Think of Retirement as Your Last Job

 

Most of us dutifully work at a job for most of our adult lives, all the while dreaming of the time when we can retire. Retirement is envisioned as a laid-back period of life with discarded alarm clocks, loose schedules, leisure travel and the freedom to do what you want to do, when you want to do it.

Such a vision is achievable, but it doesn't just happen; it requires hard work. You work hard during your career to support your family and have a good life, but you also need to work hard at retirement to make sure retirement will work for you.

To enjoy a comfortable retirement, think of retirement as your last job. The good thing about this job is that you are like an entrepreneur as a direct beneficiary of your effort. The time to begin to work for retirement is the first time you think about retirement. The longer you wait to begin to work on it, the more difficult it will be to achieve your vision for retirement.

Just like other jobs, the objective of retirement is a livable income.

Understand that the primary objective of any retirement plan is to produce income, because the first thing that happens at retirement is that your income stops. This means that the focus of any retirement plan should be on acquiring assets that can easily be converted into income.

Look at it this way: During your working years, you should have a plan for accumulating assets that have a potential for growth. Then, when retirement is upon you, security is more important than growth, so you need a plan to systematically “decumulate” those assets in the form of income. A critical part of that plan is to ensure the income created will last for your lifetime. If there is one thing that will ruin any retirement, it is the specter of running out of money.

Building A Resume for Your Retirement Job

So, what is the job description for your "retirement job"? Well, during your early working years, while it may not seem all that urgent, it is important to research, understand and take maximum advantage of any and all programs your employer or the government may offer to prepare for retirement.

Some of these plans include individual retirement accounts, Roth IRAs, 401(k) plans, simplified employee pension plans, salary reduction SEP plans and others. In addition, it would be good to initiate a systematic long-term personal investment plan, no matter how little is available to invest.

Will your retirement job pay enough?

As retirement looms, there are several actions to initiate so that you can do a good job in retirement. The first is to diligently determine the minimum amount of income you will need during retirement. This may not be the total income you will receive, but rather, the amount of income that — come hell or high water — will be enough to survive on. Note that for most people in retirement, expenses and expenditures will change, so it is important to understand specifically how your own income needs will change.

Once the "retirement budget" has been determined, deduct the amount of income you know will be guaranteed, such as Social Security and any employer pension. The remainder is the minimum amount of income needed to "survive" in retirement. The next step is to determine how much of your accumulated assets will be needed to guarantee your minimum retirement income needs. Remember, the objective is to guarantee the minimum amount of income needed, not the maximum possible.

There are numerous financial products intended to provide retirement income, but there is only one product that will guarantee income for as long as you live in retirement. This product is generically called an "income annuity." Annuities are not intended to increase your wealth but rather to spread the decumulation of your wealth, in the form of monthly income, guaranteed to continue for as long as you live. Investment plans can also be structured to provide income, but there is no guarantee the income will continue for the balance of your life.

As critical as annuities can be to a retirement plan, they are not the be-all and end-all of a successful plan, but that does not prevent some annuity companies from trying to convince you they are. Over the years, annuity companies have layered various (often dubious) "benefits and options" on top of basic annuity contracts. While some of these options may appear to be attractive, they make it difficult to comparison-shop among various annuities to determine which one provides the most retirement income for the least amount of premium.

The best way to compare annuities is to ask: How much guaranteed lifetime income will be provided for each $1,000 of premium paid? This amount can then be divided into the minimum amount of income you will need in retirement, so you will know how much of your assets you will need to put into an annuity.

Once you have secured the guaranteed minimum income you will need, any remaining accumulated assets can be allocated in two different ways: The first is to set aside a certain amount to cover unexpected expenses or emergencies that will always come up. Most experts will recommend that six to 12 months of your minimum retirement income be placed in accounts such as money market funds to be available for emergencies.

The next step is to allocate your remaining assets into a well-balanced equity investment program. Since you have already secured the minimum income needed in retirement, you have the option to be reasonably aggressive with your investments. A well-designed investment portfolio has the potential to supplement your guaranteed income and provide the resources to enjoy the extra benefits of retirement life.

So there you have it. Retirement can be a wonderful reward for a lifetime of hard work, but for retirement to work for you, you have to work to make it happen.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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Bob MacDonald – Former CEO of ITT Life, founder of LifeUSA, retired chairman and CEO of Allianz Life of North America; author of numerous books on business, management and leadership. Bobmac5201@gmail.com