Retirement Planning

Financial Life Planning / Investment Management / Retirement / Special Needs Planning / Budgeting & Consultation / Why NextStep is Different

1. Dream Specifically

If you are within a 10yr horizon to retirement, having a goal of “retirement” is not enough. Seek out a financial planner who will help you dream, and build a specific vision of how you will spend your retirement. What will you do with your new-found time - specifically? Will you spend your summers at the shore? Will you take 2 months a year to spend with the kids? Do you want to still work part-time? Will you move? Will you keep things pretty much the same, but spend more time on the golf course, or sipping tea in the backyard? How will you spend your ideal day - your ideal week? How is that ideal year structured? 

2. Structured Savings

What is the single most important secret of investing for retirement? - Structured Savings - Making regular contributions to your employer sponsored retirement plan and/or your IRA is the most important action step to a successful retirement investment plan. What investments you choose, your asset allocation, how often you rebalance you accounts are all important, but nothing is more important than putting automatic monthly, bi-monthly, or weekly contributions into place. Work with someone who can help you determine how much to put aside each period (either what you are projected to need, or what you can afford). And lock it in place to happen without you having to attend to it. This hands-off, automatic, structured savings, is the biggest favor you can do for yourself & your retirement plan. Remember to “pay yourself first, and make the rest of it work”.

3. Take Enough Investment Risk

How you invest that structured savings is also important. One of the biggest mistakes people make in their 401k plans is to play it too safe. “I want to be sure what I put in there is still there when I retire.” Remember Inflation - The amount you put in there may still reflect the same number, but what that number can buy will be significantly smaller.

And your retirement could be 20, even 30 years long. You must take enough risk in your investments to at least stay ahead of inflation. An article from Consumer Reports magazine, February 2010, sites their survey on retirement satisfaction: “Taking on even a moderate amount of risk pays off. Median net worth for retirees who said they took a middle-of-the-road approach, was $836,000 vs. $671,000 for conservative investors. Notably the difference in net worth between self-described moderate and aggressive investors was relatively small: a $57,000 advantage for the more aggressive. The lesson: You don’t have to go out on a limb to get the best return. Diversification will help you reduce the risk.” 2008 scared all of us, but it didn’t change the fundamentals of the economy, the stock market, or the principles of sound investing.

4. Study Multiple Scenarios

Find a financial planner who will take the time to look at plan A, B, and C with you. The “what ifs” are important. What if - we keep things the way they are? What if - we sell this house and move south to that townhouse on the golf course? What if - I were to work part-time to something I enjoy more? Each will have different expenses and impact on your satisfaction with retirement. Back to Dream Specifically - it’s important to evaluate the pros & cons, and examine the impact of different scenarios. Dreaming Specifically - allows you to clarify what is most important to you, and gives you a value driven vision to guide all your other decisions.

5. Don’t Sweat the Small Stuff

Believe it or not, which mutual fund you choose to invest in is one of your least important decisions. Whether you choose Fidelity Contrafund or Vanguard Primecap for your large company growth exposure will make only a small difference in your savings over the long-term. What does matter is having exposure to multiple asset classes - Stock in Large, Medium, and Small US companies - International companies in Developed markets & Emerging markets - Real Estate - Natural Resources - Commodities - US Corp Bonds - Inflation Protected Bonds - International Bonds. Some situations may call for further breaking down stock exposure to Growth & Value, or adding High Yield bonds, US Treasuries, CDs and Money Markets. How much you save is the biggest determinant of whether you meet your financial goals, but setting and maintaining an appropriate asset allocation is easily the second-most important factor. Work with your financial planner to determine the best asset allocation for your circumstances, and a plan of how to maintain that allocation.

6. Implement & Review

Don’t put a lot of work into planning, then let the plan sit on the shelf without having a true impact on your life. If you’re going to put the work into pulling all your financial details together, building your budget around structured savings, and wrapping your mind around investing concepts - follow-through with the recommendations, and review periodically. Review the plan at least annually, and whenever you are experiencing, or thinking about, a transition in your life. Such as - Marriage, Divorce, Childbirth, Child leaving home, Leaving a job, Buying a second home, Changing Careers, Retiring, etc.

Learn more about Special Needs Planning