So much has changed in the last few years. The financial system took it on the chops. Interest rates are at historic lows. The economy is languishing. But the real question is… should we make any major changes to our retirement strategy?
In strategy, planning is everything. Those that plan for the ups AND the downs are going to have the highest level of success. And when it comes to retirement, success is everything… there is no second place. You either achieve a comfortable retirement or you don’t.
So what should you do to increase your chance of retirement success? When you are reviewing your plan, you should keep these 4 things in mind.
1. Don’t listen to Gordon Gecko – Contrary to the movie Wall Street’s character, Gordon Gecko, greed is NOT good. In 2007, right before the major stock market meltdown, almost half of all workers ages 56 to 65 had over 70% of their 401(k)’s invested in stocks according to the Employee Benefit Research Institute. What! It is very apparent that most people looked at the stock market as a sure bet going into retirement. The stock market is NOT a sure thing… it is a tool that is used to keep us ahead of inflation… use it as such.
2. History Repeats Itself – The market has crashed before… and it will crash again. Bonds have crashed before… and they will crash again. Heck, even banks have crashed before… and yes, even they will crash again. You have to plan for these contingencies. Don’t worry, there are ways to plan for these types of issues. But the key word there is “plan”… you have to include these concerns in your plan.
3. Take a deep breath! – The most successful investors of all time had one thing in common. They all had nerves of steel. They had a plan and they stuck to it. Now, that’s not to say that they didn’t change their plans occasionally… but they only changed their plans after a lot of thought and deliberation. They NEVER made a decision without thinking about the plusses and minuses of that decision. They did not manage their money by having knee jerk reactions. Have a plan… stick to it… and only change it after some serious deliberations.
4. There’s growth and then there’s growth – Many people, including financial advisors, over estimate the importance of stock growth and under estimate the importance of dividends and their compounding power. Much of the gain that has been attributed to the stock market over the decades has actually come from reinvested dividends. Without those, the return would have been significantly less. In addition, you are going to need income from your portfolio, sooner or later, so dividends allow you inflation protection AND income when that time comes.
I cannot stress enough that doing a little planning before things happen can be the difference between success and failure… a great retirement and one full of stress.
If you don’t think these essential issues have been covered in your retirement plan. Please give me a call so that we can speak about them.