources. These are not the kind of numbers that you want to leave to chance. Taking the first step to invest in a Financial Plan can be priceless, but only if you implement the plan. Don’t be afraid to pay for good advice and put your resources to work for you.
Be afraid of looking away from the “Perfect Storm” and think that it’s not coming. Your financial future will come down to identifying and solving these challenging financial issues. And grabbing for that “lifeboat and survival kit’”. |
