From technical glitches on the New York Stock Exchange to economic turmoil in Greece, in today’s information era of 24-hour news cycles, it can be easy to let emotions seep into your investment decisions. As you approach and transition into retirement, buy-and-hold waiting games through double-digit fluctuations can be a scary and an impractical choice. The good news is that there is a way to find some consistency and stability throughout turbulent markets without trying to time the market. The secret: a comprehensive income plan.
Think of retirement as a cross-country road trip. Sure, the vehicle you take is important, but would you leave your house without a map or GPS? You may encounter some construction or detours along the way that require some minor recalculating to get back to your original path; however, you use the map as a tool to guide you back on your way. Many times, investors let these market diversions completely uproot their investment strategies—the financial equivalent of throwing away your map, parking on the side of the road, or even stopping to sell your car midway through your cross country adventure. There is a better, more practical way to invest in retirement. Let’s take a look at how an income plan can create a dependable, financial navigation system to take you through your retirement journey—whatever it may bring!
1) Establish your wants and needs. The first step to any successful plan is identifying what you want your path to look like. Where do you want to go, what do you want to see, and what are the dollars and cents you will need to do it?
2) Identify your income sources. As the paychecks come to an end, what sources of revenue do you anticipate from Social Security, pensions, rental properties or other retirement ventures? By knowing your expenses and income, you can identify the difference needed to pull from personal savings to fund the gap.
3) Create dependable income. With your income needs established, and factoring in taxes and inflation over what could be several decades of retirement, you can now design a plan to provide the steady, predictable income needed. By utilizing a variety of income-producing investment tools that can provide low to no market volatility, your retirement paycheck will still come as planned, regardless of what may happen on the news.
4) Carve out an opportunity sprinkle or “play money.” One of the biggest mistakes I see retirees make is continuing to invest as if they are still in their working years, gambling their retirement livelihood on market timing. Whether you thrive on seeing the greater returns of riskier investments, or have growth ambitions to maximize your legacy, these types of investments can have their place in a retirement portfolio—when positioned appropriately. Once your baseline income needs are met and you are truly comfortable, then you can begin to explore these additional, higher-growth opportunities knowing they can’t alter your life plans.
With these steps in mind, you can be well on our way to having a comprehensive income plan built for retirement. By not relying to heavily on the stock market and diversifying investments based on the goals and needs set out for them, your financial GPS is in place, and you can sit back, relax and enjoy the journey.
