(Forbes) For most people, retirement planning is a critical, but often overlooked, a step that they don’t face until later in life. Just like most things on Wall Street, there are several ways to successfully plan for your retirement, the key is to find one that works for you. That said, here are three timeless lessons for your consideration:
1. Enough Money Is Not Enough - Your Living Expenses Will Be Higher Than You Think When You Retire
Most people create a plan that will give them “enough” money when they retire. The problem with that mindset is that it does not account for the unexpected (and often expensive) surprises that happen in life. Some of these surprises can be unforeseen medical costs (including LTC), unavoidable travel, income taxes (For most people, Social Security is considered taxable income), unplanned debt (most retirees today still have a huge mortgage or other debt), and inflation. So, it is not enough to plan for enough money when you retire, to be safe, you want to have more than enough money.
2. Always Respect Risk - Your Portfolio Is Probably Taking On More Risk Than You Realize
Respecting risk is one of the most important components to a proper retirement plan. Most people invest 100% of their retirement portfolio into the stock market. In up markets, that is a great investment because your portfolio grows steadily but in bear markets that is a very risky proposition. Remember, a bear market is defined by a decline of at least 20% or more from a recent high. Over the past 100 years there have been 8 devastating bear markets, ranging from -21.8% to -83.4%. The last bear market was in 2008-2009 and the market was cut in half. It is important to note that another bear market will happen, it is just a matter of when, not if. The key is to prepare for it now, before it happens. Not after the fact.
3. Update Your Retirement Plan Frequently - The retirement plan you created just 5 years ago is probably obsolete or needs to be updated.
Think about everything that has changed in your life in the last 5 years. For most people, their occupation, income, spending, health, or even geography may have changed. That’s why it is imperative to update your retirement plan to make sure your plan stays aligned with your current (and future) needs. I spoke to Stephen A. Hartel, AIF® Wealth Advisor at Trilogy that has $3 billion in assets under management, and he told me, “Your plan needs to be a living, breathing thing that you and your advisor work on every quarter or at least every year.” Steve told me that he does not believe in cookie cutter financial plans because everyone’s needs and goals are different and that inspired this article.