The year 2020 has been quite a year! Everyone has probably heard this said too many times already.
As I look back on the years, I can remember the significant things I have seen and/or witnessed that have been either beneficial or detrimental. The circumstances we encounter during our lifetime always call for some level of change in the decisions we have previously made.
The Covid-19 Pandemic of 2020 could very well be an opportunity to rethink our retirement planning. Many people have discovered that things they “thought” they couldn’t do without have discovered that they could get along fine without.
LET’S DO A LITTLE RETHINKING ABOUT RETIREMENT PLANNING:
Buying a home: The first home purchased is probably dictated by what you can really afford. You would like to have a larger home but that can wait on the results of your future growth in income. The longer you live in that first home may result in greater growth in your retirement savings. How can this be true? Each time you buy a new and larger home you acquire more debt and interest, property taxes increase, homeowners insurance increase, and maintenance costs increase. I am not against investing in real estate! Over 30 years the investment in your home or homes will increase substantially. Don’t assume that is all profit. There is an accumulation of interest paid, real estate taxes paid, insurance, and repairs that must be subtracted from that increase in value.
Now, let’s assume that as the years go by you purchase larger and more expensive homes. You will have more value after 30 or 40 years, but those same costs will have increased.
Retirement planning must consider current “needs and wants” and future “retirement needs and wants.” By continuously living to the level of your needs, the additional costs of you “wants” can be invested in retirement savings.
Mortgages (debt) are like negative bonds. What would be the effect of taking part of you “wants” spending and paying against your mortgage principal? Paying off debt almost always garners a higher after-tax return than you can earn by investing in high-quality bonds. So, you would really be surprised the cost savings of paying off a mortgage early…what a source of retirement savings to help you retire and remain retired.
Investing in the market: What does watching the market and your portfolio accomplish? Mostly nothing. It does not improve performance. As far as investing in short-term investments, most people don’t know squat. One of the downsides of following the financial news is that you hear all kinds of smart, articulate experts offering eloquent predictions of plummeting share prices and skyrocketing interest rates that turn out to be hopelessly, paghetically wrong.
2020 HAS CAUSED US TO MAKE ADJUSTMENTS IN OUR DAILY LIVING:
When this year began, we could never imagine the adjustments and decisions we would be forced to make as the months passed.
Have you ever asked someone what they have been doing and got this reply: "Just killing time.'
When you are thinking about retirement, do you think more about the task than about your time? Do you ever wonder if the task is worth the time investment. What if you aren't the one doing it? Would there be someone else who could do it just as well, and for whom the task would be time better spent?
Time is like gold, and good "spending habits" are essential. It's just that in this case the units are minutes, not dollars.
If you don't know where you time goes--that's a danger signal. Maybe you have just been "killing time." If you can save small bits of time and consolidate them into a chunk of time that can be spent on something worthwhile--that's like "found money."
If you can number your minutes and hours, "numbering your days" will be easier.
At bedtime have you ever thought about something you wanted to do tomorrow? Maybe it was a problem you wanted to solve. Many times you try to solve tomorrow's problems instead of sleeping for much needed rest. The fact is that you can't solve the problem until you have "hands on" time the next day, or later. You may be "just killing time."
Often times, people spend a great deal of time in retirement planning. Maybe they have the talent and expertise to develop a plan to reach their retirement goals. Often their field of experience and expertise is totally unrelated to financial planning. If that is the case, it would be best to get the most value for your time...don't kill it.
Find a professional in retirement planning and rely on him for the knowledge and experience to develop a plan that will achieve your retirement goals. Place the monkey on his back and spend your time on what you love to do......golfing, hunting, woodworking, etc.
A successful plan is one that has a goal of you retiring and remaining retired.
What happens on the road between "planning to retire" and arriving at the destination of actually "retiring?"
Planning for retirement requires "taking that first step." Focus on taking that first step and follow the momentum it provides to begin your journey to retirement. Two things can be expected in following your plan: PROBLEMS AND FACTS.
What is the difference between problems and facts? PROBLEMS are things we can do something about.
FACTS are things we can do nothing about: Therefore we do well not to worry about them.
We apply energy only to things we can change. We can feel peace and act with courage, because we no longer beat our heads against an unbreakable wall.
Hopefully, there is motivation when you begin the journey. Motivation is absolutely necessary. But "motivation without organization = frustration."
I have found that in most cases the strongest plan is the simplest one. This is a plan that establishes clean lines for the goal and the ground rules to travel the road to success. It is important to devote sufficient time to "inspect" the vehicle where retirement funds are accumulated rather than concentrating on what you "expect" from the investment. After all, would you buy a car without inspecting it? By continuously inspecting where funds are placed, is a great aid in preventing disappointment in the expected outcome at the time of retirement. Most people don't have the time nor expertise to continue to inspect your investment in the future. If this is the case, find someone who is worthy of your trust that can perform that important function for you. The important part of planning for retirement is making sure that you can stay retired.
The end results of your retirement plan will actually recognize and reward you for your efforts. This means that you can feel like that recognition and reward says, "a job well done."
The following are examples of the needs for retirement planning:
When Moses was preparing Israel to enter the promised land, he had to give them a vision of what it would be like. Many of the people had not witnessed the miracles in Egypt. This new generation needed fresh inspiration and a vision for their future. If they were obedient they would grow healthy and strong, and enjoy great prosperity. The other vision was the results of disobedience. From then on, the people could clearly see the blessings of obedience and the curses of disobedience.
In a sense, planning for retirement is enhanced with double vision. It’s very similar to the toss of a coin. There are two sides to the coin…heads and tails. Quite often people make their choices on retirement planning by tossing a coin. Maybe “heads” leads to good planning and obedience to that plan and “tails” means no plan and/or depending on a company 401(k), a small IRA, and social security benefits. “Tails” is not necessarily bad. It may require all three elements as well as the increase in contributions. “Heads” may not be the answer if you make a decision and sit on it without making adjustments during the accumulation period.
The vision for how retirement will be if you have a plan must have obedience. By that, I mean to continually make the necessary adjustments and decisions to make that retirement dream come true. The end goal is to enjoy the prosperity of your efforts and make sure your retirement funds outlive you.
The vision for how retirement will be without a plan, disobedience, is not so pretty. It often leads to hardship because you outlive your retirement assets.
One vision requires a lot of work. The other vision allows you to just coast along through life without a care. One vision brings prosperity, while the other leads to hardship.
Retirement planning requires decisions and obedience to the plan. That’s where double vision comes in. That’s the power of vision from two angles. Such a vision helps people sort out what they will do, because they can think with the retirement in mind.
BEARS AND BULLS…PREPARING FOR THE NEXT RECESSION.
The stock market has experienced a pretty good run the past five years. The Dow Jones Industrial Average is up 57%. A bear market occurs approximately every 5 years. The average decline is 39% with a duration of 1.5 years. The average time to break even is 5.2 years.
A CHAIN REACTION. The concern with a bear market during retirement is that your assets could lose value. If that causes you to tap into your portfolio for income to cover living expenses, you may risk taking valuable cards off the table when the market steadies.
So, what if you are not retired? It doesn’t affect your current income, but it is a setback in the future growth of your retirement plan. Maybe you are planning on retiring in 5 or 6 years and are looking forward to another 50 or 60 percent growth and your retirement assets are really going to finance your retirement dreams. Suddenly there is a 39% downward adjustment in the market. If history repeats itself, you are looking a five to seven years to get back to where you are today and the future appreciation you were expecting and depending on have vanished.
I don’t know what to expect from the market. I know that it goes up and it goes down. In a recent poll 34% of the economists predict that a slowing economy will veer into a recession in 2021, up from 25% in February. What’s more, another 38% expect it to occur in 2020. The New York Federal Reserve puts the probability of a recession with a year above 30%.
If your retirement assets are at risk in the market, it may be time to brace yourself and take steps to prepare for the next recession.
If your company 401(k) plan is invested in your employer’s own stock, you may be taking a big risk. If the economy weakens and it hurts your company, you could be a two-time loser. If you lose your job, you don’t want to lose a large chunk of your retirement savings as well. Explore whether you can roll it over into a qualified plan that will not be affected by market risk.
If you’ve met your health-insurance deductible, it may be the time to get those expensive medical procedure you have been putting off. Recessions mean sudden layoffs and that means losing benefits.
At some point in our lives, our doctors may need to give us a stress test to determine how physically fit we are. At some point in our retirement planning it is necessary to give our investment portfolio a stress test. This may be that time. It’s great during a bull market. Every month stocks go up. You get richer and richer, and you feel smarter and smarter. In the last two recessions, “smart” investors suddenly felt really dumb when their stocks halved in value.
Re-balance now! Or, even better, capture your gains and rollover into a plan with no market risk.
Sometimes I believe we are hemorrhaging money. We have to have this and that and then something else. Take a look at the costs and expenses that are just our wants and not our needs. In most cases, we will discover we are really spending our retirement funds now instead of during our retirement years.
Take that money that you are hemorrhaging and shore up your emergency fund. Be ready for those huge bumps in the road to retirement. Be prepared for those bumps without having to reach into your retirement funds.
When you reach retirement and begin to live on your savings, hopefully your funds will outlive you. That should be the goal of every retirement plan and it takes a lot of hard work and wise decisions.
After many years of observing people planning on retiring as well as people who are already enjoying retirement. Many people are enjoying their retirement funds now, but the problem is they are still working. If you are a golfer, do you want to spend the funds you will need to supplement your IRA, 401K, and/or Social Security Benefits? Instead of playing golf as much as you can now and using some of the funds will need for retirement, reduce your golf time now and be able to look forward to being able to afford playing during your retirement years. Your will enjoy retirement more if you are able to afford the cost of playing golf.
Maybe your are not a golfer. There are other hobbies or pursuits that need the same considerations. Your may enjoy fishing, traveling, sports events, or other pursuits, but the same principle applies. DON'T DO IT ALL NOW AND NOT BE ABLE TO DO ANY OF IT DURING RETIREMENT.
Many people today fall into the "spending" class rather than the "saving" class. We all like to have what we want NOW and not worry about all the tomorrows to come. My hobby is woodworking, creating bowls and furniture that will give pleasure to family and friends. I would not be happy if I were told it would not be possible for me to continue this endeavor...I couldn't afford it.
Often, many are enjoying the things that bring pleasure now with funds that could be invested in before tax IRAs and 401-Ks as well as investments funded with after tax dollars. You may not enjoy your hobbies as much today, but it will bring you much pleasure during retirement.
An illustration of what I am writing about is Scripture about the "prodigal son." He wanted his inheritance (retirement) now. His father gave it to him and he spent the entire amount enjoying himself. When he had spent his inheritance, he ended up living and eating with the swine...not a good way to spend retirement. He ended up returning home to his father for his support, much like depending on the government for total support. More than likely, he didn't get to enjoy the pursuits he wasted his inheritance...he was "retired" with no funds available for his enjoyment.
If this describes you, complete the "Contact" form and discover how Burrows Financial can be of assistance.
Have a great day!
Almost everyone thinks about retiring. But their thoughts may differ somewhere “between A to Z.”
More people say they want to retire before age 60—IS THAT WISE?
When it comes to retiring—especially if you hope to retire early--look before you leap.
Each person in “thinking” about retirement may have one or more of the following thoughts:
It is never too soon to start planning or too late to make adjustments to address a change in goals and circumstances.
Have a great day and plan on doing some planning!
Retirement is a major transition that unfolds over many years, as we move from the life we know into the life we will get to know. Retirement can trigger feelings of excitement and liberation, but also fear and anxiety. For many people retirement entails a leap of faith after decades of routine.
Many people experiencing the steps to retirement do not realize how dramatically their lives will change.
Many people are financially able to retire but are not ready to retire because their job is their identity...without work, what and/or who are they?
Some people spend more time planning a vacation than planning retirement. A vacation is over in a short period of time. Retirement lasts a lifetime. It's very important to think about your identity and what you're losing, and how you get a new identity.
There are no cookie-cutter, one-size-fits-all solution. Constructing a framework for your retirement should start at least three to five years before the planned date. (The accumulation of retirement funds starts years earlier.)
Many pre-retirees do not fully comprehend how dramatically their lives will change.
Perhaps no other stage of life triggers such intense feelings of excitement and liberation. It can also cause fear and anxiety.
Some people are lucky and know exactly what their retirement looks like, while others must figure it out as they reach their goals.
Three years to retirement - anticipation: After you're past the imagination stage and its fantasies, hopes and wishes, you reach the anticipation stage. This is reality. Money matters, but there's plenty of guidance for retirees about your financial portfolio; but what about your emotional portfolio.
Being emotionally grounded going into retirement will probably lead to better, more mindful financial decisions in retirement. Maybe you will be surprised and discover retired life requires less money than you expect.
In the anticipation stage, what are your plans on how you'll spend your time in retirement. Retirement is not the end of work but the beginning of a late-career transition. Identifying goals in retirement and having perseverance in pursuing them leads to better retirement.
One year to retirement - check-in: What are you going go do the first month after retirement? What will you be doing six months after you reach retirement? After you have visited with the grandchildren and have done the traveling, what are you going to do day by day?
Year 1 of retirement - liberation: You made it; you're free to be...who, exactly? The initial "honeymoon" period may be exciting when being old is new again. Often, the loss of structure and routine can cause sadness and depression.
Learn how to have fun again, to make new friends, to have less structure, to try something and fail at it. Take a deep breath. Be resilient and resourceful. Discover all the opportunities available in liberation.
Three years post-retirement - reorientation: The honeymoon is over and it has been over for a while. You are a year or so into the reorientation stage of retirement. You've taken twists and turns, and, finally, you are settling in. Retirement is a reality.
Retirement is a time to reinvent yourself and pursue what you've always wanted but never dared to chase. Instead of finishing the book, add a chapter.
As the reorientation stage unfolds over a decade or two, start paying attention to your legacy. This is the reconciliation stage. It's not about material wealth you leave in a will; it's how you will be remembered. This is an opportunity of a lifetime---the chance to distribute the wealth of knowledge, depth and wisdom you've acquired just by being alive.
All these steps required planning and continuously adjusting to circumstances.