Top 10 Retirement Income Planning Guidelines Against Inflation
For those who have yet to retire, there are some core principles for wealth accumulation and retirement income planning. These 10 factors can help guide you into developing a retirement portfolio likely to outpace inflation increases:
1. Shun short-term. With so many life events, it is easy to get caught up in short-term goals and apply that same thinking to every objective. While the short-term approach may work for home purchases or even college funds, a long-term perspective is necessary for asset protection strategies that involve a lengthy retirement term. Above all else, do not base retirement planning on what happens on Wall Street in the next fiscal quarter or the current price of gold. These fluctuations have nothing to do with a fixed focus on more enduring investment strategies essential to addressing factors that impact purchasing power during retirement.
2. Do due diligence. Find out the basics about investing, what makes the stock market a viable source of income, and why commodities may not be right for a retirement portfolio. Understand the components of a diversified investment portfolio, how these tend to counterbalance each other to increase or decrease risk, and how each reacts to inflation. Whether it is through individual research or with the help of a well educated advisor, understanding basic principles of investing and inflation will make you a more educated and successful financial consumer.
3. Take stock. Assess where you are – financially speaking– right now. What is your current income? What are your current expenses? What assets do you currently have and what, if any, debt? This information is imperative for mapping out your financial future as you will not know where to go if you do not know where you are now.
4. Dig deeper. Attempt to identify income-generating opportunities and potential risks you may face. How can you eliminate any debt as quickly as possible? Do you anticipate any major increases or decreases in income or expenses? Are there any specific medical issues to deal with and/or plan for?
5. Forecast. Look ahead to where you intend to be based on your current path or plan. What can you count on in ten years? Will you have pension, Social Security and/or other income and, if so, how much? How much income will be needed from investments to cover living expenses and when?
6. Develop a financial game plan. Discern what available investment vehicles will improve the likelihood of having the lifestyle you desire with the least amount of risk. What is the minimal amount of return on your investments necessary to attain your goals? If you can attain your goals without, or with very little, risk, why put your retirement funds in jeopardy to chase higher returns? The best plan will account for inflation and taxes while preserving principle.
7. Determine lifestyle-related costs. Knowing what types of essential and non-essential expenses retirement might entail is a critical aspect of long-term planning. These costs can be significantly different in type and size as compared to those you experienced when raising a family. There are healthcare and long-term care expenses to think about as well as the costs of enjoying retired living, including hobbies and plans that make the golden years the best of your life.
8. Dodge debt. Spending flexibility can be one of the most important things an investor can do to make sure their investment portfolio outpaces inflation and provides for a long retirement. Carrying a mortgage or other fixed overhead will make an investor more vulnerable to inflation ebbs and flows and further infringe on their purchasing power. Focus on a no-credit, cash-only approach as you work toward retirement.
9. Foresee the unforeseen. Plan ahead for potential risks, such as high medical, insurance, prescription medications, and long-term care expenses. Know what your options are with respect to Medicare and otherwise, which will be critically important once employer-based benefits are no longer available.
10. Think global. The bottom line is to focus on building a global, broad-based diversified portfolio. It is not good to just look atU.S. stocks because these only make up 40% of the world’s capitalization. That means that an investor that takes a domestic-only approach and avoids foreign stocks is actually losing out on growth potential as well as risk mitigation.
In short:
- Shunning the short-term
- Doing your due diligence
- Taking stock
- Digging deeper
- Forecasting
- Developing a financial game plan
- Determining life-style related costs
- Dodging debt
- Foreseeing the unforeseen
- Thinking globally
will help keep your retirement income plan on track. About 45 percent of retirees fail to account for the effects of inflation; don't be one of them!
About Charles Massimo
Recognized as industry expert and guest speaker at national industry conferences, Charles Massimo is a published author and media subject expert on topics ranging from wealth/asset management to investment and financial planning for high net worth families.