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Retirement Planning: A Chance to Redefine Our Futures January 12, 2009

Posted by retirementwithaplan in retirement.
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Plans, as I have mentioned numerous times are defensive strategies to prevent the worst from happening. Because you cannot foresee these events, our plans, especially those of the retirement variety, need to be flexible and, at the same time, focused on a single goal.

Three Steps for the Twofold Approach
Now the effects of a sudden financial impact on those plans, which I can feel relatively safe in assuming everyone experienced in the year past, can cause you to second guess not only your plan but the goal as well. Second guessing is human nature but why guess at all?

You need to bring the following information to the whole idea in order for it to succeed.

1) Investing will always be a gamble albeit a good one. 011209stYou save for a future by investing in mutual funds (still the preferred way for the average American) and those funds invest in companies. Your fund manager is not looking for companies on the brink of financial ruin but instead, they seek out businesses that they feel will be there in the future. And be profitable.

They, like you feel duped. It turns out that the financial guidance from these companies was not always as forthright as it could have been and the analysts who follow these companies bought into the notion that things were fine, the future was set and that the course they were on was based on solid financial predictions. Our fund managers invested.

This information we now know, makes the whole system suspect. The companies, the folks who follow them and in a way, the investors who never questioned them all played a role in how we got to where we are right now .

But that has been redefined with the turning of the calendar. Every one is now skeptical. Everyone seems just a little more distrustful of folks who try and say things will get better in ’09 when they never saw ’08 until it was too late. (Between you and me, they will improve dramatically towards the end of the year but that is an easy call:mortgage rates will be lower and people will begin the process all over again, Mr. Obama’s plans will look a little more do-able and despite even more joblessness in the year, we will see a stock market recovery as enough of a reason to call the recession over.)

2) That doesn’t mean we should stop in investing. Once again, we were bitten so therefore we have a right to be shy. That would be foolish to say the least. Let your investment companies handle the vetting process, find the companies who were honest and truthful and will survive the next year, decade or possibly even century by running an aboveboard business for the shareholders.

The temptation to switch to conservative investments would not afford you the chance to recover. If you have done nothing, sitting in absolute shock that your retirement plan has lost 30, 40, or 50% of its value, you will be the ultimate winner for your financial stupor.

Those that panicked and sold shares on the way down, switching to such unproven vehicles as target dated funds (funds that pick a retirement year and adjust the fund’s holdings from not-so-conservative to miss-the-boat conservative as you age, have not been around long enough to show any success at this idea) that’s too bad. But all is not lost. Stop funding those funds and get back into a plan that is well-seeded with growth funds, both mid-cap and small-cap, some international funds, and some that will take advantage of Mr. Obama’s ambitious plan at infrastructure – namely municipal bond funds.

3) Keep your financial house clean and free of extraneous debris caused by poor judgment. In other words, if you can not afford it, you cannot buy it. That doesn’t mean you can’t finance stuff. But when you do, make it a quick loan not an extended line of payments as far as the eye can see.

Can a Budget Help?
We, in the business of writing personal finance stuff, have a tendency to always suggest budgeting as the way out. It is, but to a degree. You budget fixed bills (housing, insurance, upkeep and food) but never lines of debt. Once you see the minimum payment is something you can handle, add it to the budget for the month, you are doomed to add to it and ultimately never pay it off.

Make new lines of debt and the payments that go with them divisible by twelve. If you cannot pay it off in twelve months – without adding any more – you cannot afford it.

Retirement Planning is an ever evolving plan that requires that you always approach each investment decision as if it would have an impact on that plan.

Next up: Should a woman look at her plan differently.

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