Recently I spoke with someone who runs the computer network for a large company. When most employees started working from home due to COVID-19, this man was able to see what each worker was doing all day every day.
“I could save my company a million dollars,” he said. “I can tell who’s working and who isn’t. Let’s just say a lot of folks on the payroll aren’t working.”
Imagine that: Just because you have a lot of people on your payroll doesn’t mean you’re getting a lot of productivity.
We could say the same thing about your money.
You can have a lot of dollars and not have those dollars working hard for you.
Most of us have been trained to focus on, and obsess over, the “amount” of money we have. Like me, I bet you get emails every week with subject lines offering to show you “How to retire with $1,000,000.” These emails offer strategies for increasing the “amount” of money you have.
But retiring with a certain “amount” of money isn’t a sufficient goal. Simply amassing $1,000,000 in assets doesn’t automatically put groceries on your table next week or let you squeeze sand between your toes on the beach this coming summer.
And a plan that has you dipping constantly into your big retirement “nest egg” can create real challenges too. Start with a million bucks, withdraw just $50,000 a year for living expenses, and you’ll be close to broke in 20 years!
More than a plan to accumulate a certain amount of money BY retirement, you need a plan that will get that accumulated money working for you and providing income IN retirement.
This is the dilemma modern retirees face. They need steady income, but the sources of income that previous generations relied upon are all but gone. Once upon a time, retirees could live off a company pension or Social Security plus some interest from a bank CD or government issued bonds. Not any more.
In the face of these new realities, some retirees are willing to accept higher levels of risk to try to grow their portfolios. They take their accumulated wealth and put those assets into various investments that they hope will grow, at least enough to spin off the annual income they need.
You might be fine with such a plan . . . depending on how the financial markets behave during your retirement years and on what kind of investor you are. Of course, it’s also possible you could see your investments go south, due to ill-timed market volatility. Growth is good, but it is often messy.
Others retirees follow a divide and conquer strategy. They take a portion of their nest egg and use it to purchase guaranteed lifetime income from an insurance company. This frees up the rest of their assets to invest for growth. A plan like this guarantees income and offers the added possibility of investment growth, if the markets are favorable. If they are not, a least one has income locked in for life.
Obviously, no single strategy is right for everyone and any changes in your retirement income plan should always be reviewed by a trusted professional. (If you don’t yet have an advisor who’s helping you “worry less and live more” when it comes to our your finances, email me and we’ll schedule a time to visit.)
Having a lot of money for retirement is fine. But what you really want is money that’s working hard for you.
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