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February 8, 2017

To retire with confidence, have a plan

By Kevin Theissen

If you want to retire with confidence, you need a good plan.
As you near retirement age or better yet, decades before retirement age, it is time to start doing some serious financial planning. Retiring with confidence means you developed a logical plan, are executing it, and review it regularly to make sure you stay on track.
When developing your retirement plan there are a number of risks to consider – those we know and those we don’t know. This includes increased longevity, inflation, family responsibilities (such as caring for parents), health care, and interest rates. All could have a major effect on finances and lifestyles.
Consider this: couples who are both 65 years old today statistically have a 50 percent chance that one of them will live past 92, and a 25 percent chance that one will live to 97. So, unless you have serious health risks or unfortunate heredity, basing your financial planning on a 95-year lifespan makes sense.
Fundamental financial planning can be built on a single premise that is incredibly simple and has been time-tested through the Great Depression, two World Wars, and multiple other major events. Stock prices rise over time. When selecting and managing stocks, consider these key points:
Set return goals that make sense for your personal situation. The only benchmark that would make sense is to achieve your personal goals over a time horizon that fits your specific situation. Your performance goals should be the rate of return you need to live comfortably through retirement. The true measure of investment performance is your return through a full market cycle, up and down. Beating the S&P 500 or any other such nonsense is pure noise and distraction.
Manage risk through asset allocation and rebalancing.
Trim risk during euphoria and overvaluation; buy during times of fear and undervaluation.
Retirees and pre-retirees must manage risk vigilantly. Withdrawals from a portfolio that sustains significant declines can accelerate the loss in value. Risk management is imperative.
Time is money!
Retirement investing can seem pretty mysterious. Put money into an investment. Wait. Take money out. But what happened in between? To put it simply, your money grew because of time.
Capital appreciation (a rising stock price) and dividend payments equal total return. The only reason people buy and hold stocks is because historically, the total return for stock ownership has been higher than straight lending (such as through a bond).
When it comes to retirement investments, you’re going to be at it long term, so you need to make sure your risk levels are appropriate for your goals, and that your return is both reasonably high and reasonably steady.
The steadiness comes from a proper asset allocation (a mix of stocks, bonds, and other asset classes, together in the form of a portfolio). Rebalancing — selling investments that have gained and using the proceeds to buy the ones that are “on sale” in comparison — is a nifty way to pick up extra return you otherwise miss.
Magnifying money
The longer you invest, the more money you will have. Why? Because all of your incoming cash— rebalanced gains, interest payments and dividends — magnifies your portfolio through compounding.
If you double your money from $1 to $2, the next double the total jumps to $4, then $8. Compounding is how retirements happen, and time is the motor that drives the whole thing. Time literally is money.
But how can you take advantage of time?
Save enough. Invest it appropriately. Wait.
Compounding is a powerful force. It’s the way you can be assured of reaching your retirement with more.
Please seek the advice of your financial advisor regarding your personal situation. If you don’t have an independent, fiduciary financial advisor, consider getting one. If you don’t have a rock-solid financial plan–make it a priority and start putting time on your side.
Kevin Theissen is principal and financial advisor at Skygate Financial Group, LLC., located on Main Street in Ludlow, Vt.

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