The Importance of Keeping Your Retirement Plan “Safe Money First” Simple!

Taking the Hassle Out of the Holidays

Today’s economic conditions remain uncertain, and it ‘s having a tremendous impact on how Americans foresee the future. In a nationwide public opinion report from the National Institute on Retirement Security, many Americans were found to be anxious about their retirement. Among those surveyed, 86 percent indicated they believe America is facing a looming retirement crisis. And in addition, 75 percent said they are concerned about their capability for achieving a secure retirement.

Given present circumstances, it’s easy to understand these fears. Many people worry about whether they will have enough money in their retirement years. It could be for paying medical expenses, maintaining a certain lifestyle, or covering costs of daily living. Much of the retiree community is thinking about how much money they will be able to leave to their loved ones, as well.

However, a secure financial future needn’t be filled with worry.

What’s the Solution?

A financially secure retirement begins with having an effective retirement plan. The first step is keeping in mind the three stages of financial life and how each differs from one another: the accumulation stage, the preservation stage, and the distribution stage.

  • Accumulation stage – The period during which wealth is accumulated. This phase occurs in a person’s working years (20 years of age – pre-retirement age).
  • Preservation stage – The stage of life in which people begin approaching retirement. In this phase, it’s important to ensure your financial portfolio isn’t tied up as much in investments with strong risk (for instance, the volatility of the stock market).
  • Distribution stage – Your retirement years. During this phase, people rely upon the wealth they built up in earlier stages for income. In the case of an annuity, wealth will have accumulated in your annuity’s cash value. Now you will receive payments from your annuity as a guaranteed source of income.

During the preservation and distribution stages, you need to keep your “safe money” – or money which is safe and protected from risk – first. Ask the right questions to determine the particulars of your retirement plan:

  • What age would you like to retire at?
  • What will be your goals and aspirations post-retirement?
  • How much do you currently hold in retirement savings?
  • What are your current living expenses?
  • Assume an inflation rate of 3-5%. With this in mind, what will be your future living expenses?
  • Will you be working part-time to further supplement your retirement income?

Retirement plans will differ for employees, employers, and business owners. Learn about the different options at your disposal, and plan according to your unique circumstances. Be sure to fully educate yourself about your Social Security benefits and what they entail.

Determining Retirement Income Needs

A big part of your retirement plan is figuring out your future income needs. In general, there are four primary sources of income for retirement: Personal savings, Social Security, an investment portfolio, and/or pensions or other retirement vehicles.

When evaluating your income needs, think about your present conditions. What do you have in terms of income, expenses, assets, and debts? Consider your future circumstances as well – will you be living in your current home? Or maybe you will live with your children, move to a condominium, or a retirement community. If your current income will not meet the demands of the lifestyle you desire, it’s time to start making changes.

Risk Tolerance: An Important Variable

Another important factor is determining your level of risk tolerance. Or in other words, it’s how much market risk to which you’re willing to subject your financial portfolio.

Market-based investments will offer greater return potential. But they are more likely to suffer from the effects of market downturns. Your investments will lose value when these market downturns occur – and it can take time for them to recover. In the later stages of life, time is precious. A more conservative risk tolerance may be a good practice to incorporate.

The Rule of 100

To determine what risk tolerance is appropriate, here’s a solid principle to follow: The Rule of 100. Simply put, take your age and subtract it from 100. The resultant sum offers guidance as to the maximum amount of market risk you should have in your portfolio.

For example:

  • If you’re 60 years old: 100 – 60 = 40. 60 percent of your portfolio should be protected from market volatility and 40 percent should be allocated to maximize long-term growth.
  • If you’re 75 years old: 100 – 75 = 25. 25 percent of your portfolio is a safe proportion for growing your portfolio, in this instance.

Additional Resources

Like with all other parts of your financial journey, education is the key! Carefully evaluate your financial circumstances, fully educate yourself on the options at your disposal, and then you can meet with a financial professional about your retirement future.

If you’re ready for personal guidance from a financial professional, can help you. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

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