Ah, retirement. Most of us understandably want to enter into that phase of life with a familiar, or even an improved, standard of living. What follows are three steps that should go a long way toward making that goal a reality.
1. Manipulate your mortgage
If you’re getting close to retirement, and still have a mortgage, do everything you can to pay it off before you retire. Owning your home not only means a lot less money going out every month, it means a lot less worry should things get tight. Conversely, if you are unable to pay off your mortgage before you retire—even if you have as little as 5-7 years remaining on the note—you might consider working with your lender to lower your interest rate and extend your loan out 15, 20, or even 30 years. Simply, not only is cash-flow king, but why spend what are likely to be the healthiest years (of your retirement) struggling to pay down a mortgage at the expense of maintaining your pre-retirement standard of living? Remember, money not going out is the same as money coming in.
2. Rein in your risk
If retirement is breathing down your neck, one of the worst things you can do is UP the “risk exposure” of your investments in the hope of quickly making up for lost time. If you’re not financially ready to retire, you’re going to want to work with an advisor to create a plan which may include saving more, working longer and spending less. By contrast, I recently met with a new client who had prepared well and amassed several million dollars for retirement. Given a referral by a coworker, she had briefly worked with an investment “consultant” from a large bank. This consultant had placed her in high-commission investments that increased the level of risk in her portfolio that was much higher than she was led to believe. We used our Hanson McClain assessment tools to show her the level of risk her portfolio contained and illustrate ways where she could reduce her risks while still achieving her goals.
3. Because, inflation
I realize I just told you not to expose yourself to too much risk in order to play catch up with your retirement preparation. But on the flipside, if you’ve saved well, you might be tempted to place all of your money in CDs (or savings accounts), with the expectation that it will safely float you through retirement. But in today’s terrible interest rate environment, investing entirely in CDs means you’re likely experiencing a 2-3 percent PER YEAR inflationary erosion of your purchasing power. Let’s look at it this way: on $1 million in savings, 3 percent inflation is like losing $30,000 a year to evaporation. Maintaining your standard of living in retirement means balance. You’ll want to have a balanced portfolio that is designed to help you maintain your spending power so you aren’t losing ground to inflation.
Perhaps the single most common desire expressed to me by clients is the desire that they maintain their standard of living in retirement. Most people are more concerned about not becoming poor than they are in become rich. Understandably, practically no one wants to have to tighten their belt once they stop working.
While it certainly can be done, most goals that are worth having take planning and vigilance to achieve. Living the retirement of your dreams is no exception. I simply and clearly explain the ins and outs of the entire retirement transition process in my new book, Personal Decision Points: 7 Steps to Your Ideal Retirement Transition.