Hey Fool, It’s All About YOUR Income At Retirement
Hey Fool, It’s All About YOUR Income At Retirement
Well now that I have your attention, there’s an old proverb that says, “It’s not what you know that will hurt you, and it’s not what you don’t know that will hurt you – it’s what you don’t know you don’t know that will get you into trouble.” There are a lot of things you probably don’t know you don’t know about managing money during retirement. It’s time to change that!
Traditional financial planning theory says that to figure out how much income you can get from your retirement assets all you have to do is assume an interest rate and a life expectancy, plug everything into a calculator, push a few buttons, and see how much you can get before you run out. WRONG!!!! This is not the way to do it.
First of all, it’s not just an interest rate you have to assume, it’s a total return. Second, you can’t really plan exactly when you’ll run out of money because you don’t know when you are going to die. Third, there is a big difference between earning a rate of return and being able to use it for income. In retirement, things are not exactly what they seem – or what they were before you retired.
So what are you supposed to do? Unfortunately, most people revert to old rules of thumb. They either put their money into conservative investments, live as frugally as they can, and hope they don’t run out too soon, or they use some kind of one size fits-all asset allocation strategy too figure out how much to put into the stock market – usually based upon their age and some fuzzy notion of their “risk tolerance.”
Today’s and tomorrow’s retirees need to know a lot more than that about managing money during retirement. You need better information, you need better advice, and you need it NOW! You need real new ideas that fit new realities, and you need more science and less psychology. It takes more than a few anecdotes, some old clichés, and a bunch of outdated guidelines to teach you how to manage a portfolio to maintain safe, steady, dependable income for thirty- or forty-year retirement periods. Managing money during retirement requires an “income-first” investment approach that very few advisors and even fewer consumers know anything about. Managing money during retirement, while you’re spending it, is completely different than managing money before retirement, while you’re accumulating it.
With this in mind, a do-it-yourself approach is nothing short of retirement roulette. When you were 25 and working with relatively small amounts of money you could make a few mistakes and learn. You had plenty of time and money to invest. When you’re 60 and making decisions with life savings, there’s not a lot of time you can afford to spend learning and certainly no more money if you make a mistake. You only get “one” retirement and you need to get it right. You need to find yourself a financial advisor that can demonstrate expertise in retirement income planning. Your needs are changing as you transition to the land of “distribution”. It may require that you change advisors, just like you would change doctors, if your current physician was not able to treat your condition. There will be a plethora of retirement income models to select from, but only a few that will meet your needs.
Retirees don’t go to the pharmacy with their financial statements; you go with your check book. Your life savings is at risk.
Richard E. Reyes, CFP owner and founder of Wealth and Business Planning Group, LLC. Central Florida’s only recognized Financial Quarterback and Wealth Coach. His life long mission is to help his clients to eliminate speculating and gambling from the investment process and to free investors from the confines of traditional planning so that they can create a life of abundance through peace of mind investing. He can be reached by calling him at 407-622-6669, by e-mail at Richard@thefinancialqb.com, or by linking to his web site http://www.thefinancialqb.com