If you were to google the term ‘retirement,’ in just seconds, your web page would fill with images of happy couples enjoying their lives together. I feel that the problem, for most people, is that the ‘image of retirement’ can be a confusing and scary place. Did you know that a majority of adults are not confident about their financial situations for their retirement? What’s worse is that most baby boomers plan to work until they die, meaning that somehow the idea of retirement has vanished.
How did we get to the point where we fear our financial futures? In my opinion, it’s simple; we fear the unknown. I believe there is a lack of education about retirement, as well as forces in the financial industry that don’t want you to comprehend the retirement process. These forces (large financial firms) also want it to seem so easy that anyone can invest their money and grow a huge nest egg. They want you to believe this so they can encourage you to open an account and rollover, or transfer in, your IRA or 401k and purchase their products.
One of the reasons these financial firms want your money is so you pay the fees. The unfortunate truth is that, to many people, this scenario is what is considered the norm when it comes to retirement. Although this is not the only way, there are other ways to achieve your retirement goals.
To me, retirement does not begin and end with an investment, but rather it’s a process. There will never be a single investment that will guarantee your retirement success. In my investment strategy, the integration of investments in your portfolio is one of the last parts of the retirement equation. The retirement process is categorized into two phases. The early stages of retirement are when you first start your career path. Hopefully, you were offered a retirement plan by your employer, and you took full advantage of it. This phase we are describing is the accumulation phase. It is the time when are you are accumulating assets for redistribution at a later time of life (i.e. your retirement). The assets that you accumulate will be used when you retire, which will serve as an income supplement. Once you’re no longer earning wages and begin to receive these assets, you will enter the final phase of retirement called the annuitization phase.
Here lies the problem for most people. Some financial forces out there, want you to keep your assets in your current investments and only live on a small percentage of its overall value, like 3% annually. One problem of relying on income still held in the market is that it may be fraught with potential problems. Does 2008 ring a bell?
My approach to help protect your assets during the accumulation phase is to focus on dividing your nest egg into two parts, or buckets as I call them, known as the income production bucket and the growth bucket. I feel, the assets designated for income production should be more conservative and protected against the whims of the market to provide a steady, reliable stream of income. Establishing a division of funds before you begin to supplement your income will help ensure that you will have enough income to live on for a set period, no matter what the market does.
The growth bucket of your nest egg is the portion of your income that invests in the market. The goal in doing this is to help provide the extended growth that is necessary for sustainability and rejuvenation. This is just one-half of your income planning; the other is Social Security. Maximizing your Social Security benefits is another way to extend the life of your investments for your retirement income needs. By addressing and accessing Social Security at the right time, you can further enhance your retirement lifestyle. I recommend you work with a qualified advisor to help you with this as Social Security has many beneficial moving parts. Every part might not apply to your specific situation, but the ones that do will provide a benefit that will change the amount you receive in the payout phase of your retirement.
As you can see, one of the biggest obstacles you may face in retirement is taking the time to understand your financial situation. Retirement can still be those images we all visualize when we think about the idea of retirement…all you need to do is pave the way to get there.
If you would like a free consultation, or have any questions regarding your retirement needs, feel free to contact the Norseman Financial team. Also, take this complimentary report, Color Of Money, which will help you start the process of understanding risk.