At the risk of sounding obvious, you have a much greater chance of accomplishing a goal if you know exactly what it is you want to do. Someone committed to going to Harvard has a much greater chance of ending up there than does someone who just wants to go to college. Someone committed to climbing Mount Everest is much more likely to reach the summit than someone who just wants to climb mountains.
How about you? When it comes to retirement, how specific are your plans? do you want to “save” or do you have a specific dollar amount in mind? Do you want to “retire as soon as possible” or do you have a specific date in mind. Do you want to “travel” or do you have a goal to visit five countries a year? A decided person is a productive person. Being specific allows you to aim at a target. Not surprisingly, aiming at the target improves your chances of hitting it.
Have you ever wondered what you would do if you suddenly became the victim of a natural disaster, terrorist attack, fire or other unexpected event? Would you know what to grab if you had only seconds to escape your house? The plans you’ve made in advance and the items you decide to take will determine how quickly you are able to rebound from disaster. Here are seven ways to prepare for the unexpected.
Prepare a Grab-and-Go Case. Organize your important legal, financial and insurance paperwork into a file that you can snatch if you need to flee your house or your city. Consider including birth certificates, estate planning documents, financial statements, insurance policies (homeowner’s, auto, life, health), Social Security cards, a list of your prescriptions, a copy of your driver’s license and some emergency cash.
Make a Contact List. If a disaster occurs, you’ll want to contact friends or relatives to let them know you are safe or to ask for help. List their names, addresses and phone numbers. Include your trusted advisers, such as your physician, attorney, financial adviser, accountant, insurance agent and banker—they’re all trained to help you pick up the pieces of your life.
Prepare a Household Inventory. After a major disaster, most homeowners are simply not able to remember all their belongings for an insurance claim. A household inventory—a written list, photographs or a video walk-through of your home—will help avoid this problem. Remember to store the inventory somewhere other than your home, with a copy in your grab-and-go case.
Meet With Your Advisers. When you have six feet of water in your living room is not the time to discover you don’t have flood insurance. The emergency room is not the place to learn you need a medical power of attorney. Take the time to schedule meetings with each of your advisers and let them know you are trying to fill in the gaps and disaster-proof your affairs.
Update Your Plans. Change is the one constant in life. Make sure to review and update your affairs at least annually. Some questions to ask include (1) Has your marital status changed? (2) Has the value of your assets changed significantly? (3) Have you altered your insurance policies? (4) Have you changed jobs? (5) Has your health recently changed? If you answer yes to any of those questions, you need to update your plans.
Have a Backup. Let’s face it. You may not be able to escape with your important paperwork. Many fires, for example, happen while the homeowners are away. To protect yourself, store backup copies of important documents in a safe-deposit box or with a trusted friend, relative or adviser. As a general rule, don’t keep anything in a safe-deposit box that may be needed in an emergency, such as powers of attorney—a safe-deposit box may not be accessible 24 hours a day and may be sealed temporarily after the box owner dies.
Evaluate Storage Solutions Carefully. Your primary focus should be on keeping your information secure. If your computer is your main storage vault, make sure it has up-to-date firewall and anti-virus protection. Use of a reputable online storage service may be a good option for those comfortable with the technology.
Keep in mind that in an emergency, portability becomes an additional concern. It would be difficult to grab your computer, with all it’s plugs and cables, and quickly escape your home. Instead, if you want an electronic copy of your documents, consider scanning them and burning them to a CD or storing them on an external hard drive or USB flash drive, portable devices that hold a lot of data. For photos, consider one of the many online storage sites.
Fireproof safes may provide added protection for documents. However, you should know that many consumer safes are rated to withstand heat and flames for only about an hour. After that, even if the safe is intact, the internal temperature could rise above 350 degrees and any paper inside would incinerate. This is what happened to the safe-deposit boxes in the World Trade Center. While some of the boxes survived, many of the contents did not.
None of us can prevent the unexpected, but putting your life back together again is much easier if you have all the pieces.
This article was originally published in the AARP Bulletin.
For many, the phrase “retirement planning” has become limited to the planning done in the years leading up to retirement. When you consider that your retirement could last for 20 to 30 years, however, it’s easy to see that your planning won’t end once you transition out of the workforce.
Chances are good that the things you want to do, are able to do, and can afford to do will change over the years. As a result you will likely have several transitions to plan for.
As a chess fan, I was struck by how similar the phases of retirement are to the three phases of a chess game. In chess, you have the opening, the middle game, and the end game. Let’s take a quick look at each and see what parallels we can draw with retirement.
Phase 1: The Opening
The opening of a chess game is all about maneuvering your pieces into position in anticipation of your overarching strategy. How well you develop your pieces in the opening often determines whether you spend the game on the attack or on your heels.
Similarly, Phase 1 of retirement is all about outlining your strategy and getting your pieces into play. That means deciding what you want to do and determining how much it will cost. For example, do you want to travel or stay close to home? Do you plan on moving? Is there a particular hobby or activity you want to focus on? Spend time thinking and talking to your spouse about what your typical day in retirement will look like.
Once you have your plan it’s time to create your retirement budget. List out your sources of income, such as Social Security, pension, personal savings or income from your job if you plan on working part time. Next begin putting numbers to the planning you did earlier. How much will things like your housing, food, travel, insurance, hobbies, and entertainment cost?
Is your estimated retirement income enough to cover your expenses? If not, now is the time to make up for any shortfall. You’re likely in your peak earning years and retirement plans like IRAs allow people over 50 to make excess “catch-up” contributions. Save as much as possible and work to eliminate debt so you can enter retirement with your finances in order.
As you can see Phase 1 has many moving parts. It is not unusual for someone to spend several years planning for and executing this transition. Once you have the where, when, and what questions answered and are confident that your nest egg is up to the task, you are ready to move from the opening to the middle game.
Phase 2: The Middle Game
In chess, the middle game is where most of the action is. The pieces are in play and each player can get creative. In fact, a good imagination and the ability to execute are two of the most important elements of the middle game.
If Phase 1 of retirement was heavy on strategy, Phase 2 is heavy on tactics. It’s time to transition out of your job and turn on your income streams by claiming Social Security and starting withdrawals from your personal accounts. It’s usually best to take money from your taxable accounts first (save tax-deferred accounts until later) and to keep your withdrawals to around 4 percent of your account value per year.
Once your income is set you can begin doing all the things you planned for this phase. This can sometimes be complicated by the fact that your circumstances will constantly be changing. Your health may change. Your finances may change. A great opportunity might present itself that you hadn’t considered before. All of these things will require you to modify your tactics.
World chess champion Gary Kasparov once described chess as trying to find your way to a destination using a map that is constantly changing. The same is true in retirement. Your strategy will likely remain the same, but the maneuvers you make to support your strategy will be fluid. The challenge is to wake up each day engaged and ready to act. As is usually the case with chess, you have limited time to make your moves.
Phase 3: The End Game
When the end game arrives during a chess game, you likely will be down to a few pieces. Earlier in the game, you either sacrificed them as part of your strategy or had them taken from you unwillingly. Depending on how things played out in the middle game, a change in strategy or tactics may be in order. The available choices and the time you have to make them are limited.
Obviously, the parallels in this phase are a little more unpleasant to consider, but since there is no Phase 4, there are some key issues you will want to take care of. For example, you will want to review your will and powers of attorney to make sure they are up to date and reflect your current wishes. Likewise with beneficiary designations on things like your life insurance policies and retirement accounts.
Also, as your health changes, the desire to live next to the beach may give way to the desire to live closer to family or a good medical facility. Moving is always a major undertaking, so talk with family and do as much planning as possible while you’re healthy.
As you can see, retirement is more than just a date on the calendar. By planning for each major phase, you can have peace of mind and focus on living a rich, rewarding life no matter how many pieces you have left on the board.
Portions of this article were excerpted from the book The Bell Lap. In addition, Joe originally published this article at www.fpanet.org.
“Good judgment comes from experience and experience comes from bad judgment.” I’m not sure who said that, but it sure is true. When considering investment lessons learned from the financial train wreck of last few years, many people at or near retirement are likely to put the arithmetic of loss at the top of their list. Unfortunately, this knowledge (like that gained from touching a hot stove) usually comes at a painful cost.
To see what I mean, imagine you had a $1 million portfolio that lost 20 percent, or $200,000, in a given year. Gaining 20 percent the following year would not get you back to even. A 20 percent gain on $800,000 would only get you to $960,000. You would need a 25 percent gain to fully recover from a 20 percent loss. The greater the loss, the more difficult it becomes to get back to even. If you lose a third of your portfolio, you need a 50 percent gain to recover. Losing half of your portfolio means that you would need to double your assets just to get back to where you started. Those types of gains take time, which is fine if you have thirty years to go until retirement, but not if you have three.
When you understand the math, it is easy to see that one of your primary concerns as you approach and enter retirement should be avoiding large losses. Large losses are extinction level events. They are like meteors to dinosaurs. They can wipe you out. All else being equal, the closer you get to retirement, the more conservative your asset allocation should be. Take a minute to review your allocation. Is it appropriate for your circumstances or is it the financial equivalent of “Put it all on red”?
Chances are you’ve been asked that question before. Maybe by your spouse or a co-worker. Maybe by your kids. When someone asks you that question, is the answer you give a date or a dollar amount? For most people it’s a date. Something like “March of next year.” or “When I’m sixty-five. Two years to go!”
When you think about it, though, your age has very little to do with it. Sure, you can start taking Social Security at 62, but the average Social Security payment couldn’t lift you above the poverty line. If you’re like most, your nest egg will be doing the really heavy lifting during retirement. It will take over the job that the payroll department handled while you were working. So instead of basing retirement on your birthday, consider basing it on your bank account instead. Figure out the amount of money you need in order to generate the annaul income you require to fund the retirement you want. Get that amount saved and you’re retired, regardless of how old you are or whether or not you are still working.