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April 2014: Back to the Basics

In April 2014, Back to the Basics, Income Planning, Investment Management by Adam Cufr

It has been brought to our attention that a return to the basics of financial and retirement planning would be helpful. Back to the Basics is a study of the fundamentals.

Why plan?

If the goal is to save more, accumulate more, grow more money, why is planning so important? Isn’t that a plan in itself: Strive for more?

In the first two stages of life, that plan could work. In fact, most financial advisors and brokers adhere to some form of accumulation methodology. But if you are reading this article, most likely you are in or approaching the retirement stage of life. Guess what? Retirement planning for retirees is often very difficult for retirees (and even financial advisors) to wrap their mind around. The fact that the process is so different makes it a challenge to get comfortable with true retirement-focused planning.

Why? Because the risk of losses to a retiree pose a far greater problem than to a younger person who is still receiving regular paychecks from an employer. If you are a retiree and things get ugly in the economy – time is not on your side.

A plan for your retirement and your retirement assets gives you the proper context within which to make smart, fitting decisions.
Let me offer an example: if a broker or advisor suggests that you transfer money into a variable annuity, is that a good idea or a bad one? In other words, is a variable annuity good or bad?

If you said “it depends on who the buyer is, and what their situation is” you would be correct.

See, when you have a clearly defined plan in place, the decision now has proper context. When all parties are on the same page about your plan, you can ask questions like: “Where will that product fit into my plan?” “How will that product affect my income needs?” “How will that product impact the level of risk I’m taking in my other accounts?” Finally, “How does that product compare to other products that are designed to accomplish the same objective within my plan?” It is only when you have a plan, that true objective analysis is possible.

I have a quote from H.L. Mencken as my computer’s screen saver that reads: “For every complex problem, there is an answer that is clear, simple, and wrong.”

While none of this is clear and simple, the very basic need for a true plan gives every decision the context to allow for better decision-making. Ask yourself: “Do I have a clear plan in place to get me to and through retirement?’ If not, it may be time to get back to the basics.