Why retirement planning can be more important than ever
Many of our parents and grandparents lived in a much different world than we are experiencing today. They might have worked for the same company for most of their career. This could have spanned 30-40 years (or even longer). When they retired, they might have gotten a gold watch along with a going away party and cake.
After they received their final paycheck, then they might have had a company pension that would pay them for the rest of their life.
Check out this recent video that I made will traveling to Cabo, Mexico…
Our parents and grandparents likely had more confidence in Social Security, and for good reason. When it started there were many more workers paying into it for each person receiving benefits. This has changed greatly over the years as there is now less than three people paying for each one person receiving benefits. Retirees are seeing fewer cost of living adjustments. It’s been reported that there could be a shortfall of funds around the year 2030 in which payments might be reduced.
If we go back to parts of the 1970’s and 1980’s, banks paid substantially more interest for money in savings accounts. Some of our parents and grandparents earned 6%, 8%, 10% or even more from interest on their money in the bank.
So let’s think about the company pension that many of our parents and grandparents received. In addition, they probably had more confidence in Social Security. Also, they could have been earning 6% or more from the banks. With this kind of setup, many did not really need a retirement plan. They had lifetime income from a couple of different sources along with growth of their money from the banks. They might not have had much of their money invested in the stock market.
Along came 401(k) accounts a few decades ago. During this time, companies started to shift the responsibility of retirement to you. They did this by phasing out pensions in many cases. Perhaps they offered some kind of partial match program for funds that you put into your 401(k), but only up to a certain point.
Today, it can be more important than ever to have a real financial plan.
Many of today’s retirees do not have a company pension to pay them. They are concerned about the state of Social Security. Not many of too excited about the low interest rates they are getting from the banks. So there’s less lifetime income along with less interest rates that might not even keep up with inflation. When we factor in rising medical costs, there’s even more to factor in.
So what is a person that is between the ages of 55 to 75 supposed to do? This is generally the ages in which a person is nearing retirement or might already be retired.
It’s important to know where you are at financially and what you want to accomplish. Here are some questions to ask yourself if you are retired or nearing retirement…
How much monthly income do I have coming in from all sources such as Social Security, Pensions, Annuities, Rental Income, Dividends?
How many different sources of income do I have? (It can be important to have more than just Social Security for monthly income.)
What are my monthly expenses?
How could inflation impact more net worth in the future? (Long term inflation is around 3% per year)
How are my spouse and I prepared if either one of us or both lived to be 80 years old? 90 years old? 100 years old?
When thinking about retirement planning, consider that some of you reading this could live for another 50 years. If you are 50 years old, then you could be at the mid-way point in your life.
Factor in potential medical advances that we read about and see on television. It’s pretty amazing and exciting to think about the possibilities of the coming years and decades!
Think about changes in the world such as artificial intelligence, flying cars, supersonic jets, space colonies on Mars and more.
It was not that long ago that Facebook and Twitter did not exist. Almost all of us remember when there was not any smart phones. Go back a bit further before the internet or cable TV.
The point is that there have many several changes over the past 25 years. The next 25 years will undoubtedly bring many more. Being prepared financially with a real plan can be vital. So while many of our parents and grandparents had multiple sources of income with pensions and Social Security plus higher interest rates from the banks, we need to prepare in today’s reality.
Here is the good news. You can still have multiple sources of lifetime income. Even if you do not feel like you need any additional income sources, there are ways to safely grow your money and have “potential” lifetime income sources that give you the option to start and stop depending upon what you choose in the future. The key is planning in advance, so you are prepared.
Also, have the proper “balance” of investments with a real plan. If the only thing in writing regarding your finances that you have is a monthly brokerage statement, then it is very likely you do not have a financial plan. This can all change when you take a few pro-active steps. It can be as simple as…
- Look at the investments that you have that are currently working well.
- Also look at the investments that are not performing as well or meeting your goals.
- Factor in different investments and options by performing stress tests. This is something my firm does with a process called “Results in Advance Planning”.
- Look for ways to reduce your risks and reduce your fees, with investments you are comfortable with and that meet your important life goals.
The best time to plant a tree was 20 years ago. The second best time is right now. It is the same with financial planning.
When would now be the best time to plan your financial future and prepare your portfolio for what could be coming?
How are you prepared for the next stock market crash (whenever that might occur)?
What if you live to be 80 years old, or 90, or 100?
You can contact the Riedmiller Wealth Management office for some simple financial planning tools. Give us a call at 402-904-7575. We will be happy to assist and answer any questions you might have. When you look back in the year 2038, you will be glad you did!