In Personal Finance on October 12, 2008 by TJ Rutkowski Tagged: 39 Steps, Broadway, Hitchcock, Retirement
I saw The 39 Steps on Broadway last Thursday, and had a few good laughs. It’s a clever comedy where four actors portray over 100 characters wrapped up in espionage with an homage to Hitchcock. Even though the play wasn’t related to finance, my mind drifted to the massive losses hitting investors around the globe.
The market is still making some scary moves, leaving a lot of people with vertigo. I am lucky because I have more than 30 years for my portfolio to recover, and plenty of time to shift my plans and reset my expectations before I need to start withdrawing money.
If you are closing in on retirement, it’s time to revisit your financial plan. If you don’t have a plan, it’s also a good time to put one together. By taking time to think about your needs and expectations, you’ll be able to make smart decisions about your finances and feel more secure in your future.
Recently, I gave these suggestions to a friend planning on retiring in the next 5 years. Her portfolio is overweight in stock, and she has been gradually shifting it to a balanced asset allocation. She wanted to know if she should take money from her rollover IRA to pay credit card debt.
- Save as much as you can to get the biggest company match
- Invest all retirement new money in the money market
- Put all extra money against your credit card debt
- Continue the gradually shift to a Balanced stock/bond/cash portfolio
The concept is to build up a cash and bond portfolio for stability. The cash will be the first money to withdraw at retirement, giving stock positions more than 5 years to potentially come back (admittedly, there is a lot of growth to recover here).
By withdrawing money from a retirement stock portfolio right now to pay credit cards, you would be selling at a low point in the market. While the market can still go down, my suggestion is still to make gradual moves. The other issue to be aware of when you withdraw from an IRA is taxes. If you take 10k out, your income goes up by 10k, and you will owe more taxes this year.
While this advice fits her attitude towards investing, it’s not right for everyone in that situation. Consider this question as a guide for your approach today. What did you do when the dot com the bubble burst? And then on 9-11? This is a great indicator of your stomach for volatility. If you didn’t sell off then, you can probably weather the volitality we’re seeing right now, too.
In Personal Finance on July 27, 2008 by TJ Rutkowski Tagged: Financial Planning, Retirement, Retirement Income
The media, financial advisers, and baby boomers across the country are all talking about retirement. The definition of retirement is changing in ways that everyone should notice.
- Retirees need to rely on their personal savings as a key component of cash flow in retirement, rather than company pensions.
- Many retirees need advice on how to make sure their savings lasts long enough, and opportunistic financial advisers are ready to help.
I have been working in the financial services industry for nearly ten years, and have spent a lot of time with clients and family members transitioning into retirement. It is important to realize that at the time of retirement, your financial situation is pretty much fixed. To immediately improve your situation, you need to spend less or earn more. To protect your situation, and hopefully improve it over time, you need to be proactive.
There are many trustworthy financial advisers, and a lot of scam artists. Even among the trustworthy advisers, you can find people who lack knowledge of retirement planning. If you are searching for help, Suze Orman offers great tips for choosing an adviser. Walter Updegrave has an excellent column in Money magazine and an online Q&A covering personal finance. Retirees need someone on their side.
Set a Spending Limit
By definition, retirement lasts the rest of your life and financial decisions can have a significant impact on your quality of life. No one wants to give up their decision-making independence, and most people don’t want to become dependent.
One of the best practices to help retirees maintain their independence is to set a spending limit. For example, I have a former client who is retired. She came to me after an adviser sold her expensive mutual funds, annuities with high surrender charges, and a refinanced adjustable rate mortgage. Three strikes with a long-lasting impact on her situation.
As we worked together to create a retirement plan, we included her children in the discussion. To balance her financial independence with the need to make decisions outside her expertise, the family agreed to discuss any decision over $1,000. A few concepts that reinforce the spending limit include:
- If someone offers you a deal that is too good to be true, it is.
- If someone tries to force you into a decision without getting a second opinion, it is a bad choice.
- If the great deal expires when you leave the store/hang up the phone, it is not a great deal.
It is much easier to wait one day to make a large commitment than it is to reverse a completed transaction. Retirees: please don’t be afraid to ask for help. Helpers: remember that it is not easy to ask for help, especially after decades of independent decision making.
I saw The 39 Steps on Broadway last Thursday, and had a few good laughs. It’s a clever comedy where four actors portray over 100 characters wrapped up in espionage with an homage to Hitchcock. Even though the play wasn’t related to finance, my mind drifted to the massive losses hitting investors around the globe.
