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Dick couldn’t wait to retire. He studied his projected retirement benefits from his 401(k) plan, ran a couple of “what-if” scenarios on what he could count on from other assets, and checked with Social Security to determine what he could expect in terms of his monthly check. He and his wife put their house in a northern state on the market and contracted to build their retirement dream home in Florida.
Only one problem: The end result was a mish-mash of cobbled together, hopeful projections that assumed a fair amount of luck, and left little margin for error if things went wrong. They did. Their home sold for less than hoped for; their new house turned into a money-pit with over-runs; Dick’s market projections were a bit too rosy.
Six months after he retired, living in a half-finished home with dwindling income and assets, Dick took a $15-an-hour job in a discount store. Their retirement dream had turned into a nightmare.
Though the names have been changed, the story above is true. It’s not the only one. Especially in today’s turbulent economic climate, do-it-yourself retirement management can be extremely risky business.
The real risk: A wrong decision – or failing to protect against an unexpected market change – can have massive, lifelong consequences, erasing what could have been and should have been a financially secure and enjoyable retirement.
And that risk is high. “For most of us, do-it-yourself planning leads to needless mistakes and financial loss,” says financial writer Mark Miller. “That’s because most of us aren’t investment professionals.”
So, why are more and more people going it alone when it comes to retirement preparation and asset management?
Mostly, it is that they have little choice. In the past, when defined benefit plans were the norm at work, the plan administrator managed the pension funds. At retirement, workers received a check each month. Very simple.
However, over the past few decades, much of the risk and responsibility for one’s retirement strategy have shifted to employees, writes Miller, as companies have moved away from defined benefit plans to defined contribution plans. They have to make investment decisions they may not be knowledgeable enough or adequately prepared to make.
At the same time – or perhaps as a result – studies show that more and more people want assistance. According to one study, reports Miller, nearly half of all employees (49 percent) say they would like assistance preparing for their retirement. That number is up significantly from past years. There are several reasons:
1. Retirement preparing and management have gotten trickier – This isn’t our parents’ retirement, which was funded by a fixed pension, Social Security and some personal savings. These days, the number of financial products and strategies has increased significantly.
2. Retirement is lasting longer than ever before – Average life expectancy at birth in the year 1900 was 47.3 years. By 2005, it was 77.8, according to statistics from the U. S. Center for Disease Control. That’s an increase of more than 30 years. What this means is that in the past retirement may have consisted of a few years, perhaps a decade at most. Today, it can run for several decades. The money we put aside for retirement must be managed to meet needs for a potentially long time.
3. We expect more from retirement than did people in the past – Not only are we living longer, but we are healthier and more active in retirement than people in generations past. We want to do more than just sit around on the front porch in a rocking chair.
4. There is growing concern about the ability to retire – According to a 2010 study released by the Employee Benefit Research Institute, nearly a quarter of workers have postponed their planned retirement age in the past year. Nearly half the respondents in that same study report that they have less than $25,000 in household savings and investments (excluding their home and any defined benefit plans).
5. Many of us are “clueless about savings goals” – According to the EBRI study, “Less than half of all workers (46 percent) report they and/or their spouse have tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement.”
6. For more and more of us, it just makes no sense to go it alone – We live in a highly specialized world. “We cannot be experts in everything,” explains financial writer John Ingrisano, Director of the Family Finances Conference Center, “You wouldn’t do your own brain surgery, build your own car or expect to become an expert in hundreds of fields. You rely on trained, licensed experts.”
Recommendation: Get good advice. Talk to your financial advisor about your immediate and long-term plans, goals, dreams and concerns. A licensed professional can work with you to do a comprehensive analysis of your assets and, based on your objectives, help you determine what steps to make to help you work towards seeing that when you are ready to retire, your assets will be ready and waiting for you. If you believe my input would be of value to you and your family, please contact me. There is no cost or obligation.
Rich Mino, a financial advisor with Del Mar Financial Partners, Inc., works closely with families and small businesses in the Carmel Valley area. He is passionate about making a difference in his community through financial literacy programs, and focuses on building strong relationships with all of his clients so that he can be a resource to them where needed most. An active member of the Del Mar Kiwanis, Rich supports his Carmel Valley community through local service projects, and by sponsoring the Builders Club and Key Club leadership programs at Carmel Valley Middle and Torrey Pines High Schools. In 2012, he is working to implement a financial literacy educational program to help prepare and educate kids with the challenges that they will face as they begin and graduate from college. He is a registered representative of Securian Financial Services, Inc., Member FINRA/SIPC. Securities dealer and registered investment advisor. Del Mar Financial Partners, Inc. is independently owned and operated. 12526 High Bluff Drive, Suite 280, San Diego, CA 92130. 438300 DOFU 01/2012
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.
Copyright © Custom Communications 2010.
Material in this article cannot be reprinted without permission. Securities and investment advisory services are offered through Securian Financial Services, Inc., member FINRA/SIPC.
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