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May 2007
Index of all
past
Affiliate Corner columns
What to consider when planning your retirement
By Bert Hermelink,
Strategic Advantage Financial
As a financial planner, much of my time is devoted to preparing for when clients will retire or cut back.
We assume that there is a specific date when income will need to start. Also, we assume there is a certain period of time available to accumulate the required capital.
For many, however, unforeseen events will render their planning invalid. Recently, in fact, a longtime member of this Association left the business and the area due largely to a medical catastrophe he was not properly insured for. He recovered, but his finances didn’t.
We’ve all known families where one parent died and the home was lost, the education was curtailed, and the children ended up with one (part-time) parent. Lack of planning leads to financial disaster. Proper planning, therefore, should first include sufficient and appropriate insurance, with honorable companies covering medical, death, disability, long-term care requirements and even catastrophic illnesses. Otherwise, “we build on sand.”
When planning for retirement, our expected problem is that we may live a very long time, and during all of that time, we want income. Markets go up and markets go down, but our income need only goes up. So, we look for plans which allow us to invest in the equities markets, and which will allow us to diversify using asset-allocation models appropriate to our risk tolerance. We want access to other asset classes like precious metals and various types of real estate. We need to be able to find and use tax advantages. Finally, we make use of programs which provide contractual guarantees (based on the financial strength and stability of the offering companies) for growth, income, withdrawals, and death benefits.
Our goal is to get the greatest return consistent with our risk tolerance. As we approach retirement, we begin to increase our focus on income while still looking for growth of capital to outpace inflation. There are reduced risk investments paying excellent rates of interest. Higher current interest rates allow more of your capital to remain invested for long term growth.
The income need in retirement will increase; the capital providing that income must increase as well. The answer, for most of us, is not CDs or Treasuries. We can’t avoid taking on any risk or we will fall behind inflation. Rather, invest wisely, use asset allocation models, take advantage of appropriate guarantees, and consider your retirement money sacred. Remember, it has to last a long time. You’re depending on it.
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