“Where do you want to be in five years?” The question once sent shivers up and down the spine. But whether a hiring manager or a financial advisor asks it, you’ll still need a good answer. To be better prepared, first ask yourself these questions:
- What do I earn and what do I save?
- Can I earn more; live on less and save more?
- Am I invested to hedge inflation?
- Am I as tax-smart as I should be?
- How risk-averse am I?
- What do I owe and when will my bad debts be paid?
- What do I need, and when?
- What do I want?
- What are my goals?
- How and when will they be achieved?
Most people are so involved in what’s happening today that they aren’t able to think about tomorrow, much less five years from now. One day you could be sitting in a business-as-usual meeting, and the next day you are staring involuntary termination or early retirement in the face. Both are highly unexpected, unwanted risks.
Having an “emergency preparedness” plan will help you navigate toward a practical outcome, which is why Hefren-Tillotson advisors view the future through your eyes, to ensure that you’ll be financially and emotionally organized for whatever comes your way.
The plan you create should be the plan you stick to
Successful retirement planning requires unbiased advice, flexibility and the willingness to look at all aspects of your life and tailor your objectives to averting the ultimate future risk of outliving your money. Ideally, successful investing systematically focuses on short, medium and long-term, well-defined goals.
But be warned: this road is littered with everyday expenditures that cause you to spend more, more frequently. The plan objective is: spend less, make more, and then invest even more. How do you do that?
- You must have a reasonable budget.Like running a business, jot down your expenditures and have regular budget reviews. Your personal balance sheet and personal income statement will tell the tale. But to spend less, you must have discipline and restraint, especially after seeing how over budget you are.
- You must pay yourself first.Apart from your 401(k), give yourself 10% to 15% per month toward savings, if you can, while keeping in mind your paychecks will only come from you in the future as self-employed.
- You must invest more. As you earn more – in your new job or old job, your big bonus or small bonus – don’t spend it; add it to your contributions or other investments. Your financial advisor is your best resource for this. He or she will advise you that there is no stock and bond mix that excludes the possibility of loss. To experience higher returns, you’ll have to tolerate greater losses.
Because an advisor’s knowledge and experience working with individuals in similar situations, you’ll need this professional expertise to guide you through investment choices and mixes of stocks, bonds, annuities and mutual funds, mortgage and lending opportunities, life insurances, disability, health and long-term care insurance, estate planning and tax planning.
It’s about perception. Yours
Hanging on to a struggling stock or annuity – “staying the course” – tied to the belief that “hanging in” for the long haul was the right thing to do? Nonsense. You lost valuable time and money that cannot afford to lose. “Don’t get married to the stock,” is the axiom. Staying the course only makes sense up to a certain point. And then you must cut your losses. Keep in mind that a 50% loss requires a 100% gain.
The government says you’ll live an average of 20 years in retirement. So the money you put in during your working years, and Social Security, is what you’ll live on when you retire. Therefore, you must nurture, protect it from loss and know how to spend it wisely. You must know how to make more of it, too.
Will you spend less money in retirement? Only you’ll know. Experts say you’ll still need around 75% of what you were earning before. And with rising healthcare costs, taxes and inflation always menacing, you must be vigilant – and thrifty.
Retirement: time and money
Malcolm Forbes said, “Retirement kills more people than hard work ever did.”
How you spend your free time is important. Although exercising, staying active and spending quality time with others is a good start, maintaining mental sharpness is equally important as physical or financial fitness. Test yourself and try new things!
How to Retire Wild, Happy and Free author Ernie Zelinski celebrates retirement as the beginning of a new life.
“Retirement is the perfect time to become the person you would like to be and do the things you have always wanted to do. In short, it’s up to you to design a lifestyle that is as relaxing and invigorating as you want it to be.”
Amen to that.