RETIREMENT CAN BE a scary word. Over the years, I have answered many questions from clients, television viewers, and podcast listeners. I’m here to guide you through this unique transition in your life, whether it’s now or in a few years. You probably have some of the same questions, so let’s dive in.
First, let’s talk about the fear of running out of money. You’re likely going to worry when you see global events occur, financial crises, inflation, stock market volatility, and the value of your investments dropping. But once you begin to embrace the fact that these are worries you’ll likely have for the rest of your life, they will become more palatable as concerns. What you want to do, though, is to plan conservatively.
Many years ago, I had a seventy-five-year-old client come into the office who said to me, “Derrick, I only want to earn about a 15 percent return. I want to be really conservative.” Well, keep in mind, this was 1999, the market was red, red hot, and everybody was making money. She thought, How hard could this be? What you don’t want to do—and this is a surefire way to make retirement not what you want—is to take out all of the gains you make on your account for your income. Let’s say one year, you’re up 20 percent, the next year, you’re down 15 percent. You quickly learn the lesson not to base your lifestyle on what you can’t control—it’s a shaky foundation. If you’re withdrawing only 2 to 3 percent per year on average from your retirement account, you should be okay.
Here’s what I would tell you: Many people want to take a big trip each year—a cruise, travel across the country to see their grandkids, or overseas. When your investments go up, talk to your advisor about locking in some of those gains, capturing that money, and putting it into a conservative account. That way, you’ve paid for your cruise already. It’s frustrating when you know you could have locked-in profits, but then the market drops all the way back down again and you’ve lost that opportunity. Let the market pay for some of what you want to do in retirement and be strategic about it.
The next popular question is about ways to save money during retirement. When you think about saving, you want to look at required versus optional expenses. So many people think that their expenses will drop precipitously when they retire, but they typically don’t.
Maybe you’ll spend less on dry cleaning, but you may offset that with more on gas, traveling, eating out, and enjoying an active lifestyle. Think about some expenses you can cut, but do it from a purpose-driven standpoint. For example, if you’re going to cut the number of cable channels you pay for, make sure it doesn’t include your favorite channels. You can have some small luxuries on the cheap and not have to cut everything all the way down to the quick, if you will. Or if you love having someone clean your house, keep that expense but offset it somewhere else. You don’t have to live like a pauper in retirement. The goal is to live the lifestyle you want and that you’ve always enjoyed, but to be prudent about how you choose to spend your money.
Once you’ve figured out how to save for retirement, it is easy to question if it’s actually enough. This leads me to my third most frequently asked question: How can I boost my retirement income? The key here comes down to risk. Most very conservative income-producing investments are that way because there’s very little risk. Think, for example, about large blue chip dividend-paying companies. While their stock prices do fluctuate, they’re unlikely to go out of business. Another good strategy is to work with your advisor and take advantage of what’s called dollar cost averaging, which simply means easing very gradually into a certain investment. That gives you some growth potential, some “pop” if you will, while still minimizing the risk that you will mistime market fluctuations.
Now, here’s an emotional question that many people struggle with: “What if my parents really need to start thinking about retirement, but every time I’ve talked to them about it they don’t seem interested? What should I do?”
This is a common concern, but keep in mind, you want to approach this issue with grace and empathy. A good way to begin the conversation is to say something like, “You know, Mom and Dad, I’ve been doing some thinking and some reading on people who have a successful retirement. Would you mind if I asked you a question?” So you ask permission from them to start a dialogue. They will likely agree, even if grudgingly, and then you can say, “If you don’t mind me asking, what does your retirement look like? What do you have planned? What are some of your thoughts?” The goal is simply to open the door for discussion.
Don’t make the fatal mistake of trying to solve the entire retirement question in one conversation. That will just lead to a blowup and nobody talking at all. Instead, you want to open the door to just see where it goes and then gently close the door until next time. Now you’ve established some trust, and they don’t feel like you’re questioning every decision they’ve made. Instead, you’re walking alongside them, which is a much better way of working together to achieve a common goal.
At the start of a road trip, you start your car, begin moving, and make adjustments as you go. While in the driveway, you can’t anticipate every traffic outcome, like if you’ll have a blowout or if there will be a sudden change in the weather. The same is true with retirement. You might have to bounce back after adversity and make adjustments along the way. Expect mistakes—believe me, you will make them. But no matter how old you are, you now know the biggest retirement mistakes people make and how to achieve the retirement you’ve always wanted.
(To be continued...)
This excerpt is taken from “Good Money Revolution: How to Make More Money to Do More Good” by Derrick Kinney. To read other articles of this book, click here. To buy this book, click here.
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