Retirement Planning Must Be In Practice Not In Theory

Thursday, September 9, 2010, 8:00 AM | Leave Comment

There was a time when most folks would work for a company all their lives. They then would retire with whatever pension funds they had accumulated in the company. There were no planning per say for retirement. It was kind of given that along with social security, folks would retire relatively in comfort. So retirement planning was, in that sense, just theoretical and very few ever planned for it.

Those were the good old days, probably never to come back. Since the advent of IRA and 401(k) and other kinds of retirement options available to us, we must put retirement planning in practice and vigorously work at it. For those who do worry about retirement and plan for it, it seems that they have to continually work for it. It is naively assumed that if the investing is well done, retirement will work out just fine.

Saving or spending behaviors…

You can do everything right investing your hard-earned money. However, if your saving or spending behaviors are not cooperative, you can still fail to meet your goals. Except those born into great family wealth, most folks are culturally programmed to think week-to-week and month-to-month in their spending. For example, if we start receiving a large sum of income that could stop at any time – as is the case with athletes or entertainers – we can mentally confuse the large sum with a massive monthly amount that will continue forever. Case in point: Wesley Snipes, Isaac Hayes, Barry White, Ed McMahon and others.

Imagine your investment portfolio is a fruit tree in that you can harvest it in the form of dividends and interest rather than cutting down its limbs as in withdrawing principal. This will allow you to use your weekly or monthly bias, as mentioned above, in a positive way.

Assess your risk…

The biggest trap caused by the bull market of the 1990s was that many folks and their financial advisers focused on return, with no or little regard for risk. Sit with your adviser and scrutinize your level of risk for investments. You must be better educated about the known and possible risks you face in your retirement portfolios.

No “one simple solution”…

Firstly, whatever plans you have for retirement, you must have a cash-flow dimension to it. For that, you can have multiple accounts with multiple products for your household. Secondly, the source of distributions may need to change for tax reasons. Thirdly, and it is presently unknown, how our tax system will treat the distributions five, ten or more years from now. We must then anticipate that Congress might increase the tax rate because somehow the deficit has to be reduced that has developed the last 9 or so years.

In a Nutshell
As some therapists say: “Change happens when the pain of staying the same is greater than the pain of the change.” Think about it.

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