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2 Ways to Revitalize Your Old Retirement-Planning Playbook

Image: 2 Ways to Revitalize Your Old Retirement-Planning Playbook
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By    |   Thursday, 19 Oct 2017 02:03 PM

If you’re feeling a little lost, you’re not alone.a

For the average investor preparing for retirement, the old playbook just isn’t working anymore. The “rules of thumb” are dated, the strategies are inadequate, and we need to add a few more pages.

The days are gone when a moderate portfolio of 60% stocks and 40% bonds was all you needed to get down the field and across the goal line.

Bonds, our so-called “safe” investments, are at risk as interest rates have nowhere to go but up. And equities, the best shot at long-term growth, are vulnerable if the markets go down – a chance you can’t take when you’re nearing retirement and counting on your portfolio for income.

But that’s not the end to the challenges.

  • Today’s retirees have to make their money last longer than generations past. We used to plan as though we’d live to 95, but we didn’t really believe we’d get there. Now we plan for 95 and hope we can squeeze out enough money for another decade if necessary.
  • Interest rates are on their way up, but currently you can’t put your money in the bank and expect to make much of anything. You’re more likely to lose because of inflation.
  • We go from market highs to market lows overnight, sometimes based on one news story. And our global economy is so interwoven, a bad day for China or Greece or Great Britain can mean a bad day for everyone.

Many financial professionals like to talk about and plan based on “historical averages,” but our world is changing so rapidly that historical averages might not be something you want to count on for your decades-long retirement.

So, what should you do?

  1. Diversify. Alternative investments, once limited to the super-wealthy, can bring significant benefits to your portfolio by diversifying risk exposure away from your traditional fixed income and equity assets. I suggest taking a page from the large pension funds, the big pools of money invested in by universities and corporations. They’re adding real estate, hedge funds, commodities, futures and private equity to their holdings. If you keep a portion of your portfolio in alternatives, you won’t be moving in lockstep with everybody else – or the market -- and that will protect you if there’s a pullback or downturn.
  2. Define your goals. People often come in for financial advice with absolutely no idea of what they want their money to do for them. They don’t know how much they need, or how much risk is in their portfolio. All they know is they’re putting money into their account every month and hoping it will grow to cover their expenses in retirement. So we end up with 68-year-olds who are invested as though they’re 40. And suddenly they realize they have completely different priorities: a steady income flow, money for when they get sick, and a legacy for their children and grandchildren.

On both of these points, I recommend thinking like a high-net-worth investor, because if you’re close to or in retirement, you really do have a lot in common when it comes to your finances. You’ve made your money, and you’re more interested in protecting it than growing it. You want to make enough to keep up with inflation, but you don’t need to double or triple your nest egg. You just want to make sure it will last your lifetime and that you can pass something along to your loved ones.

That’s what high-net-worth families do every day. So why not borrow from the strategies they use?

Mark Fried is president of TFG Wealth Management, LLC. He is an Investment Advisor Representative, a Chartered Retirement Planning Counselor and an insurance professional. Fried has been a contributor to several digital publications, including Forbes, Morningstar and The Wall Street Journal. 

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Personal-Finance
The Old Retirement Planning Playbook Doesn’t Work Anymore
old, retirement, planning, playbook
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2017-03-19
Thursday, 19 Oct 2017 02:03 PM
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