Tuesday, November 11, 2008

Millenium Planning part 3 of 3

Millennium Retirement Part 3

Finally, the steps to take charge and make it happen if you are a millennium, x or y generation, as previously indicated our future depends on how we leverage our finances to maximize returns, strategically placed, and the most important ingredient is that we contribute to different income streams:

The new adage is that we cannot depend on others to take care of our retirement, nor our government to take care of our social security woes and Medicare, health insurance and a volatile market. Market cycles are taking longer to stabilize and we cannot sit idle and wait to get better returns on established strategies. The following are simple steps that you can methodically take to ensure a happy and healthy retirement phase:

1.Establish a plan, which has to be analyzed and change on a minimum annual basis.
a.Seek advice from professionals who do it everyday and are independent so they are working for you, not a big brokerage house.
2.Establish a reasonable budget, cash flow analysis, taking into consideration income streams, and expenses. Analyzing expenses is paramount because it is a common practice that we overspend and do not track all out going expenses properly. You have to practice keeping good accounting for a month to three months to best analyze expenses, so you know exactly where your money is going. This is paramount; remember it is your plan and retirement.
3.Maximize to the matching contribution from an employer if you are contributing to a 401K, ask your Human resources representative for the different Asset allocations available in your plan so you can turn it over to your financial advisor. Most of the time they do not know because they are not licensed and in the investment business. Depending on your age, this is critical because they usually used a cookie cutter model for the employee population, like 2010, 2015, 2020 models. Do not withdraw prematurely until you are 59 ½ to avoid unnecessary penalties. In bear markets (bad economy) consumers tend to tap into to retirement savings to meet expenses and cash flow needs. See emergency fund strategy below to avoid this.
4.Once you have a clear picture of income/expense analysis then you can see how much money is left for savings. Remember you must beat the current inflation interest to really gain on your investments.
5.Dedicate sometime to prepare the plan with your advisor and write down your short term (1-3 years) mid term (5-10) and long term goals. You can use a finite amount to fund and prepare a milestone chart to check your progress.
6.Depending on your age, be prepared to fun qualified funding and non-qualified funding, specially tax free investments within your plan. Many prepare only with qualified funds which are taxed upon withdrawal and give a false sense of security on the amounts accumulated.
7.Minimize debt as much as possible throughout your plan, pay down credit cards and keep the ones that give you something in return (air miles, gift cards) no annual fees are best. Avoid store credit cards as they have high interest rates. Debt is ok as long as they give you a rate of return, we call these preferred debt. Such as a home mortgage, commercial properties, land (if lease), business vehicles, equipment, etc. Non preferred debt is such as credit cards and unnecessary loans that accumulate interests on principal and interest rates.
8.Build a 3 month income salary to start as an immediate goal, place this money in an account that generates at least 3% interest rate to keep up with inflation. I prefer virtual banks since they are not brick and mortar institutions thus passing the savings to their customers in higher producing interest rates. By placing the money in a separate account than your usual checking or savings you need to ask yourself why you need to withdraw it. These funds must be safeguarded and maintain in a healthy level to be used only for emergencies. Ultimately you want to accumulate a full year income savings. Then be prepared to start funding more aggressive vehicles for the long term horizon. Communicate with your financial advisor to keep track on this strategy.
9.Educate yourself with your choices of vehicles to ensure you understand how they are expected to perform and keep communicating with your banker, plan administrator and financial advisor professionals.
10.If married allocate funds for college funding for your children. There are various ways to do this, talk to your financial planner to analyze the best strategy for your plan and goals. Education is paramount for your children’s future.
11.Implement strategies to maximize your rate of return throughout your plan. Many seem secure just putting some money away and expecting someone is going to let them know how the plan is performing. Remember is your plan and retirement!
12.Protect yourself and family for unforeseeable emergencies, losing your job, changing jobs, divorce, lay offs and premature death are common factors that affect your family’s plan. Protect your love ones. See your advisor for strategies and best practices.
13.As you near retirement, as I call this the retirement red zone (10 years out) this is a critical time to aggressively fund as you may be at your highest earning capacity. You may be able to pay down all your debts, pay off you house, maximize contributions to your various future income streams and have a clear view of where you are going to be.
14.During retirement or soon there after another critical stage takes place, you money needs to be protected to ensure life time income. You can attend workshops we provide to our clients in preparation to their retirement. This ensures ample time and planning to let your money work for you and provide income for you and family.
15.Enjoy your planning process and once you see your money grow you will want to save more. It works and it gives you peace of mind.
16.Be Happy and prosper.

This is a simple step process you can do yourself; although I recommend you seek advice to have a professional help you along the way.