There was an article in Boomer magazine this month about prospective retirees who may be thinking twice about their retirement plans in light of the recently sour economy. It sounds like a reasonable concern to me. If your investment portfolio is off 15% over the past three months and your home price is steadily declining, your confidence about retiring is probably lower today than it was last year. How can you handle this situation?
My guess is that most people don’t view a retirement date as a black and white sort of event. You do it when you’re emotionally and financially able to face life with less responsibilities and a presumably lower income. I mention emotional readiness because retirement is about a lot more than having a million dollars in the bank. It’s a state of mind and retiring too early can have very negative affects on people. I’ve seen it with my own clients. The idea of postponing retirement because of what could be a brief market fluctuation is alarming to me. What if the market fluctuation occurred next year, right after you quit your job and moved to North Carolina? I suppose you would have altered your portfolio around the time of retirement so that less of your money is in growth-oriented investments and more of it is bonds and cash. That might not have helped too much given the weak performance in the bond market lately.
Coupled with an increasing life expectancy, I think people need to be truly confident about their future income sources before dismissing any current ones. If you own your home and plan to have a modest retirement funded by Social Security and taking income from a few hundred thousand dollars in savings, it’s good to understand precisely how much monthly income this will ultimately yield. Coming up with these figures is usually a good time to sit down with your financial advisor–if you have a good one.
On the theme of income production, you may have noticed the surge in television ads from financial institutions marketing insurance products to retirees lately. Much of this marketing is targeting people who have lump sums of money and are considering trading that lump sum for guaranteed income payments–often for life. This is a big deal for many people because the traditional strategy of growing your portfolio and taking out distributions when you need them becomes really difficult in the market we have today. There is intense volatility in both the stock and bond markets which makes it hard to determine from month to month how much money you have available.
As I’ve talked about on the blog and in my book, retirement in the 21st century isn’t like it was in the 1980s and 90’s. People often retain part-time jobs during retirement to keep busy and bring in a little extra side income. Some of my clients have even found web-based jobs in which they can earn a few hundred extra dollars each month from the comfort of their home. All of these things should be considered before you retire. If you’re married, have an open discussion with your spouse about any and all concerns including the financial implications of retirement and the overall lifestyle changes.
Overall, if you’re reconsidering your ability to retire, this is probably a good thing. It will polarize the issues and force you to consider your future scenarios. Ultimately this should lead to better planning. Questions or Comments? Feel free to e-mail me.
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Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities