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Tuesday, 31 March 2015 10:51

Have You Created a "Retirement Paycheck?"

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Your approach to retirement planning may be costing you money. A LOT of money.

Instead of thinking of your retirement fund as a "pile of cash," plan for the monthly income you want to have for the rest of your life.

Common financial advice encourages you to to save money and then ration out 4-5% from your 401(k) or qualified plan each year to fund your retirement.

But this strategy treats your money and your financial resources as if you were dealing with a pile of bricks. Based upon this approach, if you collect 100 bricks for your retirement; then no matter what happens to you or your family, you can only allow yourself 4-5 bricks per year to live.

pile-of-big-bricks

But the wealthy don't treat their money and financial reserves this way. The wealthy understand that the key to financial control and independence is based upon how they manage the flow of their money through their financial system.

The wealthy think about "cash flow" instead of a pile of "cash." They think about how to make their money work for them by managing both the inflow and the outflow (i.e., taxes, interest, fees and service charges, and other expenses).

cashinhand

The wealthy also integrate money coming in from various sources (e.g., Social Security benefits, 401(k) distributions, investments, annuities, property, inheritance, etc.) with their tax situation. They stagger their how much money they receive each month in order to optimize their monthly income, minimize their tax liability and to have the financial resources to managed unexpected events.

Consider this. You can have your house and car paid off, but if you have no "retirement paycheck" or cash flow coming in every month, what will you live on?

If your only retirement strategy is rationing your annual income to 4% of your total financial reserves , then you don't have much of a plan to handle a stock market drop (and capital loss in your 401(k)), inflation or a sudden need for cash, be it for house repairs or medical expenses.

There are financial strategies that will preserve your wealth in case of unexpected health expenses, inflation, stock market fluctuations and unexpected life events.

You don't have to be Warren Buffett to enjoy your retirement, but you do need to plan ahead. Make sure you have a "retirement paycheck" that will provide for you and your family.

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