Business Article - Retirement Handover
There are three very large questions that you need to be able to answer in relation to your retirement plan:
1 Will I have the resources necessary to be able to retire when I am ready?
2 Will the money I have saved up last as long as I need it to?
3 Will I have a fallback set up, just in case?
These questions are more than easy to ask, but extremely difficult to correctly answer. This is because every retirement plan has parts that are consistently moving and changing. Are all of these 'moving parts' working together as they should be, in order to produce a retirement plan that is accelerating properly and well-oiled, or are you going to find yourself with very little if anything to your name by the age of sixty-five?
Let's look at the eight different 'moving parts' that make up your retirement plan, and retirement planning process. These moving parts are also often referred to as levers, as pushing and pulling at them individually can create a large impact on your retirement planning process, and how much money you have put away by the time you retire. As you read through the information about each of these levers, you should be trying to determine which you have the most control over. These are the levers that you should be consistently pulling at, in order to better prepare yourself for the years to come.
1 How much money are you saving? This is one of the much more obvious parts of retirement planning, but it can also be the most powerful because it is a guaranteed winner. If you are stuffing your 401k and IRA accounts with savings, then you will be able to reap a great deal of tax benefits when you are ready to use the money that you are saving to fund your retirement plan.
2 How much are you spending in retirement? The less that you need to spend in retirement, the less money you need to have saved before you go into retirement. You may have heard random figures in the past, for example, many people say that upon retirement, only 70-percent of your pre-retirement income is actually needed, but this is not what many people are experiencing now that they are going into retirement. There are retirees out there who can live quite comfortably on around $30,000 per year, and there are other retirees who find that they are spending more money upon retirement than what they spent when they were working. It is imperative that you develop a personalized retirement budget long before you go into retirement, that way you can rest assured that you will have more than enough to fund the rest of your life.
3 When Will You Retire? Every single year that you delay retirement is another year that you can be consistently contributing to your savings. It also means another year of growth in your investments, and one more year that you do not have to worry about your savings and investments supporting you. You may also be able to increase the value of other retirement benefits that you have, including:
4 Social Security and Pension Plans For each and every year that you put off requesting your Social Security benefits to begin, your Social Security benefits may increase by as much as 10-percent. This same thing goes for any defined-benefit plans that you may be covered by, including but not limited to traditional pension plans. If you do not have enough savings prepared for retirement, claiming pension and social security benefits too early can actually prove to be quite a big mistake.
5 Investment Costs and Returns Ten years ago you decided to invest all of your retirement savings money into a single stock. You may have determined that if you chose from one of the largest publicly trades stocks in the United States, you would be pretty safe. Ten years ago, the seven most popular publicly traded stocks were General Electric (GE), AT&T (T), Microsoft (MSFT), Exxon Mobil (XOM), Coca-Cola (KO), Intel (INTC) and Merck (MRK). The 1997-2007 returns for GE is 80.5%, and the return for XOM is 180.2%, but most of the other king stocks have not experienced the same level of return. In fact, Microsoft's 1997-2007 return is only 74.6%, AT&T's is only 34.7%, Intel's has fallen to 10.6%, Merck has found itself with only 3.4%, and Coca-Cola has a surprising negative 7.7% 1997-2007 return. While it's great that each of these companies is still in business ten years later, the prospects for your retirement are very different now than what you would have expected ten years ago, depending on which company you would have chosen to invest in.
Luckily most people know better than to invest in just a single stock. Still, these numbers show that even the largest and most popular companies can have a very surprising range of returns over the years. Who would have imagined that Coca-Cola would be in the negative territory after ten years? This is the exact reason why a broadly allocated, low-cost and internationally diversified portfolio is the way for most investors to go, as it offers an upside while protecting your backside.
This can truly go a long way when it comes to bringing your investment returns in to a much more predictable range. But stock investments are always unpredictable in nature because you simply cannot control the stock market. However, the one thing that you do have control over when it comes to the stock market is how much you participate and how much you pay in, in order to play. For every single 1% of commissions and fees that are handed over to Wall Street and the Stock Exchange, that's 1% less of your savings that will be compounded through the next few years. Over the span of a lifetime, that can easily add up to tens of thousands of dollars, if not much, much more.
6 Working Part-Time in Retirement. It is truly amazing what a simple part time job can do for your retirement plan over time. Many employers are willing to offer more flexible schedules to retired people who want to continue working in their previous jobs, especially because so many baby boomers are now retiring without leaving many qualified employees capable of filling their shoes.