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Don't Just Hope for Retirement…

Plan for it

Retirement Planning

Retirement – We all look forward to a comfortable retirement with both the time and money to pursue the activities in which we have dreamed. Along the way, we often wonder, “Am I on the right track?” This nagging thought builds as we get closer to retirement day. Questions arise like, “How do I manage my retirement savings to provide a dependable income throughout my life?” or “Should my investment portfolio change as I approach retirement?” Fourth Avenue Financial is here to answer all of your retirement questions and bring you the peace of mind that you deserve as you approach your retirement. We have successfully guided hundreds of families through retirement in both good and bad markets. We also understand that everyone’s vision of retirement is different. Our number one priority is to listen to you and build a solid plan to get you there.

Retirement Mistakes to Avoid

Focus Solely on Investment Returns


To add a new question go to app settings and press "Manage Questions" button.As we save for retirement, we are constantly reminded to systematically add to our 401k and investment accounts and not to worry about the volatility that the stock market constantly experiences. That is generally solid advice if you are in a properly diversified portfolio. History shows us that the market as a whole has never failed to reach new heights if given enough time to recover. When we routinely add to our investments, we take advantage of market downturns because our dollars buy the discounted shares and profit in the rebound. This is commonly referred to as “Dollar Cost Averaging”. The majority of people who have successfully built their retirement nest egg have benefited from this strategy. The truth is, the very strategies that have helped you build a substantial retirement fund could very well work against you as you draw out income during your retirement. The math of retirement income generation is very different from the accumulation phase and failing to understand this may place your entire financial well being at unnecessary risk. Your long term rate of return is not a benchmark that can reliably predict the success of your retirement income strategy. Volatility control in your retirement income years is essential to creating a dependable income stream. You can no longer afford to wait out a bad year like many of us experienced in 2008. A large loss coupled with income needs that further draw down your investments could become more than your portfolio can sustain. In retirement, the sequence of market returns will overshadow the need for a bigger total investment return.




Failing to Account for Inflation’s Impact


The last decade has been a relatively tame period for inflation. It is easy to discount the possibility of higher inflation eroding the purchasing power of your portfolio if we only look back a few years. A little longer view tells a different story of rising prices, with double digit inflation rates in the late 1970s. Inflation hits retirees particularly hard because their income sources such as pensions and social security tend to do a poor job of keeping up with surging prices. Even in low inflationary periods, retirees can get hit hard if inflation is centered around items that retirees tend to consume more of, such as health care. If you have planned your retirement income needs for the next 25 to 30 years and have not taken inflation into account, you will likely find your lifestyle squeezed by rising prices. For instance a 3% inflation rate doubles the price of goods in approximately 24 years. In other words, if it takes $5000 per month for you to feel comfortable today, it will demand $10000 to enjoy the same quality of life over a typical retirement period. I find most people do not fully appreciate the power of even a modest inflation rate over the course of time. If your plan does not account for this, your golden years may not live up to your expectations.




Becoming Too Conservative


It is very natural to want to avoid the volatility of the markets as we enter into retirement. We know that we no longer have the time to wait for the market to bounce back and we also know that if something goes wrong, without income from a job, there is little chance to make up the lost ground. Psychologically, the pain of portfolio losses are amplified in retirement. The dilemma here is that without the upside of the market, you expose yourself to the potential loss of purchasing power through inflation or the depletion of your investments by spending the principal. Essentially, to avoid Mistake #1, you are subjecting yourself to Mistake #2. Let’s say several years back you retired and purchased a bond or a CD with a safe 6% rate of return to fund your retirement. If the investment would have happened to mature the past few years, chances are you would only be able to find 1-2% return on your reinvested money. Your retirement income would have fallen by more that 60% while your principal would not have grown. Could you live your same lifestyle if you income were cut by 60%? Most people only define risk as the loss of principal, however loss of purchasing power, reinvestment and sequence of return risks can be equally as detrimental to your financial well being. The extreme aversion to one type of risk may unknowingly expose you to risks you have not considered.





 
 

College Planning

College expenses have risen at a rate much faster than inflation for the past few decades. What was once a pay as you go endeavor has turned into a major life expense that takes careful planning to achieve. Fourth Avenue Financial can walk you through the investment options available for college savers, including state sponsored 529 plans. We can discuss issues such as parental control of the investment fund and tax advantages that each option offers. Would you like to know how much college may cost in the future for you young child or grandchild? We can model future costs and report how much you will need to set aside each month to achieve your funding goal. It is certainly much preferable to save for this expense and let the power of compounding interest work for you rather against you in the form of burdensome student loan debt.

Estate Planning

Estate planning is extraordinarily important, even if it is the not most exciting thing to discuss. Every day loved ones are left to deal with confusing, irritating and often complex matters when administering estates. Many of which can be resolved with proper estate planning. Often families wait until it is too late, to properly execute a plan and you know that you do not want to unnecessarily burden your loved ones after your demise and you want to know your final wishes are handled in the most tax efficient manner and that the estate administration process, which often can be complex, time consuming and expensive, is the smoothest possible. Over the years, I have witnessed families sorting through boxes and files for stock certificates, estates that need be reopened upon discovering items that were not properly probated, and general confusion as to how the beneficiaries were supposed to share in the funds as well as deal with obligations and responsibilities. While we are not a law firm and do not do legal work at Fourth Avenue Financial, we have an experienced attorney on our team to help suggest and direct you and your family to the appropriate, knowledgeable and experienced estate planning attorney in your area, be it in West Virginia or other locations, who can assist you in organizing your estate in a comprehensive and complete fashion, also best protecting your assets and resources by properly handling your affairs. Working cooperatively with skilled estate planning professionals such as attorneys, CPAs is what we do to help clients. We will work with you and your attorney and CPA to ensure that all your beneficiary designations align with your estate documents, and that your estate plans are set up to minimize tax and other liability exposure to best insure your wishes are carried out.

 
 
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