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Financial Planning

Is Your Retirement Plan Completely Backward?

You’d be surprised that many people go about the planning process the wrong way. Instead, here are 3 key steps to help achieve a comprehensive retirement blueprint.

When you are younger and it comes to investing and saving for retirement, what’s happening with your investments today or next week isn’t as critical as when you are nearing or reach retirement; it’s the long-range outcome that counts.

Unfortunately, many people are fixated only on what’s happening inside their portfolio right this minute. I’ve met DIYers who brag about spending hours watching the daily machinations of the market, and they celebrate or pout, depending on the gains of the hot new stock they just purchased. Others (including my grandpa back in Illinois) put their complete faith — and funds — into dividend stocks. And then there are those who funnel their entire nest egg into a 401(k) or IRA with just one or two mutual funds.

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They’ve got their tools, but not a plan. And, in my opinion, that’s all wrong. Completely backward, in fact. Retirement planning is a process, and it should go like this:

1. Choose your goals

Maybe you want to retire at a certain age and/or with a certain income to maintain your lifestyle. Or your goal might be freedom — the flexibility to do what you want when you want with your money. A lot of people tell me they simply don’t want to become a burden to their family; they want to be self-sufficient. And others are determined to leave some kind of legacy behind for their children. Perhaps it’s all of the above. Whatever you decide, it’s crucial to know what the goal is before you set out to achieve it.

2. Work out your strategies

You should consider including the following in your retirement plan:

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  • An income strategy that will reliably cover your expenses for the rest of your life. This, of course, means knowing what your expenses are. But it’s also about maximizing your Social Security benefits, having a plan for inflation, knowing how a surviving spouse will adjust to any changes in income and expenses; and helping protect your assets against longevity risk, as retirement can now last 30 years or longer. My great grandmother, whom I called Great Mommy, lived to 101. A major fear of retirees, above even death, is outliving their income.
  • A financial strategy that will help protect and preserve the assets you don’t draw from month to month. This includes assessing (or reassessing) your risk tolerance; looking at how you can minimize fees within your portfolio; understanding volatility and how it can hurt your portfolio, especially in the years just before and after you retire; and looking at ways to reduce risk while still working toward your goals.
  • A tax strategy that helps you morally, legally and ethically disinherit the IRS and keep more money for your family. Whether your tax rates go up, down or stay the same in the future, you’ll need a plan. This means assessing the taxable nature of your current holdings (pretax vs. after-tax, for example) and the order in which you’ll withdraw from different types of accounts.
  • A health care strategy that addresses rising medical costs and looks at long-term care options in case of a chronic illness.
  • A legacy strategy that ensures your money gets to your beneficiaries in the most tax-efficient way and your estate doesn’t end up in probate. Working with estate and tax attorneys, you may wish to set up a trust or other protections to prevent your IRA from becoming fully taxable to your beneficiaries upon your death.

3. Choose your financial vehicles

Once you decide on your goals and strategies, you can confidently pick the financial tools that will help get you to where you want to go. And there are plenty to choose from depending on your needs, including stocks, bonds, mutual funds, annuities, real estate, commodities, limited partnerships, life insurance and more. Each has its pros and cons, depending on where you are in the game.

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When looking at retirement planning, I like to use this analogy: Let’s say your goal is to build a house. Your strategies are like the blueprint. Your tools are the places you can put money — like stocks, bonds, mutual funds, ETFs, annuities, real estate, commodities, life insurance, limited partnerships, alternatives. Just like you can’t build a house with only a hammer, you can’t build a financial house with just a mutual fund. You’ll need a whole range of tools/financial vehicles.

The foundation of your financial house should be different than the walls and different than the roof. Each section is different, but they work cohesively together.

The foundation is money that you would like to help keep protected from market risk. The walls represent money that’s in the market, but is income focused with low volatility and high-yield investments. The roof is focused on growth over income and may be more volatile.

What does your financial house look like? Consider having a financial adviser look at your current financial house’s blueprint. It’s important to confirm that your foundation, walls and roof are all structured the appropriate way and don’t have any cracks. There can be 30 or more years of financial security at stake. For that, you need a comprehensive retirement blueprint and a specialist’s guiding hand.

Kim Franke-Folstad contributed to this article.

About the Author

Joshua M. Blaker, RFC, Investment Adviser

Founder and President, Accrue Wealth Designs

Joshua M. Blaker is founder and president of Accrue Wealth Designs, a full-service financial advisory firm. He began in the financial-services industry in 1997, working alongside his father. As an income and preservation specialist, Blaker works with retirees and individuals planning for retirement. He has passed the Series 65 securities exam, qualifying him as an Investment Adviser Representative in Arizona, and holds the Registered Financial Consultant (RFC®) designation. He is also licensed as an Insurance Professional in multiple states for life and health insurance. Investment advisory services offered only by duly registered individuals through AE Wealth Management LLC (AEWM). AEWM and Accrue Wealth Designs are not affiliated companies. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. AW06183444

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