Tactics to Extend Your Retirement Reserves
By Anthony Rhodes
At the turn of the last century, the average American was expected to live to the ripe old age of 49. This may sound surprising to those of us living within such perceived technologically advanced times as we do today, but when you consider that their counterparts of 100 years prior lived only until around the age of 28, the role which technology played in their extension of life was nonetheless equally as impressive. However, this truly is a great time to be alive. With advancements in medicine taking place seemingly on a monthly basis, and constant annual improvements in sanitation and overall living conditions, Americans living today can honestly look forward to life well into their upper seventies, and with proper diet and exercise regiments, even beyond that.
Now for the bad news.
While the contributions of these new advancements have undoubtedly succeeded in their attempts at increasing our longevity, the question as to whether the quality of such extended lives will also be improved, remains in serious doubt. That’s because, while most Americans marvel at the thought of living into their eighties, nineties and older, conventional thinking and preparation throughout their working years, decreed their finances to last only until their late sixties and early seventies, thereby leaving a tremendous financial burden for those unprepared for this new reality. This week, we’ll take a look at some actions which you can take to help extend the life of your portfolio, and will attempt to remind, that whether you live to be one hundred years or even older, the lesson of proper planning never loses its importance with time.
Without a doubt, the most important thing that you can do to extend the life of your portfolio is to establish a retirement target. This is the amount of money which you will need to sustain you for the duration of your retirement years. While most investors should have a financial plan constructed to determine what their specific target should be, a general rule of thumb is to take your current salary and multiply it by ten; which should allow you to maintain your current economic lifestyle throughout your retirement years. The thinking behind this strategy is pretty straightforward: you take out 10% per year to live on, and invest the remaining portions in assets that need to grow 10% annually, in order to recoup the amount which you’ve deducted. And while there will be years in which your portfolio performs above and below this number, over the entirety of your retirement years, it needs to average 10% growth; which makes this a realistic goal to pursue, and a viable tactic to endorse. Another reason why this is such a good idea, is that it provides an individual with a specific monetary goal to obtain. Once a person knows exactly how much he or she needs to procure during their working years, they immediately become more apt to contribute to their retirement plans, and more adept at selecting the appropriate investment products. Becoming proficient in these areas will help your portfolio to grow consistently during your working years, and will increase the likelihood that your desired target will be met upon your eventual retirement.
Capitalizing on Political Capital
Every politician understands that the investment community represents an important, bi-partisan demographic amongst registered voters; and as such, is prone to pass legislation benefiting such a constituency, in efforts to remain in their good graces. This fact has always been known, but as investors have increased in rank, popularity and political influence, has become even more so. In recent years, laws have been passed which increases the amounts an individual can contribute to their retirement plans, and even adds “catch up” contributions for those over the age of 50. There have also been new investment products created, and new rules formulated, which enable greater transparency for existing investment products. These new statutes, and others like them, enable investors to potentially add thousands of qualified dollars to their portfolios, which would not have existed just a few short years earlier. But in order to take advantage of these new mandates, you need to be aware of their existence, which highlights the importance of being informed. To accomplish this feat, you might want to subscribe to various legislative publications, or talk to financial advisors, in an attempt to stay abreast of all new relevant legislative initiatives. You can also visit certain government departmental sites, or read financially derived blogs, in order to maximize your adherence.
As technology and medicinal advances continue to extend the boundaries of our existence, we can all begin to anticipate a time in which age, disease and even death will lose their ability to dictate the courses of our lives. And while such a possibility appears to hold unimaginable benefits, it also magnifies the significant role that money will continue to play in our future, and highlights the importance of our planning for it to last just as long as we will.
(Anthony Rhodes is a Registered Investment Advisor and owner of wealth management firm The Planning Perspective www.theplanningperspective.com )