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.
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).
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.
Ever been on a team that is working well together?
When you're on a strong team, be it a sports team or a business team, the unique gifts and strengths of the individual members contribute to the success of the whole.
In fact, on a strong team, like say, the Seattle Seahawks, while the strengths of each individual member are obvious, it's the team working together that gets to the Super Bowl.
Let's apply this same team approach to your financial strategy.
Instead of thinking of your financial resources as isolated financial products, think of each financial product you have as a individual player on your financial team.
For example, don 't think about your bank account, 401(k), real estate, life insurance policy, certificate of deposit
(or any other product) as isolated money in "separate buckets."
Instead, consider how your different financial products might actually work together to make your financial situation stronger.
When you develop a lifetime financial strategy that factors in the strengths and weaknesses of each financial product, along with your life values, then you create a winning financial team.
Your retirement strategy should take into account your life values and needs and potential life events - both planned and unplanned.
Then, each financial tool or product should be evaluated as to how it will contribute to your financial team and enable you to achieve your goals.
Pete Carroll, the Seahawks Coach, looks for defensive players that fit his strategic vision. He bids farewell to highly capable players that don't fit his long-term goals or whose strengths don't match his needs.
Think about your financial products in the same way. Choose each financial player carefully with your retirement needs and goals in mind.
You don't have to build your financial team alone. We know Pete Carroll looks to his management and coaching staff for expertise.
And that's why I'm here. Together, we can build a winning financial team that provides you with a secure retirement.
It's fun to be at the Circle of Wealth Conference. I'm enjoying connecting with friends and colleagues. And I'm in one of the few parts of the country (Florida) that is escaping the polar vortex!
Dwayne Featured Speaker
Dwayne will be speaking April 23, 2014 in Hillsboro TX.
Call 800-583-5865 to reserve your seat. Space is limited.
Dwayne has designed this workshop to help you increase your knowledge and address the pressing financial concerns that you and many others face.
Learn the core elements of using whole life as a financial strategy. Face the future with knowledge and confidence. Plan for a lifetime of safe and predictable financial growth.
Join Dwayne and learn how to build a solid foundation for your retirement.
When I initially meet with people and ask them what is going on in their financial life, what comes out almost 100% of the time is that they worry about their money. Regardless of where it is or what is going on, they worry.
Every day they look at the stock market and hear the latest news: the market is up, the market is down. Folks wonder if 401(k) money will be available to them they retire. They also wonder if they will have enough money to be able to do the things they want whether a vacation, paying for college, weddings, you name it.
It doesn't have to be this way.
Consider that you have available to you a far greater number of financial products and choices than you realize. You may not know it but you have other choices than simply placing your money in mutual funds inside your 401(k) and hoping for the best.
Remember, each financial product (such as those mutual funds within your 401(k)) comes with strengths and weaknesses. When you have money in the market place, you may hope for greater returns. But you have no control over what happens. Placing money in the stock market that you can afford to lose is a different strategy that placing retirement money you cannot afford to lose in the stock market.
So why not step back and think about your money in a different way? With a little knowledge, you can set yourself on a different financial path.
Start now and shed the weight of all that worry.
Any financial plan based on a hoped-for return in the stock market (or any market, for that matter) is not a plan, it's a wish.
An effective lifetime financial strategy will work in strong and weak economic times and allow us to mount an effective response to changing and challenging life events.
Any financial plan you can live with and follow for a lifetime must also:
To accomplish this we need to educate ourselves as to what a healthy financial situation actually looks like. Despite all the financial jargon out there, the elements of a solid and realizable financial strategy are really not that complicated. It all boils down to thinking about and planning five common sense elements:
Remember that achieving financial independence and empowerment is a dynamic process and a journey. You can start out at any age and make a difference. One of the questions I ask myself when I want to make a change is simply, "What am I going to do differently today that will make a difference in six months?"
By not expecting that change can be accomplished in a day or perhaps even in six months, I give myself room to breathe. I implement little actions each day to move forward. Small actions, over six months or six years, cover enough distance to reach my goal.
Many of us pay a large amount of money (in the form of loan interest and fees) to others for the privilege of borrowing their money. You pay loan interest on our cars, homes, and other loans. If you carry a monthly balance on our credit cards, you can be paying an interest rate as high as 29.99% or more.
You also pay other people to help us manage your money. At your financial institution, you likely pay ATM fees, debit card fees, account maintenance, and transaction fees. In your qualified plans, you can pay transfer fees, paper fees, and service fees, to name but a few.
Any approach you choose for your lifelong strategy should allow you to reduce the amount of loan interest, fees, and service charges you pay.
By reducing loan interest, fees, and service charges, you decrease how much money you let leak out of your financial system. Consequently, you grow your wealth faster. Think about filling a child’s inflatable swimming pool. When there are leaks, it takes a lot longer to fill the pool and it does not stay full. When you find and seal the leaks, it takes a lot less water to fill the pool and it stays full.
When you eliminate many of the fees and service charges banks and other lenders charge, this money stays in your financial system. Over time, the effect of reducing these financial leaks can be significant. Just as with the swimming pool metaphor. Once you eliminate the small but steady leaks in your financial system and capture or reduce the outflow, your money stays with you.
You don’t have to earn, or grow, as much money over your lifetime if you’re not losing it.
Throughout the last 30 or so years we have been exhorted and encouraged to place a great deal of reliance on qualified plans, such as our 401(k), to fund our retirement.
Qualified plans are supposed to provide us with the income we need in retirement. It’s the approach that is embodied by the financial counsel we hear or read every day:
“Stay in the stock market, ride out the down-turn, the market will rebound.”
“Invest for the long-term.”
“Focus on your rate of return.”
Let’s consider the 401(k) plan once more. Many people have a very large percentage (if not all) of their retirement "savings” money situated within mutual funds in a 401(k).
But remember, a mutual fund is an investment vehicle, subject to loss at any time. Saving and investing are not the same thing. You invest for greater growth at the risk of loss. You save for moderate growth with security, stability, accessibility and minimal risk of loss.
Control…or Lack of It…
You do not have control over how your mutual funds will perform in the marketplace. Clearly, we all want the stock market to go up and the value of our 401(k) funds to increase. But what if this doesn’t happen and you lose money inside your qualified plan?
Mutual funds are operated by money managers. Does the fund manager lose money when you lose money? The money manager may lose sleep, but not money. The fund manager still gets paid and the institutions still collect their fees.
You’re the only one who loses. Your money is at risk, not theirs. Their ultimate loss is that they may lose you as a client. However, it’s you who have to endure the consequences of losing your hard-earned money.
When you are chasing a rate of return, you are not focused on what would happen if you lost your principal. Instead you concentrate your energy on possible gains. You do not think about how you would cope if you lost some or all of your initial investment.
Loss of your original capital is critically important to consider since the greater your loss, the harder it is just to get back to your starting point.
When you combine the loss of your original capital with the erosion of your wealth due to taxes, inflation, and fees, the financial result can be, and often is, devastating. Also, as you get older, you have less time to recover from the effect of loss.
At some point in your financial life, you need to decide whether you want to chase a return or create a financial strategy.
An effective financial strategy will consider growth.
But the cornerstone of your lifelong financial strategy should be a solid foundation of security and stability.