Bill Losey's Retirement Intelligence

I hope you've enjoyed our daily tips throughout the month. As National Retirement Planning Month 2009 comes to a close I want to be sure to include a couple of links to my free resources. Enjoy!

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Retirement Advice: Why You Need To Keep Some Money Invested in the Stock Market

For some reason, people automatically assume they need to get more conservative in their portfolio when they retire. It’s probably because they read it in a financial magazine somewhere that says all retirees should do it. But, times have changed. People are living longer, healthier lives than their parents did and your money needs to last a lot longer.

Your retirement could last for 2-4 decades and most people severely underestimate their retirement income needs. At the very least, you should maintain at least 30-40% of your money in stocks. You should also ask your advisor if your investment strategy is designed to double your income over the next 20 years. Due to inflation, you’ll need it.

Bill Losey's Pre-Retirement Advice - Phased Retirement

Not sure you have enough money to retire? How about a phased retirement? Instead of working 40 hours per week, talk with your employer about a reduced workload with a corresponding pay cut. The result could be just the answer you’re looking for.

Phased retirement is an attractive option for older workers because you continue earning an income while getting more free time for yourself. Your employer benefits by retaining a valued employee at a reduced cost. Often times an employer will free up those financial resources to hire an additional employee and improve productivity. It’s a win-win for everyone.

Asset Allocation & Diversification

Asset allocation is an investment strategy designed to reduce risk and enhance your return, by spreading your money among the three major asset classes – stocks, bonds and cash.

Diversification refers to how you spread your money among the sub-asset classes. For example, stocks are one of the three major asset classes; however, within this asset class you have various sub-asset classes such as large cap, small cap, mid cap, blend, growth, value, domestic, international and emerging stocks. Bonds, another major asset class have their own sub-asset classes such as government, municipal, corporate, domestic, international and emerging market debt bonds. If you’ve heard the saying, “don’t put all your eggs in one basket”, diversification is what they’re referring to.

Get Out Of Debt By Talking With Your Creditors

For a company, there is nothing worse than a consumer who has borrowed money, doesn’t make payments, and won’t answer the phone. However, if you’re honest, forthright and contact your company and explain why you’re having trouble paying your bills – it could lead to a reduced payment plan. Additionally, if you authorize the company to automatically deduct their monthly payment from your bank account that would indicate to the company how serious you are about paying them back. If you have the ability to make even a nominal payment and are willing to make that payment, most companies will work with you.

The Best Way To Invest For Retirement

If you talk with 10 different investment advisors, they’ll all have their own opinion as to what they think is the best way to invest. Some prefer actively managed investments. Some prefer passively managed investments. Some advisors like me prefer a 3-tier combination of actively and passively managed investments called a “Skill-Weighted” portfolio. The point is - you need to do some homework and figure out what strategy resonates with you.

Since neither active management nor passive management has superior performance in all market environments or asset classes (large cap, small cap, growth, value, domestic, international, fixed income, etc.), I think it’s smart to incorporate both strategies into your investing plan. Therefore, I’m a staunch advocate for using low-cost index funds, enhanced index funds and exchange traded fund (ETFs) from investments companies such as Vanguard, SEI and Barclays.

National Retirement Planning Month Asks "What's Your Net Worth?"

A net worth statement is simply a piece of paper that illustrates your overall financial strength at a particular point in your life. In essence, it’s a snapshot of everything you own (your assets), less all your debts (your liabilities). The calculation is as follows: Assets minus liabilities equals your net worth (personal bottom line). You are said to have a positive net worth when your assets exceed your liabilities. You are said to have a negative net worth when your liabilities exceed your assets.

Assets: Take out a piece of paper and make a list of everything you own; bank accounts, investments, retirement accounts, cash value life insurance policies, savings bonds, money owed to you, personal residences, investment real estate, collectibles, art, autos or other vehicles, business assets, etc. Once you have your list, provide an accurate value of what the asset is worth. It will be easy to value your investments but in the case of a car or your home, you’ll need to provide a guesstimate of what someone would be willing to pay you for the asset.

Liabilities: On that same piece of paper, make a list of everyone you owe money to; parents, student loan, car loan, home equity loan, boat loan, mortgage loan, credit cards companies, business loans, personal loans, etc. Once you have this, write in your current outstanding loan balances.

Once you have your assets and liabilities organized, subtract your liabilities from your assets and determine if your net worth is positive or negative. Preparing a net worth statement annually will allow you to keep tabs on your progress toward meeting goals such as college or retirement. The goal, of course, is to have a net worth that increases over time.