Some myths become legend, and once they reach that level of status, it’s tough to shake them from their perch. The world of retirement planning is no different. These are five myths that still exist in retiree retirement planning:
1. Don’t touch the principal — live off the interest
It’s been more than two decades since retirees could comfortably consider retiring off the interest they earned at the bank. That’s when interest rates were rich, and had no end in sight.
Fast forward to today – interest rates have been suppressed for 7+ years, and truly, there’s no quick fix. Yes, rates will rise in time, but it will be a slow, measured approach. This means that you need to take a more sophisticated look at your overall financial life. If not, you’ll find yourself living a life of scarcity when your retirement life could be filled with abundance.
2. The more a financial plan weighs, the more valuable it is
One of my mentors in the financial planning profession sometimes jokes that in his early days financial planning was delivered by the pound. Financial institutions would battle over who had the most attractive, heaviest, most premium leather binder to provide a client. But in truth, most pages were boilerplate filler.
Today’s financial plans are living documents. Generally, they are introduced with an executive summary that highlights the most meaningful aspects of your planning. The report is supplemented with 6 to 12 pages of high-level analysis and reports. The last page sometimes features an “action plan” that lists steps you should consider taking to better position yourself for retirement success.
All this data is then made available through a cloud-based software system where you (and, if necessary, your adviser) can monitor the progress of your plan and keep you on track.
3. My life is simple and I have a will – that’s all I need
I’m always amazed by how unprepared people are when a loved one (especially a spouse or parent) passes away. Without proper planning, the days following a death can be disastrous and not the way the deceased had planned.
No, I’m not talking about the division of assets and who inherits which jewelry. It starts with someone, other than the deceased, knowing where instructions are pertaining to the funeral, cemetery and final wishes.
Many people elect to keep end-of-life instructions in a safe deposit box. Yet if you haven’t given anybody instructions on where to find the key and/or who has authority to open the box, your wishes may not be fulfilled.
No matter how simple a life you lead, or how basic you’d like your funeral to be, it’s important that your instructions be clearly noted and that someone you completely trust knows where those notes exist.
4. A surviving spouse will honor the way the deceased spouse managed money
With you gone, your spouse’s life will change – forever. For a short time, your spouse may wonder, “What would John do?” or “How did Anita handle all the bills?” but soon that will fade. A surviving spouse’s life adapts and changes to the new environment.
What’s even scarier is the thought that your spouse never learned how to handle the checkbook, pay bills, purchase a car, monitor investments, upgrade cell phone plans, make decisions on extended warranties or plan a vacation.
Make certain that you are both familiar with day-to-day money management skills, or build a relationship with someone to serve as a trusted adviser for the surviving spouse who you fell will place your interests first.
5. When I retire, I need to dramatically shift my investment portfolio away from equities and into fixed income
You’ve probably heard the myth: “Invest your age in bonds and the rest in stocks.” The truth is, everyone’s personal financial situation is unique. You may need to increase your stock allocation in retirement, especially if the bulk of your retirement income comes from non-inflation-protected pensions.
More importantly, you should view your overall investment allocation by including all your investable assets. This might include money in the bank, annuities, the cash value of life insurance, personal investments, real estate, retirement accounts — and, yes, even the present value of your pension and Social Security.
With all this data, you can now build an asset allocation that truly reflects your retirement income needs.
As always, please do not hesitate to communicate with the writer if you would like additional information on this topic.
Joel Attis is a Senior Financial Advisor with AttisCorp Wealth Management and IPC Investment Corporation. Comments or questions may be submitted to Joel at email@example.com, or he may be reached at 855-1155.