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Business Briefs

Money Management in Retirement

Last month, I wrote about the need to change your mind set when it comes to managing money in retirement.Too conservative an investment may not yield the cash flow you need to maintain your lifestyle. Americans are living longer than before and there is the potential for out living your nest egg.Inflation is the third reason that investing too conservatively may not be a good idea. Although inflation has been tame in the last few years, it can become a real issue for retirees with longer life spans. Today’s retirees will need to protect themselves against the ravages of inflation for the long haul.”It cannot be that much of an issue,” is what I hear clients say. I then remind them of the Carter White House days where inflation spiked and money was in short supply. As a hypothetical, I will use a retiree with $50,000 in current income and an average inflation rate of 2.4 percent for the sake of argument. Retiring at the age of 65 and needing income for the next 30-plus years, your income would need to be over $100,000 by the end of that time frame. What have you done in your financial plans that will double your income in the next 30 years? Remember, too, that this all has to come from that nest egg that you are protecting.Knowing and understanding the historical value of inflation will assist you in determining the type of hedge against inflation that you need to work with. Putting your head in the sand to hide from reality does nothing but allow the coyote to consume the corpus of your assets.People need retirement strategies that will help make their assets last a long time and protect them against the pitfalls of being too conservative, living too long and inflation. These are all risks that your financial planner should be talking about with you.So whatever happened to James and Sophia, the couple in last month’s article?We are working together to determine their tolerance for risk, the amount of income that they would like to have and the percentage of increase per year to keep up with inflation. This is no easy task for them, as they have always had that safe, steady, periodic stream of income over their life times from employment. What we do have working in our favor is that they do not plan to retire for another two years and can put a great deal of this into place before they actually retire. This ability to work in advance assists them in reducing their anxiety-something like training wheels on that first two-wheeled bicycle that we all grew up with. Once they are retired, the training wheels would have come off some time ago.Clients must understand that the success of an investment plan is not so much the return on investments as it is the behavior of the investor.1) A hypothetical couple that illustrates common concerns of clients that I have worked with.2) Timeframes vary by client; by no means can retirement goals be accomplished on short time frames.Donnell Services, LLC719-886-3377Registered RepresentativeSecurities America, Inc.Member NASD, SIPCwww.alexdonnell1.sarep.comDonnell Services, LLC, Securities America, Inc. are independent companies.

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