Don't be a victim of poor retirement planning!
by Derrick Handwerk MBA, CWPP, CAP
This is the last in a series of three articles about underestimating the amount of money needed for a comfortable retirement. The first article laid out the current economic situation and the simple math behind why most people have underestimated how much money they need to save for retirement. The second article examined six reasons why Americans, even wealthy Americans, have not saved enough money for their retirement. The current reduced savings rate by Americans and the large amount of federal government debt may lead to a reduced standard of living for those who are looking to retire beyond 2020.There are solutions to the problem of not having enough money to retire on. Some of the answers are partial answers, and some solutions are easier than others: 1. Save more sooner.2. Reduce your expenses – live on less.
3. Be realistic about your needs vs. wants.
4. After you retire, work in an occupation that you enjoy so you can keep yourself vibrant and bring in additional income.
5. Downsize your home and lifestyle before you retire so you can save additional money and see if the new lifestyle is what you envisioned for your retirement years.
6. Take long-term care and health costs into consideration when planning your retirement budget.
7. Assume higher taxes due to structural debt issues by the various levels of government.
8. Take advantage of tax-advantaged investments.
9. Diversify your portfolio beyond just stocks and bonds.
10 Assume that you will actually need more assets to live on in retirement than your projections estimate.Many of the above solutions are self-evident. However, I would like to go into greater detabil about Nos. 8, 9, and 10.Many people tell me they are maxing out their retirement plans. In my experience, less than 50% of these people actually are taking full advantage of tax-advantaged investment plans available. You need to find a retirement plan specialist and discuss this topic.I am not sure about you, but I want to diversify my portfolio beyond just stocks and bonds. The major reason many planners suggest bonds being a major part of a retirement portfolio is the steady cash flow. In addition to being a dependable cash stream, bonds helped to cushion any stock market fluctuation. Currently, the 10-year Treasury bond interest rate is under 3 %. Not much of a return and not much of a cushion. Additionally, with bonds at historic lows, if bond rates increase, you may lose the principal value of the bond. If the stock market goes down dramatically during your retirement, you would be looking at a significant loss in value just at the time when you would not have an income to make up the deficiency. I would rather diversify into many asset classes in an effort to mitigate the large variations in the stock market.I would also rather have too much money saved at age 65 considering my spending needs than too little. I tell my clients you do not want to get a call from me when you are 85 saying I have good news and bad news: The bad news is you have run out of money; the good news is the local supermarket has openings for full-time positions with a benefit package!This series of articles was an effort to make dental professionals aware of a looming problem which may have an impact for many years. I hope you were able to glean a point or two from these articles to help put you in a better position for your golden years.
Derrick Handwerk received his MBA from Lehigh University and is a Rauch Business Scholar. He received his certification in wealth preservation and asset protection from the Wealth Preservation Institute. After college, he spent three years in the pharmaceutical industry, and then went on to run and own several businesses, including Handwerk Wealth Advisory. Handwerk Wealth Advisory works with accredited investors and small business owners. He also specializes in working with medical and dental practitioners. Visit his Web site at www.handwerkwealthadvisory.com.
