STEP 1 – Make a Plan
If you wanted to build a house, you wouldn’t start with a pile of bricks and tools and then try to figure out how to build your home based on the materials lying in front of you. You would first have a blueprint that offered exact dimensions and specifications about how your house should be built. A builder would be able to use your blueprint to formulate a budget and time frame, gather the appropriate materials, and construct your home.
Unfortunately, when it comes to retirement, too many people fail to take the same systematic approach. Instead of starting with the end in mind, they look at their portfolio and say, “What kind of lifestyle is this going to get me?”
Here are some concrete things you can do to begin establishing a plan for your retirement:
– Spend time talking about your ideal retirement with the important people in your life, especially your spouse. Discussion points should include when you plan to retire, where you want to live in retirement, and what you want to do with your time.
– Next, figure out how much money you will need to transition into and subsequently fund your retirement. You may be tempted to just guess how much money is required to retire, but it isn’t a guess; it’s math. Getting this number wrong could lead to disastrous results. If you haven’t already done so, put together a personal income statement and then project forward your expenses.
(NOTE: Snider Advisors’ free web-application, My Financial Plan®, can help you calculate the assets required to support your lifestyle. You can also get a free template here to use for your financial statements.)
Keep in mind, the average 65-year-old, non-smoking couple will spend an average of thirty years in retirement. Also, don’t forget to factor in the effects of inflation, which most people badly underestimate. For example, assuming a 3.5% rate of inflation, a $100,000 lifestyle today will cost nearly $200,000 twenty years from now.
– Make a list of actionable steps that you can take to ensure you will have the highest probability of financial success in retirement. Your list might include items like creating an emergency fund, eliminating bad debt, delaying retirement or Social Security benefits, converting your traditional IRA to a Roth, and finding an investment strategy that will meet your long-term objectives.
(NOTE: Check out our free special report, It’s All in the Timing: Evaluating the Best Time for You to Begin Taking Social Security for our thoughts on this subject. You can download it here.)
Lastly, do not retire until you have sufficient assets and know how to use them to generate the cash flow you’ll need to support your lifestyle indefinitely into the future.
STEP 2 – Invest for Cash Flow Now
For most of your adult life, you will use your paycheck to meet your expenses. But what happens when you no longer have a paycheck coming in? Whatever your expenses are in retirement, you must have enough cash flow, from sources other than your job, to cover those expenses indefinitely into the future.
Most of us have only been taught to invest for capital appreciation. With capital appreciation investing, the objective is to make money when you sell an asset, which can create a significant problem if the asset declines. The key characteristic of cash flow is that you don’t have to sell the asset to make money; you earn passive income while you still own the asset. If you don’t need the income, you can re-invest cash flow to create compounding growth.
Cash flow investing limits your conversion risk. What if the market takes a nose dive in the six months before you plan to sell your assets and retire? There’s a good chance you will either have to delay your retirement or live off of a considerably reduced amount. On the other hand, if you’re investing for cash flow, you can simply start taking withdrawals from the income your account is generating versus reinvesting it.
Capital appreciation investing may have been appropriate when other sources of income were guaranteed, but today’s reality is that the burden is largely upon you to create a source of income that you can count on.
Investing for Retirement teaches you how to implement the Snider Investment Method® in your portfolio. The Snider Method is a long-term investment strategy that focuses on producing cash flow. To learn more about cash flow investing, read our special report, How to Not Just Survive, but Thrive, in Turbulent Financial Markets.
STEP 3 – Manage Risk
You must insure the risks you cannot afford to take. Your biggest risk is not the fluctuations of the stock market or the economy – it is outliving your money.
The biggest “X-factor” in retirement is health care. Health care costs have been rising at a much faster rate than core inflation. This is why a comprehensive insurance plan that covers major medical, outpatient, and long-term care costs is crucial to protect your nest egg.
One of the worst things you can do is go into retirement under-insured. Failing to plan how you will pay for healthcare has the potential to wipe out a lifetime of work. The most important items to plan and budget for are:
– Disability insurance – if you’re still working
– Private health insurance – if you are under age 65
– Medicare and Medicare Supplement insurance – if you are over age 65
– Long-term care insurance – if you’re over the age of 40
– Term life insurance – if your death would create financial disruption for someone else
Most people understand the need for basic health insurance in retirement, but underestimate the benefit of a long-term care policy. The average cost of just two to three years of long-term care could potentially exhaust the assets of many Americans. Private health insurance and Medicare cover little of the necessary costs, and Medicaid will provide coverage only after you have spent down your assets.
Risk management is the foundation of a solid financial plan, especially in retirement. Don’t risk a lifetime of hard work and savings. Make sure you are properly insured in retirement and protected against rising health care costs and the need for long-term care. You simply can’t afford the alternative.
Where To Go from Here
Snider Advisors can help you make your retirement a reality. If you’d like to learn more about the Snider Investment Method®, explore your insurance options, or talk to us about retirement planning, we’d be happy to help! Give us a call at (888)676-4337 or email us at support@snideradvisors.com.
