Fixing Retirement

Last week I criticized a writer for bad ideas regarding retirement planning. His ideas were basically the same old rehash of save more, be prudent with spending and hope you die young. I think you can and should do better.
Our ‘financial’ writer suggested dumping all your money into a fixed annuity. Bad idea. First of all you have to be invested in the market. If you are saving in fixed anything including money markets, certificates and passbooks someone should pass you a loaded pistol just so you can get it over with quicker.
Those clients who moved their investments into cash about a year ago are really miserable today. Those that stuck with it, gritted their teeth, closed their eyes and put cotton balls in their ears and nose are better off financially that those that didn’t. The reason you need to be fully invested is that while most of the time the markets act like two year olds who are having a tantrum or a crazy aunt on lithium there is nowhere else, including real estate, that the average investor can invest in to beat inflation and taxes for a positive long-term return except the market.
Here are the basics: If you were fully invested from 1989-2009 in the broad market index you’re average annual rate of return was 8.2%. If you missed just the best 10 days out of all those years you’re return plummeted to 4.52%, and if you missed only 70 of the best days out of 20 years you averaged a MINUS 6.52% return per year. You lost a lot of money by missing a few trading days over two decades.
The next step is to keep your investment moving parts to a minimum. Don’t buy into that goofy nonsense where you need 120 investments in order to be allocated or diversified. Keep things simple. If you have five or six mutual funds or ETFs you should be fine. Make it a rule to cut loose your losers, keep your winners and include as many dividend paying stocks and funds as you can.
If you’re taking income from your mutual fund investments use systematic withdrawal method. This allows you to use dividends, capital gains and share appreciation to maximize the amount of income. You can certainly take more income using this method than just using dividends. Most brokers don’t have a clue how to do this so call me and ask how to set it up.You can also do this with variable annuities. Income streams of 4%-7% are realistic and can be implemented quickly.
Another income withdrawal concept is to keep enough of your retirement plan money in cash and use that rather than selling shares of your investments.  This way you avoid fluctuations on that amount of money, especially during volatile or bear markets.
Take social security as soon as you can. Waiting does little except cost you money. Even if you have job you should talk to Social Security and have them analyze your benefits and see if it makes sense to start taking social security income right away rather than waiting.
Go back to every employer you worked for and double check that you did not forget or leave a pension, 401(k) or savings plan behind. You may be surprised to discover that a company you worked for some 20-years back may have a benefit waiting for you.
Finally, do a budget. I know I’m talking to the wall for some people but if you shop out your car, home and life insurance you may find yourself saving money without giving up benefits. Also compare internet, phone service and other vendors you use constantly. A dollar here and there and you may find yourself saving a thousand or two a year. When you use cash instead of a charge or debit card ask the business or professional if they discount for you paying with cash. Since a business has to pay a fee for credit or debit cards some will gladly provide you with a saving.
Hopefully you picked up one idea out of the above and it will work for you. If you have questions or need to talk to me you can call me at 877 783 7080 or e-mail me at pstanley@westminsterfinancial.com.