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Guarding Your Wealth for Seniors
Retire Sooner and Make Money Last Decades Longer
By Jeffrey D. Voudrie, CFP
April 12, 2006 - Everyone would love to retire
early, but they also desire to be free from the fear of running out of
money. Changing your attitude toward investing and the approach you take
will help you accomplish both. Read on to see how you can retire years
sooner and make you money last decades longer.
In a previous column I talked about our need to
change the way we view retirement (click to previous column). I
explained that seeing retirement as a transition to a less-stressful,
more enjoyable job drastically reduces the amount you have to have
socked away. Even working just part-time during retirement can allow you
to retire years sooner, or make your money last years longer.
Changing our view of retirement is only half of the
solution. We also need to change our attitude and approach to investing
for and during retirement. This by itself will have a similar impact on
when you can retire or how long your money will last. Combining the two
together can completely change the retirement equation.
Our life spans grow longer every year, placing
greater demands on our nest egg. Moreover, as a nation we are saving
less and less. In fact, recently the national savings rate was
negative—collectively, we spent more then we earned.
Let’s face it—few of us save as much as we should.
The demands of raising a family, saving for our kids’ education and
caring for aging parents make it difficult to set aside as much as is
needed. By the time our kids are independent, our retirement may only be
10-15 years away.
Unfortunately, the conventional wisdom provided by
the financial services industry hasn’t made reaching our goals any
easier. Conventional wisdom says that you should invest more
conservatively each year you are closer to retirement. Their wisdom also
says that in retirement, you should only withdraw 4% from your portfolio
each year.
The conventional wisdom is wrong. Frankly, if the
average person follows this advice it will be a wonder if they retire at
all! If those who have been successful setting aside a healthy nest egg
follow conventional wisdom it will needlessly reduce their lifestyle or
impact what they leave their children or use to support charitable
causes.
Traditional portfolio management views stocks as
being risky and bonds as being safe. As such, you should increase the
amount you have in bonds and decrease the amount you have in stocks as
you get closer to retirement. The rule of thumb is that you should have
roughly your age in bonds, so if you are fifty your portfolio should be
50% bonds, 30% stocks and 20% cash. That’s crazy!
Along with that view is the philosophy that you
should buy an investment and hang on to it—buy and hold. Investors that
lost 30-50% between 2000 and 2002 know that buy and hold can be a risky
proposition. We all know that there is the potential for stocks AND
bonds to lose value. This is referred to as market risk and interest
rate risk. Since the industry believes that you should buy and hold, the
only way to minimize the overall risk to your portfolio is by changing
the allocation between stocks, bonds and cash.
It all sounds great—but by believing it you may be
forgoing tens (or even hundreds) of thousands of dollars. I don’t accept
their underlying assumptions and neither should you. There are other,
more effective ways to manage portfolio risk that may dramatically
increase your returns.
Think about it. Interest rates the last several
years have been at historic lows. That didn’t change the traditional
allocations provided by the industry. They still said you should have
50% of your nest egg in bonds if you were 50 years old. The return on
bonds wasn’t even enough to keep place with inflation and you were
supposed to put half your money in them? Ridiculous.
It’s possible to grow your money faster with less
risk. It’s possible to draw out more than 4% without the fear of running
out of money. And it’s done by adjusting conventional wisdom to the
realities of the markets. Next week I will share specific strategies and
methods to do just that.
If you have a specific question or would like more
information give me a call toll-free at 1-877-827-1463 or go to
www.guardingyourwealth.com. You can also reach me by email at
jeff@guardingyourwealth.com.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Please
visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive.
Guarding Your Wealth for Seniors are
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens. Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For booking information, email e-mail
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