September, 2008
by Joseph Delano, CFP, Wachovia Securities
You've saved and sacrificed to build your portfolio, now it's time your portfolio worked for you. These days, however, investing for retirement isn't as simple as stashing your life savings in a CD or Treasury bond and living off the interest. Longer life expectancies and earlier retirement age means you may need your income to last you as long as 30 years or more.
Your investment and financial concerns during retirement are very different than they were when you were climbing the career ladder, earning a paycheck and raising a family. Let's take a look at three common retiree concerns:
Not enough money in your retirement nest egg. Like many retirees, one of your primary financial concerns may be outliving your nest egg. One reason retirees today may find it difficult to live on interest payments alone is that interest rates are not hyper inflated as they were in the 1970s and 1980s. Instead of waiting for interest rates to climb, you may need to adjust your expectations about what an income investment can achieve.
Rising cost of living. Although you've probably always understood and recognized inflation, let's be honest, did you really worry much about it during the days when you had a paycheck coming in? With a fixed income, however, inflation is an ever-present enemy to your retirement lifestyle as you try to keep up with the cost of living. Also, a woman's longer life expectancy makes it a real possibility that she'll be taking sole control of the finances at some point in her life. Make sure you and your spouse both know your household finances and understand common investment concepts. In addition, each spouse should be well-acquainted with the family's financial professionals and feel comfortable working with them.
Medical and nursing expenses. The average annual costs for things like medical care at a private nursing home or a long-term care facility continue to rise every year. As a result, many retirees are fearful of the possibility that nursing home or medical expenses will wipe out their life savings. This is often one reason they are afraid to tap into their principal during retirement. Talk to your financial advisor about strategies available through insurance that can help safeguard your assets and preserve your wealth.
Now that we've identified some of the concerns you should be aware or, here are a few strategies to consider when preparing your retirement investing plan:
Keep some cash on hand. Keep about six months' to a year's worth of cash readily available. That way, you'll have enough liquid funds at your disposal so you won't be selling investments at a potentially inopportune time just to pay current expenses.
Consolidate your assets. For bookkeeping simplification, consider consolidating your assets under one roof in an asset management account. This is different than "putting all your eggs in one basket" with individual stocks. An asset management account lets you hold all of your securities and cash in one easily accessible brokerage account. You also receive one statement showing your entire portfolio, and giving you a better view of your finances on a regular basis.
Organize your documents. Make sure your spouse and heirs know where all the information about your finances is kept. Make a list of where your important papers, documents and items are kept.
Review your investment plan. Finally, you'll need to review your income and investment plan at least once a year or when there is a death, divorce, new tax law or major change in your financial situation. Your financial consultant can help you address any changes necessary to your investment portfolio.
While many things can change when it comes to your retirement finances, one thing remains the same: proper planning can help you make the most of your golden years.