Let me begin by explaining my definition of “planning for retirement” as making contributions into any sort of plan for the sole purpose of accumulating savings. You may be wondering what I mean by that. I understand, because isn’t this action precisely what almost everybody seems to be doing? Once again, I am here to tell you that this is the entirely wrong approach. Yep – I just said the wrong approach!
Let’s do one of my favorite things together right now – think about it for just a moment. Should you (or anyone serious about their financial future) be focusing on how large the balance of your nest egg is, or instead on how much of that balance actually belongs to you? You know, the portion of that nest egg that you’ll really get to spend when the time comes and/or how much your heirs will actually end up receiving when it’s all said and done? The answer is pretty obvious.
It is imperative that you separate yourself from the crowd that simply signs up for a retirement plan, whether at work, that they saw on TV, or that was recommended by a trusted friend or a really smart and cool financial guru, because any plan that focuses solely on accumulation (planning for retirement) absolutely will not cut it when you need it most – and believe me, that time will come sooner than later.
What Should You Be Planning For?
Having spent more than a decade helping real-life retirees successfully plan for their golden years, I can confidently tell you that the only correct approach I know of is to plan for “retirement INCOME.” So many investors overlook the two most crucial benchmarks that every serious, real retiree must consider – Tax Efficiency and Vulnerability to Market Risk. Accumulation programs tend not to pay much attention to these benchmarks, if any at all. Case in point: Remember what just happened to those “planning for their retirements” when the stock market tanked in 2008? Had those investors focused on income, rather than the size of their nest eggs, it would have been obvious to them that their incomes could easily be diminished or completely wiped out if the market were to crash. Yet they missed that hugely important piece of information. My point is that simple accumulation skips right over the real deal.
After all, what is the ultimate goal of every single accumulation plan? To provide what? INCOME! Folks, you must be extremely careful, because not all financial professionals are equal, and it seems to me that the real ones are very, very few.
Let’s do a quick exercise. Assume you are deciding between two programs: A, which would potentially accumulate $1 million or B, with a potential to earn $900,000. I’m guessing most people would jump to select A, with the $1 million payout. No doubt, there are tons of (clueless) financial advisors who’d do the same. Here’s the thing, though. Those balances are just “accumulation.” Now let’s make “income” the focus and see if things change.
Question 1 would be: Are these balances taxable? In our example, A is taxable, while B is tax-free. If we assume just a 25 percent tax, investment A will net $750,000, versus B’s $900,000. Are you beginning to see how income planning makes so much difference? And why so many folks are working so hard, yet end up struggling financially in their retirement?
Question 2 has to do with vulnerability to market risk. Let’s say Investment A is vulnerable to market risk, so it could experiences catastrophic losses at any time – you may even have your own story to tell in this regard. Investment B, on the other hand, will not lose anything when the market dips. Now who wants the vulnerable $1 million (reduced to $750,000 after taxes) versus income-tax free Investment B’s $900,000 that will NOT be affected by any market risk? It’s a no brainer, right? But you’ve got to realize how we got here.
When Was the Last Time You (and Your Advisor) Discussed Income – REALLY?
Has spendable income ever even come up in your discussions? Don’t you think it’s time? Please do yourself a big favor and avoid signing up for any plan – regardless of who tells you to do so – if you do not know how much income it provides for AND for how long you can/will be able to access it. By income, I mean what you actually get to spend, not Uncle Sam’s portion. For goodness’ sake, isn’t that the reason you are saving in the first place? There seem to be lots of retirement planners, but the great majority are really just helping folks plan for Uncle Sam’s retirement. It will definitely serve you well to speak with an income planner and save yourself from potential shock down the road.
________________________
For your complimentary consultation about planning for YOUR retirement income, please call Laser Financial Group today at 301.949.4449 or visit us on the Web.
No comments:
Post a Comment
Chime in with your comments or questions: