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Wednesday October 22nd 2014

Retirement Can be More Affordable Than You Think

According to investment experts, you need a lot of money to retire. Based on the numbers they give, planning a retirement within the means we are accustomed to, can be more than a full time job in itself. How can we meet the high goals that have been set for us?

In this declining economy, many of us are barely managing to stay financially afloat on a day-to-day basis. Now we read reports in financial magazines and on Internet sites claiming that we need to set aside three million dollars for retirement. Is this a viable plan for the average American? Or are we doomed to financial adversity in our ‘golden’ years?

Who Can Afford The Luxury of Retirement?

You probably have not thought about the “withdrawal rate” on your retirement funds. The withdrawal rate is just what it sounds like…the rate at which you withdraw funds from your retirement account. Let’s assume you felt you could live comfortably on $30,000 a year. If your retirement fund has $300,000, then you have a 10% withdrawal rate.

The experts say that you cannot afford to exceed a withdrawal rate over four percent. The thinking behind that statement is simply this: if you go above that figure, you’ll run out of money before retirement! That would mean you’d be on a fixed income of a mere $1,000 per month. How could you possibly meet your monthly living expenses with such meager means?

Time for a Reality Check

Magazine headlines aside, let’s look at this from a logical standpoint. You simply can’t compare your personal living situation to that of a consensus poll. The figures might look eye-catching and provoke you into buying a particular written publication, but isn’t that the point? It’s all about selling an article. This is not to say there isn’t a grain of truth to what the so-called consensus is bringing to our attention. However, it is to remind you to read those statements with a grain of salt.

Just as everyone’s living situation and personal expenses varies greatly, so do the financial requirements for retirement. Planning for the future takes careful thought and a little finesse. So many factors can determine the resources you will need for your retirement. For instance, will you have financial responsibilities that could put you in debt somewhere down the road? How many years off is retirement? Will you have a sufficient source of income once you are no longer employed? What plans do you envision for yourself upon retirement that might alter your way of planning from a financial standpoint?

If you feel you should have no outstanding expenses by retirement age, then perhaps you won’t require such a high rate of investment. Conversely, if you plan to see the world through extensive traveling and living your life on high quality standards, you’d be wise to spend less now and save for later.

What’s Really Important in Retirement?

Upon reaching those ‘golden years’ of retirement, is life really about living lavishly? Does retirement dictate the remainder of your days spent lounging on a sun-drenched island, sipping one umbrella-topped drink after another….buying a yacht and sailing halfway around the world?

Decide what retirement means to you. If you enjoy having a daily routine in your life, you probably only need to pay for one or two vacations a year during retirement. When you figure in your social security earnings, you may be able to get by on much less than 4% of your retirement fund.

What’s really important to most of the older people I know is spending time with grandkids. Being a globetrotting granny is not a realistic picture for most senior citizens. And with low living expenses and some smart choices, you may not need to save $1,000,000 for retirement. Just because you make $40,000 a year now, doesn’t mean you need to make $40,000 a year when you retire. After all, you won’t be paying a mortgage then, will you?

The investment in the quality of life you can live – not the quantity of material possessions you can own will be what really makes your elder years golden. Spending time with family and friends, and taking the time to appreciate the beauty and the love that surrounds you will be the best way to spend your retirement years. And you don’t need a big budget to do that.


How to Choose a Finanacial Planner

There are times when you may want to use a financial planner, rather than handling finances yourself. No one can say when you really need some help with finances, but some situations can be complicated, such as coming into a large inheritance or managing multiple real estate properties. Some people just become overwhelmed at the number of financial options available and want someone to steer them in the right direction. As with many types of professionals, finding a good financial planner takes some good old-fashioned research.

A great way to select a financial planner to work with is by getting a referral through word-of-mouth. For example, those working in the finance industry, such as your accountant, could know some planners that could help you. You can also check with your friends and family to see if they can recommend a certain financial planner for you. By getting referrals first hand from people that you know, you are likely to get some good recommendations, before looking for a planner yourself in business directories or online.

Understanding Professional Designations.

There are many different acronyms used to designate professional certifications in the financial services industry. Having an understanding of them will be a great help in finding out about the financial planner you are planning on hiring.

Here are some of the most common designations used:

  • CPA – Certified Public Accountant – A CPA is an accountant that has been subject to one of the strictest licensing and knowledge requirements in the industry. Many CPA’s have years of experience and are especially knowledgeable on issues pertaining to taxes.
  • PFS – Personal Financial Specialist – Accountants who have earned the CPA designation can opt to undergo more specific education on financial planning. They are required to have a certain number of years of experience in addition to passing a PFS exam.
  • CFP – Certified Financial Planner – CFPs are able to provide wider range of financial advice and are required to have at least 3 years of experience in financial planning, pass a series of exams and follow a code of ethics that is very strict.
  • ChFC – Chartered Financial Consultant – Most ChFC are insurance professionals. They specialize in certain aspects of financial planning and have met additional knowledge requirements.
  • CRPC – Chartered Retirement Planning Counselor – These planners specialize in helping individuals plan for their retirement. CRPCs follow a strict code of ethics and have passed additional examination from the College of Financial Planning.

While these are some of the most common designations that are currently in use, you should note that there are more than 50 professional designations in the industry. Some financial planners could have none, while others could hold multiple ones.

Meet With Prospective Planners.

After you have found a selection of planners that appear to meet your needs, it is time to interview them. All reputable financial planners will agree to hold a first meeting at no charge. This is beneficial to both parties. You will have the opportunity to explain your needs and ask for clarifications on things that you are unsure of, and the planner can judge whether they are the right person to help you.

Find Out How Your Planner Will Be Paid.

Financial planners earn money in a few different ways. Knowing how your planner is compensated in very important, as you want to deal with a person who has what’s best for you in mind and is not just interested in making sales to earn money for themselves.

Here are the ways financial planners are compensated:

  • On commission – This is the most common compensation model for finance professionals. Whenever one of their clients purchases an investment, a predetermined percentage of the purchase price is deducted and paid to them. While this does not necessarily mean a conflict of interest, you should carefully check the reputation of the planner to make sure they are not simply recommending investments that will make them the most commissions.
  • By flat fee – This is also a common compensation method in the industry. Some planners charge you by the hour or a flat rate to put together a complete financial plan for you. This reduces the possibility of conflicts of interest, as the planner will be paid regardless of whether you buy any investments.
  • Fee based on amount of assets – This option is not nearly as common as the other two, but it is becoming increasingly popular. Some planners will charge their clients an annual fee that is a percentage of the total assets which they have invested through them.

Once you have done your research, choosing a planner will be much easier and less confusing. Having someone else helping you manage your money will help you look to the future with confidence.