5 Ways to Protect Your Retirement
Retirement isn’t what it used to be. In the old days, a person could expect to retire with a nice pension. Nowadays, unless you work for a government entity, you probably don’t have a pension. Instead, most of us are on our own.
Retirees must learn to deal with the financial uncertainty of retirement. Before retirement, most poor financial decisions and unlucky breaks can be overcome with a little time and a few additional paychecks. After retirement, the pool of assets is mostly fixed. Somehow, retirees must make those assets last for the rest of their lives—a reality that many find a little unsettling.
Over the years I have worked with a lot of retirees. Based on what I have observed, here are five things you can do to protect your financial security in retirement.
1. Work with a competent professional. Some homeowners are good at do-it-yourself projects, but most are not. If you have ever shopped for a house, you know exactly what I mean. You can spot most DIY-ers from a mile away.
It is the same with do-it-yourself financial plans. Some people have the necessary skills and experience, but most do not. When it comes to your financial well-being, hiring a qualified professional to help you develop a plan makes a lot of sense. A capable and experienced financial planner can help you see things you might not otherwise see and ask questions you might not know to ask. She can also help you keep from fooling yourself with unrealistic assumptions and expectations.
2. Watch out for lifestyle creep. Lifestyle creep refers to the tendency to want something bigger and better today than you had yesterday. Lifestyle creep is like the old story of boiling a frog. The changes happen so gradually, we barely notice before we are cooked.
A good friend of mine retired four years ago. In all of his new free time, he discovered that he really likes golf and travel and motor sports and…well, you get the picture. Given his new hobbies, life in retirement was significantly more expensive than he expected and he was blowing through his retirement savings. He was on a very dangerous path. Fortunately, he discovered the danger early enough to take corrective action before his new lifestyle caused him serious long-term damage.
3. Be careful with supporting your kids. Sometimes family members face short-term jams and we naturally want to help them out. However, when short-term assistance turns into long-term dependence, you and your family member face a serious problem. The problem is even more serious if you are retired.
If you are retired and are providing financial support to adult children, do them and yourself a big favor. Help them take adult responsibility by weaning them off your support. Give them a deadline and stick with it. As parents, one of the best things we can do for our kids is to help them find the self-esteem that comes from being self-reliant. On the other hand, if you spend all your retirement resources supporting them, neither you nor they will be self-reliant for long.
4. Avoid garbage investments. There are a lot of garbage investments out there and you simply have to stay away from them. You can usually recognize them because they make magical promises. For example, if someone tells you a particular investment can deliver above-market returns without any risk, you can be certain they are pitching garbage. I have seen a lot of Wall Street garbage in my 35 years in this business and I have never seen any of it turn into gold—unless you’re a broker.
5. Avoid scams. There are a lot of scams that prey on older people. Watch out for those who seek to gain your trust based on big promises and flashy programs. Instead, work with professionals who are members of the community and who have established solid reputations over many years. In today’s world, every advisor you work with should be a fiduciary—someone with the legal responsibility to put your interests first. If your advisor has chosen not to be a fiduciary, you need to have a heart-to-heart conversation with him to understand why. Usually, it boils down to money.
Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey. He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to firstname.lastname@example.org.