Financial Planning, Retirement Issues


Retirement Plans for Individuals

Retirement PlansThere are several questions which will make a huge impact on your success at planning and saving for retirement! All the rest of the decisions are trivial by comparison. Fussing over the rise and fall of the stock market will make little difference in the big scheme of things over your working life. Investing in quality investments and not chasing  get rich quick schemes will also make a difference.  Depending on how you answer these questions and how you apply these answers to these questions will determine your long term retirement life style and quality of life. This is important since it affects how well you will live during your retirement, the quality of your life and what if anything you leave to your heirs. Focus on these for success.

Retirement Plans Questions

  1. Are you a saver or an investor?
  2. How should you divide up your money?
  3. How much help do you really need?
  4. What’s the best use of tax-deferred plans?
  5. How much can you draw from your savings?

1. Are you a saver or an investor? Long term savings using conservative investments has proven to be more successful over the long term compared to chasing the elusive stock speculation objective. Saving at least 10% of your income every year is going to make a huge difference. Not touching this money and not taking it out early will ensure that you have adequate savings when you retire. Some experts suggest that you need 11 times your salary saved up to ensure that you have adequate funds for retirement.

2. How should you divide up your money? Practice diversification between stocks, mutual and bonds to protect from market swings. Avoid placing all of your money in one investment or even with one investment manager. Diversity over the long term is the key element along with investing in quality stocks, bonds and mutual funds. Focus on dividend paying stocks who have both a growth trend in the value of their shares and a history of increasing the dividends each year.

3. How much help do you really need? Get advice from experts and teach yourself about investing and planning for retirement. If you need help with calculations of how much retirement income you will need and how much you will have don’t hesitate to ask for it. But fundamentally retain control and never turn complete control over to a so-called expert. Be involved in all decisions and if you do not understand what is being suggested, ask enough questions to allow you to understand and if you still don’t get it, then back off until you do understand.

4. What’s the best use of tax-deferred plans? The experts can help you figure out the right balance between tax deferred plans and regular savings plans. Remember that tax deferred plans mean that taxes are deferred until later in life presumably when you have a lower tax rate. The government wants you to be self sufficient, but they also want your tax income as well.

5. How much can you draw from your savings? When should you retire and how much can you take out each year to make sure your money lasts through your retirement. Some experts say that if you take out 4% each year you have an 80% chance of your money lasting during your retirement. This obviously depends on how you are invested and how long you live.  Investing in GIC’s at 1 to 3% will likely mean your money will run out early. Investing in dividend paying stocks and living on the income only will ensure that the money lasts much longer. Figure out how much you need and withdraw money from your accounts accordingly.

That’s it, lots to think about but only five questions! They are complicated questions but given our lifelong practical experience, we think these are the important ones. Invest wisely, get involved and keep abreast of what is happening in the markets. Focus on the medium to long term and do not react to the short term volatility of the markets.

If the market’s plunge and you are well invested in high quality blue chip stocks you probably will be ok when the markets recover. You must monitor and make sure that you are not invested in a company such as GM who was considered blue chip at one point then went bankrupt when the economy tanked and they could not react in time. Bankruptcy was the only option to clear debt and to clear union contracts that were holding them back and making them totally unprofitable. So monitor and if you are concerned talk to the experts and then make you own decision.

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