How To Retire Comfortably – A Roadmap For Success
An estimated 30% of Americans will have enough money saved to retire comfortably, but then, we each have our own definition of what it means to “retire comfortably” don’t we? So before you decide to take the leap away from your place of employment, here are a few important things to consider.
First and foremost, are you psychologically ready? For many retirees it is important to have hobbies, a sense of purpose, and/or ways to stay busy. A large percentage of retirees suffer depression when they don’t replace their career with meaningful activities. Find your passions. You probably have several passions: maybe traveling, golf, creating art, volunteering, charity organizations, or whatever it was that you’ve always wanted to do but never had the time.
But before you say “Hasta La Vista Baby” to your lifetime employment and make a huge down-payment on that beachfront property with palm trees, it´s best to look at your retirement savings. If you have an employer-sponsored retirement plan (401(k), 403(b), etc.), find out the options for withdrawal from the plan. Does your plan allow you to take withdrawals for only a portion of the balance? How often can you take withdrawals? Do they allow you to take installments or systematic withdrawals? What are the investment options? What are the restrictions? Make sure to write everything down for future reference and wait before you make a decision for those funds. There is no rush here and there are many important pieces of information for you to consider since there is no one-size-fits-all solution to retirement.
It is important to find a competent financial planner that you can trust. Make sure you meet with a few before you hire any one of them. Financial advisors are not equal, but, like all professionals, have a wide variety of education, training, and experience. With each advisor, make sure you evaluate their credentials. Do they have any financial designations (CFP, CFA, etc.)? Licenses are only a requirement for doing business, not the same as professional designations. These designations may show that this professional has dedicated the time to become a master of their profession.
After choosing a financial advisor, carefully evaluate what they are proposing. Are they recommending investments specifically tailored to your needs? Is your money locked up? Are there any costs for you to liquidate the investment? Does the advisor simply recommend an investment or do they carefully evaluate your overall financial situation? Do they provide a comprehensive financial plan? How does this advisor intend to add value to your life? It may take several weeks for you to find the advisor that best suits your needs.
During this evaluation period, it may be worth the time to look at the website http://brokercheck.finra.org. This website will tell you if the advisor has any past litigations for recommending unsuitable investments, malpractice, etc. If a broker has more than one significant disclosure on this website, you should consider a different advisor. Since it has taken a lifetime of saving for you to get this far, make sure you find a competent advisor that can navigate you through retirement.
Once your advisor is selected, it is time to put the planning process into overdrive. You and the advisor will have many important decisions to make. Should you leave your retirement money in your old employer’s plan or rollover your funds to an Individual Retirement Account? What should the overall asset mix look like? These decisions will be based on your accumulated wealth, spending habits, goals, objectives, risk tolerance, and rate-of-return expectations. Finally, an effective withdraw strategy should be utilized so that you do not outlive your wealth.
After your advisor has implemented the strategy that you both have agreed upon, be sure to monitor investment performance. Focus on whether or not your advisor is achieving goals outlined in your financial plan. Unless you are investing with Bernie Madoff, every investment will go up and down. Look at long-term performance rather than monitoring month-to-month activity. Attention to short-term returns will lead you astray. It is better to evaluate portfolio performance every few years. Make sure your expectations are rational. For someone in retirement, the S&P 500 is most likely to not an appropriate benchmark for you to monitor your advisor’s performance against. In this case, your returns will most likely be lower than the S&P 500 but it is important to remember that your portfolio would have a lower risk level (under normal circumstances).
If your portfolio has underperformed and your advisor does not have a reasonable explanation, it´s time to shop for new advisor. A good advisor should be meeting with you to review your financial performance no less than once per year. Long-term, “eyes-on-the-prize” financial planning should both preserve your wealth and leave a legacy for your loved ones.