With the weakening USA economy, upcoming elections, fragile European economies, in the next two years Dallas Cowboys Jerseys,#28,Felix Jones Jerseys,Blue Jerseys Thanksgiving, doubt and fear will be certain constants.
Meanwhile, several folks are preparing to retire in five to seven years. Some of these people panicked in the Great Recession, sold investments when the market dropped, and lost some of their retirement funds. Still, they continue to invest in the stock market. And with the short time before retirement, they worry that their savings will evaporate.
People seeking guidance to lead them through this period without further damage Dallas Cowboys Jerseys,#28,Felix Jones Jerseys,White Jerseys Thanksgiving, can learn from the NFL. An NFL head coach tries to ensure that when his team enters the red zone, the area between the opponent's 20-yard line and the goal line, his team scores at least a field goal; preferably, a touchdown. So, he develops special plays to try to meet that objective.
What is the retirement red zone? Since the year 1900 in the USA, recessions happened on average every 5-7 years. This has influenced my choice of the retirement red zone of seven years before retirement. During this time, individuals need to develop specific strategies to ensure their capital remain intact, even if there is a recession at retirement--the field goal. Ideally, they should try to grow their capital faster than inflation, but cautiously--the touchdown.
Retirement Budget Gap
The difference between today's value of planned retirement income and expenses yields the retirement budget gap ("gap"). You should have been checking it twenty years before retirement, and annually, as part of your retirement planning.
This gap is your retirement savings' goal. To preserve and grow retirement capital, identify it early, and work to close it over a predetermined period. In the red zone, three key factors will affect the gap: pension plan, investment strategy, and planned post retirement lifestyle.
Pension Plan
Normally, corporations offer employees defined-benefit plans ("benefit plans") or defined-contribution plans ("contribution plans"). In benefit plans, employers promise specific monthly benefits at retirement, irrespective of plan results. That's why these plans are expensive.
Contribution plans are less costly and employers do not guarantee benefits. They are paid solely from plan performance--from employee and employer contributions, income, expenses, and gains Dallas Cowboys Jerseys,#22,Emmitt Smith Jerseys,Blue Jerseys, net of losses.
Contribution plans include Registered Retirement Savings Plans (RRSPs, in Canada), and 401(K) plans (in the USA). Employees drive contribution plans, which are becoming increasingly popular with employers. In a benefit plan, with the employer's guarantee, it is easy to calculate expected retirement income. But in a contribution plan, it is more difficult. Since income will depend on the plan's performance, you must apply many assumptions relating to the economy, market conditions, and investment performance.
Investment Strategy in The Red Zone
That's why, in a contribution plan, in the red zone, with a maximum seven years to go, you need a cautious investment strategy. Be proactive and understand how your retirement funds are invested. Beware of seemingly safe investments such as gold. It is seductive, but it is a commodity with no intrinsic value. Among other things, fear of inflation, worry Cincinnatti Bengals Jerseys,#11,Jordan Shipley Jerseys,Orange Jerseys, lack of confidence in global economies, hikes the price. It will fall when the panic period passes, and people realize that its fundamentals do not support its high price.
Go for the field goal; place retirement funds in secure investments that protect the capital. The touchdown, investing in stocks, is too risky. This investment strategy means your returns will be low. When you retire, and need to cash investments, you want to be reasonably confident your capital is in place, even if the stock market is down. If you have gold bullion or stocks to sell in a down-market, you might lose some of your precious retirement income. Be cautious; try to suppress the greed urge! Most of all, let the Lord guide your decisions.
Post Retirement Lifestyle
After you establish your retirement income, compute your estimated yearly retirement expenses. It will flow out of your projected post-retirement lifestyle. Pray and let the Lord help you settle these matters:
Do you have a mortgage, and non mortgage debts? At current rates, when will you repay it?
Do you plan major repairs or renovations to your home?
Where do you plan to live when you retire? Will you lower your housing needs? Will this free equity to go to retirement income? How much?
Will you rent or own your home, and a vacation home?
Do you plan to move to a retirement community? Do you know the estimated cost?
Will you support or help to support family members?
Will you do volunteer work, or work part-time while retired?
Do you plan to take up hobbies, join golf or other clubs? What is the likely cost?
Will you become a "snow bird" and spend winters in warm climates?
Will you travel often?
What other lifestyle choices might affect your retirement budget?
Do you have adequate medical insurance to cover current and forecast health conditions?
Do you plan to spend your investments and other assets over your lifetime? Alternatively, do you plan to leave an estate? This is important; it will affect how much you spend.
With help from an independent financial adviser, at least annually, review your investment strategy and holdings, focusing on asset allocation, and red-zone assumptions. As well, estimate the portfolio's likely value at retirement, yearly retirement income it might produce, and progress to close the retirement budget gap.
Adjust your red-zone strategy as needed to try to close the gap. You might need to modify lifestyle decisions to lower costs. The closer you are to the end zone Dallas Cowboys Jerseys,#9,Tony Romo Jerseys,Blue Jerseys Thanksgiving, the more often you should do these reviews.
Become the head coach for your retirement planning journey, recruit a competent quarterback--an independent financial adviser--and together, develop strategies to score at least a field goal; preferably, a touchdown!
(c) 2011, Michel A. BellRelated articles:
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