When thinking about retirement planning, there are a lot of practical questions to consider:
- How much do I need in order to live comfortably?
- How should my savings be invested?
- Who will give me sound advice?
The Key Retirement Planning Question:
What Are Your Goals?
You’ve probably seen articles with headlines that say you need $X million to retire comfortably. Obviously this can’t be true. People do retire, yet few have anywhere near the amount of money that’s said to be required.
How much you actually need depends on your goals. Do you own a home now? What’s it worth? Where do you want to live? Do you want to travel, start your own business, support a cause or make provision for children and grandchildren?
These are just some the questions you should consider.
How Should You Invest Your Savings in Retirement?
The goals you set will have an impact on how your savings should be invested. If you have just enough to get by, you will have to be conservative. Certificates of deposit offer safety and a small rate of interest.
Stocks & Fixed Income
But if you aren’t stretched financially and can take some additional risk, it may be worth considering stocks and fixed income investments.
Many financial planners assume that high-quality, long-term bonds are a safe investment for retirement. But safety partly depends on the price that is paid. Long-term bond prices are extremely high today, which makes them a very UNSAFE investment for most individual investors. Shorter-term issues are much safer.
Stocks offer investors the potential for growth and a growing stream of dividend income.
Investors are sometimes reluctant to invest in stocks because these assets can be volatile. Investors may say that they don’t really need growth as part of their retirement planning.
But if you intend to leave money to your family or a charity, your time horizon is actually longer than you may realize. Stocks can also preserve purchasing power that might otherwise be lost to inflation.
The Annuity Trap
Annuities are insurance contracts that promise to provide a stream of income over several years. Payment of this income is guaranteed by an insurance company. The apparent safety of annuities has made them a popular option for retirement planning.
Despite their popularity, we don’t recommend them. Annuities have significant drawbacks:
- High costs from sales commissions and contract charges.
- Long lock-up periods before you can access your money without penalty.
- Complex contract terms that mean you may not understand what you’re getting.
Not all annuities are guaranteed. Variable annuities have a return that is tied to the performance of certain investments, such as the stock market.
- The quality of the guarantee can decline sharply if an insurer finds it difficult to pa.y
Better alternatives to annuities may include US Treasury bonds and certificates of deposit. These can be purchased at little or no cost, don’t have burdensome lock-up periods, and have the safest guarantees that exist.
If annuities are a poor way to generate income, what do we recommend?
We can help estimate your income, based on any pensions, Social Security, income-producing properties and the like that you have. We can also explain how Required Minimum Distributions (RMDs) from retirement accounts work and what they can contribute.
In addition to these sources, your investment account with us can provide dividend and interest income. You can take regular withdrawals to pay living expenses.
Who Will Give You Sound Advice About Retirement Planning?
At America First Investment Advisors, we provide both financial planning and investment management. We are a fiduciary, which means that the interests of our clients come ahead of our own.
Many advisors outsource the management of their clients’ assets. We do our own research and investment management. Because our strategy is understandable, you will find it easier to stay with it during uncertain times.
Our employees have a lot of experience working with people who are planning for retirement. We can answer your planning questions and even coordinate with your tax and legal advisors when that’s appropriate.
All of our employees work as a team to serve your interests.
Next: How We Work With You