To Retire, Mind Your P's: Purpose, Planning and Procrastination
Financial industry insiders use so much jargon that at least two websites -- TheStreet.com and Investopedia.com -- have posted their own glossaries for investors seeking clarity.
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Good for them for sharing their knowledge. But I think most people would benefit by focusing on just three little words when they're preparing for retirement:
Purpose, planning and procrastination.
By pursuing the first two, and avoiding the third, you can get a solid jump on reaching your goals.
Because there should be a specific role for each financial vehicle in your portfolio -- and you should know what it is (beyond growth, that is). One asset might be there to assist with health care costs. Another might help fight inflation. And a third might provide some guaranteed income* to help cover core expenses through your retirement. You shouldn't throw all your money into a mutual fund or two and expect everything just to work itself out. You should know what your investments and insurance products are doing individually and holistically to help give you the standard of living you desire.
The need for planning is more obvious - and it's imperative.
Your plan is going to help keep you from making mistakes -- especially when the market is volatile, or if the news has you worried about Korea, Russia, China and/or our president. If you have a plan, you'll have an exit strategy when things look dark -- and a re-entry strategy. It can protect you from buying high out of greed and selling low out of fear. But it goes beyond that. Your plan should cover what you're going to use for income, how you'll minimize taxes and maximize Social Security, what you're going to do if you or your spouse gets sick, and what you're going to leave to your children. Unless it's written down, it's just wishful thinking. You have to make it real.
Which is why you can't procrastinate.
When I give a seminar, I'll often ask the participants to raise a hand if life has never kicked them in the teeth. Not a single hand goes up. And yet, so many people enter retirement without a thought beyond GROWTH. They're so set in their ways after years in the accumulation phase, they can't switch their brains over to the strategies needed to survive and thrive in the distribution and preservation phase. Or, on the flipside, they haven't thought nearly enough about saving. If you're waiting until you're in your 50s or 60s, that's a lot of catching up to do.
A few years ago, Prudential coined the term "retirement red zone" to describe the critical years immediately before and after retirement, when finances are most vulnerable to adverse market movements. Of course, Prudential was selling its financial products -- but the term resonated because it touched on something real. If the market turns and you're in the red zone, you may not be able to retire when you hoped or, if you're already retired, you might have to go back to work.
We saw it in 2000 and 2008, and it likely will happen again. But it doesn't have to happen to you.
The secret? Stop procrastinating, and pursue a plan with purpose. Make that your mantra, and get moving.
*Guarantees provided by insurance products are backed by the financial strength and claims-paying ability of the issuing insurance carrier.
Kim Franke-Folstad contributed to this article.
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