Part 4: Retirement Planning

[Part 4 of 12 in a series on How to Turn Your Financial Goals into Reality.]

The face of retirement is rapidly changing. Company pensions are dwindling or disappearing altogether while Social Security benefits for younger workers are in real danger of shrinking drastically and being withheld for several years past the normal retirement age of 65. The solution typically offered is to build up enough financial wealth through investments to offset the entitlement income that aided many of our parents and grandparents in their retirement.

Can personal wealth replace the anticipated loss of corporate pensions and Social Security? Well that’s certainly what the financial industry is banking on. Unfortunately, a large segment of the population has not yet saved enough money or doesn’t expect to save enough in the future to make up for the potential loss of entitlement income in retirement.

If you find that you are struggling to save enough of your income to sufficiently support yourself in retirement, take a close look at my plan for an alternative retirement outlined below. Even those with substantial financial assets could benefit from this plan because it provides a retiree with a wide array of options in the event some negative circumstance unexpectedly occurs in their career or with their assets.

1. Don’t Set a Specific Retirement Age
Age 62 is when most people retire because that’s when most become eligible for Social Security benefits. Beyond that, age 62 is completely arbitrary. There’s nothing about that age that makes someone less beneficial as a worker. In fact, one should probably question whether it makes sense to set any age attained in the future as “my retirement date”.

This is good advice even for those with enough accumulated wealth to retire early. Why? It’s a healthy lifestyle—staying involved and being a part of something, especially something you care about and enjoy doing. Several studies indicate that people who stay active and engaged in work live healthier lives than those who voluntarily retire from employment.

2. Save Vigorously with a Purpose
It is important to save as much as possible, even if only modest amounts. Don’t make saving an “all or nothing” proposition: “I can’t save enough to retire so there’s no reason to save any money at all.” Some amount of retirement savings is much better than none at all.

Build a disciplined habit of saving money for the purpose of having a retirement income in the future. Take advantage of your company’s 401(k) if they have one. If not, open your own IRA account and fund it every year as close to the maximum as you can. If you’re not sure how to get started in these areas, consult a reliable Registered Investment Adviser or other financial counselor.

3. Eliminate All Debt
Debt is a relentless drain on everything you’re trying to accomplish with a retirement plan—a drain on savings, a drain on the cost of educating yourself, building a business—even a drain on your confidence—how am I going to pay all this money back?

Work diligently on eliminating all forms of consumer debt, including home equity lines of credit. Never borrow against your 401(k) retirement savings—that will erode the growth potential. If you have a mortgage, consider paying it off early.

4. Develop a “Lifelong Learning” Plan
A tremendous option for maintaining financial stability is to be willing to change careers or have a backup skill. The number of American jobs lost to emerging markets where wages are lower and to obsolescence is accelerating. Maintaining employment, both pre- and post-retirement, is enhanced by our ability to be flexible and stay versatile.

Initiate a lifelong learning plan designed to evolve your employment skills as conditions change. Something you learn today could be a source of income in ten years.

5. Incorporate a Health and Fitness Regiment
High medical expenses are a real threat to financial stability at any age, but is statistically more threatening to people over the age of 65. Reliable medical research indicates that overweight individuals are at a much greater risk of developing chronic diseases.

Chronic disease not only curtails the enjoyment of life, it may even shorten it. In addition, treatments for chronic diseases require a lot of money out of pocket—money that will come directly out of your income stream.

Next time we’ll discuss how to establish an investment plan and examine some time-tested investment strategies that can help your retirement savings grow.

Dale A. True, Registered Investment Adviser
True Financial Strategies, LLC
July 2008

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