Practical Tips for Retirement

January 24th, 2010

The operative word in the title is “practical.” This discussion won’t try to prophesy how much you’ll need to save in order to live comfortably in retirement. (Who knows?) It won’t be an essay on which investment vehicles you should or shouldn’t select when saving for retirement.

It will dispense some casual but sound advice

Take charge of the things you can control…

Nobody is going to provide for your retirement if you don’t do it. You control your budget and your spending pattern. You preside over your investments, and have the power to adjust the allocation of assets as needed. (Studies suggest it is asset allocation, not selection of specific assets, that determines rate of return on investment.) You decide whether to follow a financial plan in pursuit of retirement goals or not. You pick a career and decide how much energy to expend in pursuing it.

… and recognize those things you can’t control.

You can’t do anything about the overall state of the economy, no matter how much it bothers you. During the course of your working life, you’ll suffer the normal ration of bad luck owing to illness, accident or reverses at your company or job. You can do little or nothing to affect any of this. Consequently, don’t let it dent your resolve to prepare for retirement.

Stay Flexible

By all means, develop a written financial plan and follow it conscientiously. But remember – a financial plan is not a binding legal contract and it is not a suicide pact. It should be your servant, not your master. Don’t hesitate to discuss and revise the plan as needed. You rate to receive a normal quotient of good breaks as well as bad ones, and you’ll need to stay flexible in order to take advantage of them.

Don’t trade – invest.

The temptation for the average investor to try to make money by trading frequently in stock, bond and/or foreign exchange markets can be well-nigh irresistible. That is not how most rich people got rich or stayed rich. Economists know that financial markets in general and capital markets in particular are “efficient.” Among other things, that means that those markets process all publicly-available information pertaining to the assets traded there. This information is reflected in the prices of traded assets within minutes or even seconds of receipt. The preponderance of evidence suggests that portfolio managers can’t “beat the market” consistently. If they can’t do it, you shouldn’t attempt it. Instead, focus on something that is within your power to control. Make sure that you allocate assets within the portfolio according to your investment objectives and tastes.

Get Help – the Right Kind

Do you change your own motor oil? Do you do your own home repairs? Do you diagnose and treat your own illnesses? Do you act as your own attorney? These questions are not purely rhetorical. Many people will answer one or more of them in the affirmative. If you answer “no”, it is for one of two reasons: either you lack the necessary training and experience to do these things or your time is too valuable to spend on them. The same considerations apply to managing your own money. It is perfectly reasonable, perhaps even advisable, to enlist aid in planning your financial future. This is emphatically not the same thing as getting advice on which stock or mutual fund to buy or sell. Rather, it consists of finding someone whose opinion and qualifications you respect to work with you in developing a systematic approach to finance. There is no reason you can’t manage your own money, just as there is no reason you can’t change your own motor oil or fix your own faucet. But there are reasons why it might not be desirable.

Retirement is Not a Repository for Your Dreams

Grandma Moses was over 80 years old when she won worldwide fame as a painter. Colonel Sanders was 65 when his fried chicken made him a national figure. Ronald Reagan was nearly 70 when he became President of the United States. All of these people reached the pinnacle of their lives when past standard retirement age. They showed what it’s possible for senior citizens to achieve. But they are the exceptions.

We reach our physical and mental peak well before age 65. Beyond that point, we have to count on compensating for the decline of our powers with instinct and experience. Depending on what your field is, this becomes progressively more difficult as your best days recede further into the rear-view mirror.

Do not make the mistake of deferring your dreams until retirement. Plan to climb your highest mountains and ford your widest streams before you get there. That doesn’t mean the rest of your life will be a dreary anticlimax. On the contrary, life becomes more enjoyable when you have the satisfaction of knowing you have made your mark.

To be sure, retirement is the natural habitat of some dreams. You can’t very well buy that Winnebago and roam the U.S. while you’re still working. Just make sure you don’t use retirement as the default option for your most important goals.

Get in Touch With Your Inner Investor

Some of us are adventurous by nature. Others are traumatized at the prospect of suffering a monetary loss. Economic research suggests that most people are risk-averse where large sums of money are concerned but risk-loving for small amounts. There is no right or wrong attitude to take. The only real sin is not knowing your own mind and acting in accordance with it. In order to develop a coherent financial plan, you must identify your tolerance for risk. This will require a financial planner to worm the information out of you with a series of questions. Some people react to this interrogation as if they were being compelled to disclose intimate details of their sex life. But financial planners who omit this process are failing in their fiduciary duty to their client. If you manage your own money, you will need to ask yourself the same questions in order to manage it well.

How much do you value additional income? (This will affect how much of your portfolio you allocate to equity investments.) How much do you crave security? (This will determine whether annuities are right for you.) How much psychological damage would a reduction in net worth cause you? (This will determine whether hedging your portfolio is worth its cost.) If you are confident of your answers to these and similar questions, you have taken a key step toward securing your financial future – and without opening a single prospectus or writing a check.

Category: Annuities, Fixed Annuities, Retirement Planning | Tags: , ,

One Response

  1. Tasha Outram says:

    Just thought i would comment and say neat theme, did you code it yourself? Looks great.