Are You Prepared For Retirement?

Jun. 13–Recession or not, individuals need to continually financially prepare for their silver and golden years.

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Saving for retirement should be a priority no matter what the economy’s status, say financial advisers. Guidelines for retirement planning after a recession in many ways are similar to what they are before or during a recession, as well, with perhaps a few tweaks.

Here are some common-sense and timeless recommendations to retirement saving.

Return to the basics

To reach their financial goals, people need to go back to the basics and know where their money is being spent, said Mark C. Butterworth,

a certified financial planner with Butterworth Financial Advisory.

He recommends preparing a budget, or what he prefers to call a cash flow or personal expense statement. Many people take offense to the term “budget,” he said, but it’s meant to be a guideline to bring some clarity and understanding of where money is going.

“If you prioritize the things that are important in your life, then it allows you to gain a better comfort level of what you need to do,” Butterworth said.

Individuals might discover they need to eat out less, downsize their home, take fewer vacations, take a second job or work

more years to lower debt and build savings, Butterworth noted.

Develop a strategy

“I think the big priority for retirement planning after the recession is to have an awareness of the dangers and risks that really harm an individual or couples’ retirement goals,” said Mike Mazzei, president of The Financial Coach Inc. and branch manager for the Raymond James Financial Services office in Tulsa.

In the 1980s and ’90s, and even for a period after 9/11, investors got complacent with their retirement planning. They put together a plan and then just set it on autopilot, which isn’t really the case now.

“The markets and the economy generally facilitated that because we had long periods of economic growth and just a few, short recessions,” Mazzei said.

“The risk of shorter economic growth periods now is significant in this post-recession environment, with higher government debt, more government regulation and higher taxes.”

He recommends working with a financial adviser to develop a strategy and being proactive and measuring a plan’s progress.

“We don’t know what is going to happen with the economy or the market, but if you’ve got a set of strategies and you revisit them three or four times a year, you can make adjustment to manage the risk a little better or participate in the recovery a little more,” Mazzei said.

Contribute to your plan

Financial experts recommend contributing at least 10 percent to a retirement plan, and increasing that percentage if possible. If you can’t immediately start socking away 10 percent, build up to it over time.

Because of market conditions, many people have lost a decade of investment performance, said Butterworth, who recommends people ratchet up their retirement contributions to 15 percent to 20 percent, if possible.

“In my experience many people cannot afford a 10 percent contribution because they have too much overhead. The target should be 10 percent, plus. Many times I will advise people to grow into that contribution,” said Jim Eagleton, senior vice president and investment officer with Wells Fargo Advisors. “Put in 3 percent now and bump your contribution when you get your card paid off.”

Make and stick with keen investment choice

“I believe quite strongly that people should not try and time the market They should make an investment mix decision that they are comfortable with and stay with it, good times and bad,” Eagleton said.

Eagleton said he likes “lifestyle funds” — a premixed, well-diversified portfolio of mutual funds that automatically rebalances over time as a person ages. Lifestyle funds eliminate guesswork for individuals.

The 2040 fund, for example, might be appropriate for somebody who retires in 30 years.

Save your retirement money for retirement

Often, when people change jobs or lose jobs, they take their 401(k) fund and spend it rather than roll it over into an IRA or another employer’s retirement plan. Or they dip into it to help pay for other expenses such as a new car, home repairs or college expenses.

A retirement plan generally is not a good source of unemployment insurance, Eagleton said. If someone loses a job but has a family to support and bills to pay, then dipping into retirement money is tempting.

“If that’s the box that you’re in, and if that’s your only course, then I’m glad you’ve got the 401(k) and can draw on it,” Eagleton said.

To mitigate the damage, he suggests people who’ve lost their jobs roll their money into an IRA and take money out monthly as it’s absolutely needed rather than taking the lump sum and paying taxes on it.

People should save for hard times when times are good, not when they’re bad, Eagleton said. He suggests saving an additional 10 percent outside a retirement plan to pay for emergencies or big expenses such as a new car or vacation.

Keep contributing to your plan even in bear markets

People sometimes reduce or stop contributing to their retirement plans when the market is performing poorly. They try to time the market and do exactly the opposite of what they should do, which is to buy low and sell high.

“If you let your gut dictate your investment mix, then you’re always going to be fully invested on the top and too conservative on the bottom. You are selling low and buying high,” Eagleton said.

Diversify

With diversification, people limit their risk by spreading their money among several asset classes, including stocks, bonds and cash. Stock investors try to limit risk by investing in companies of all sizes and sectors.

In the past, it was easy to have an investment strategy that focused mainly on U.S. stocks and bonds, Mazzei said.

“That worked really well for a long period of time. Now it’s probably going to be much more critical to have greater diversification, which also includes international positions; alternative positions like gold and precious metals; natural resources; absolute return funds; and all-asset and commodity funds,” Mazzei said.

With an absolute return fund, managers employ a variety of strategies to try to generate growth in both good and bad market cycles, Mazzei explained.

Don’t flee the stock market entirely

Those who suffered losses during the market downturn shouldn’t flee the market completely, but they should adopt a measured strategy that allows them to participate in economic and market recovery, Mazzei said. They also need to have a risk management technique that fits their personal goals and comfort level.

The temptation is to run to cash and Treasury bonds, and hunker down, but the great thing about the economy is that there will be growth periods and good market cycles, and investors want to participate in those, Mazzei said.

Inflation becomes more likely if interest rates rise. And people need to have some type of equity component in their retirement mix to help outpace inflation, Butterworth explained. How much they allocate toward stocks will depend on their individual goals and comfort with risk.

Check Social Security, other work benefits

Explore how Social Security benefits will fit into your retirement picture. Also, make sure your Social Security statements are properly updated and accurately reflect your earnings history, Butterworth said.

Also, if you work for a larger firm, know what other benefits are available, including stock options. Stay on top of all that your company offers, and understand what is available to employees, Butterworth said.

Don’t try to chase yield

In other words, don’t lock your money up in long-term fixed-income investments just to get a higher yield. Butterworth said right now he isn’t tying money up in fixed-income vehicles such as certificates of deposit and government bonds beyond one year because of low interest rates. Eventually rates will rise, and when they do will be the time to perhaps extend the length of time or maturity of those fixed-income investments, he said.

In the early 1980s, long-term CDs and bonds were yielding anywhere from 10 percent to 14 percent. But that’s not the case in today’s low-interest rate environment, Butterworth said.

Laurie Winslow 581-8466

laurie.winslow@tulsaworld.com

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