Retirement with a Plan

Retirement Planning: Are You Asking “What now retirement plan?” September 15, 2008

If you woke up this morning and tuned into CNBC or any other channel that attempts to parse the newest Wall Street surprises, you might first ask yourself, “what now retirement plan?” Is that the right question for someone who has a plan? Probably not.

According to Bplan, a site that sells software for those attempting start a business, a plan is: “any plan that works for a business to look ahead, allocate resources, focus on key points, and prepare for problems and opportunities.” So why then do we treat a retirement plan differently?

Let’s break down the parts of their idea and try and assimilate it into the one you should have.

Are you looking ahead?
Most of us do not at least until we are well into our forties. The reasons are not exactly clear although some of the reasons why people wait are valid. There are just-out-of-college expenses, the I’m-just-beginning-my-post-graduate-life-and-I-need-things, to starting families and the need to have career mobility. Perhaps, once you reach forty, for most of the half way point in life, allows us to see the rest of our days from the small hill we have just climbed. The good news for younger folks, you seem to be starting the plan earlier.

But looking ahead is the most difficult part of any plan. You have no crystal ball (although on days like today, when Merrill Lynch, Washington Mutual and AIG all begin the trading day admitting to not having a very good plan or if you are Lehman brothers, no plan at all. In days like today, that crystal ball looks more like a well-shaken snow globe.

So best advice, turn off the television. Nothing there has any relevant effect on your plan. If anything, stock market turmoil presents an opportunity to shore up underfunded retirement plans by allowing you to buy more when the market is down and because we all should know that markets never stay down for good, these newly bought shares in your 401(k) will be poised to rise on any good news, even if it doesn’t come for another two to three years.

Are you allocating resources?
Look around. Are you focused on every aspect of your financial life and not just your investments. Does your retirement plan focus on your kids (Is college planning taking a backseat to your retirement plan? If not, it should fall into the number two spot no matter how wealthy you are.), your parents (have you and your spouse discussed the plan you have for your aging parents (This is a largely unexpected burden to many a good plan and because a plan is a contingent for disaster, have you included this group in your outlook and your resource allocation?), your debt ratio (more than your house and your credit cards, how small is the margin you have left to add more debt in case of an emergency and in the event you have yet to set-up an emergency fund of three to six months?) and lastly your health (have you allocated the right amount of resources to your marriage – yes, your marriage, the single largest force in keeping your assets for retirement intact and giving you a statistical shot at a good health for both of you in retirement?)

Are you focused on key points?
These are easy to identify. Funding your retirement plan. Understanding the role of work in retirement. And lastly, planning on a reasonable withdrawal of those funds when you retire. Four percent is the best suggested advice for determining the validity of your plan. If you were to stop working now, could you draw 4% of your assets and still be living a reasonably good lifestyle. Don’t count your house – you still need somewhere to live and as I have said before, your nest is where you keep eggs, not how you value the worth of those eggs.

Are you looking for problems and opportunities?
Good business people see the road. They may not see all of the things that may happen on that journey but they are definitely focused on making sure the vehicle they are traveling in is well-equipped for the possibility of problems and the potential for numerous uphill climbs. (Today’s markets are one of those climbs!)

Rather than asking “what now retirement plan?”, perhaps the question should be: “Is my plan positioned to take advantage of this new market opportunity?”