I keep asking about retirement savings. Clients ask:
- How much should I set aside each month?
- How big do you think my “egg nest” will be so I can retreat comfortably?
- Will social security run out of money before I turn 65? Should I even count on it?
- Which mutual funds or investments will increase my assets the most during this next decade?
These are all good, interesting questions. But these are not questions I recommend you ask first.
I’ll give you six better ones to ask when you’re saving for retirement.
1. Why do I save? The first question to ask about retirement savings is “Why?” Why would I now voluntarily give up enjoying my money? “(a practice called ‘saving’).
Most would respond, “Well that’s exactly what you do, right? Set aside as much money as possible so that one day we hope you have the resources you need to stop working. “
However, few people think about creating a real plan for that property. How will he use them wisely? How will stocks turn into groceries? How will they ensure the duration of these limited resources?
A better answer to this important question? “I’m saving to get the assets I will need to generate the income I want – to retire, when I no longer receive a salary.”
Do you see the difference?
Creating a large value account in your 401 (k) or Roth IRA is certainly part of the equation, an important first step. But that is not the final answer. Retirees do not live from large balances on pension accounts.
They live on income.
(Don’t you believe it? On your next trip, just for fun, try checking into a hotel by flashing the latest annuity or posting your net worth. See how it suits you.)
2. How much retirement income should I strive for? I don’t know about you, but I’d love to retire without reducing income (if possible). What is your current monthly budget? Shoot for it.
3. How long should my money last? Well, at least while you’re doing it. And if you are married, as long as your spouse lives. In other words, you want your income to last at least as long, if not longer than it does.
4. How safe could my pensions be? Consider: If financial markets or business markets or real estate markets are swaying or going in the wrong direction, do you want your regular income to be subject to that? How protected do you want your income to be from external economic forces?
5. Will I need money in addition to my earnings? Probably so. Do you think your roof will ever need to be replaced? How about your car? We all face unexpected costs during the working years. Why do you think your needs for liquid (ie available) funds will disappear in retirement?
6. Do I want to leave something after I leave? If you don’t crack, it’s hard not to. But many people want to leave a financial legacy after they die. If this is the case, make sure it is part of your retirement plan.
I hope the above questions will make you realize that while retirement savings are necessary, it is not enough. It is not enough to invest … even very successfully.
What you need is a plan – for retirement income, liquidity and legacy.
Do you have one?
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