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Retirement Investment Plans Are Sensible, Noble and Worthwhile - But Can Be Difficult

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Retirement Investment Plans are what a university college would include in a lecture series on "retirement planning" - to complement the Five Pillars of a successful retirement.

You may never have thought to develop your own retirement investment plan, however it is an integral unit within The Five Pillars -  Your Health, Family and Friends, Your Finances, Best Place to Retire and Your Zest for Living.    

 It's all about Common Sense, although, as they say, that's not too common these days.

It arguable whether your retirement investment plans or your health is more important of the Five Pillars.  Both have direct impact on your zest for living and your ability to maintain contact with family and friends, but you need to weight them appropriately in your personal planning for retirement manual.  

However let's deal with your finances first, and ask the question "how much do you think that you will need for 25-30 years of comfortable retirement?"  

The usual answer is "far more than what's in our 401k retirement savings plan" which underscores the reality that most of us are clueless in this regard.

A well regarded survey was done by the Employee Benefit Research Institute in 2010.   Known as the "2010 Retirement Confidence Survey" it reported that less than half of all workers (46 percent) had ever thought about their retirement investment plans, or how to calculate how much money they should save before they opt out of the workforce.

And then when respondents were pushed to nominate an amount, and then asked how they determined their nominated amount, by far the most frequent answer was that they made a "guess" (44 percent).

That suggests that the is very little understanding of the prudence of pre-retirement planning in the general population, and consequently even less of an understanding of the main options - cash, mutual funds, property, or alternative investments - such as agarwood or sandalwood plantations.

We spend more mental effort to plan next year's vacation then we do in planning for retirement and for 20-25 years of a comfortable retirement.

Cash, mutual funds, property or exotics  

Very, very few of us will ever have enough cash to think about it as an investment, however for those that do - be very careful.   To have any chance of a better outcome, retirement investment plans require some involvement by you.  Doing nothing is not a plan.

The reason is that if you have acquired this much cash, it is because you haven't actually thought about investing.  But if you continue to leave it in the bank, its purchasing power continues to erode year by year, due to inflation. 

Here's a personal anecdote - my father-in-law died in 1982, having previously converted all his investments into $300,000 cash, to make it life less complicated for my mother-in-law.   That was fine, initially, as she was wealthy - she had enough money to buy six houses.  However, when she died in 2006, her cash funds had dwindled to just $30,000 while those six houses (that she didn't buy) had increased in value to over $2,000,000.

So don't keep cash in the bank.

Mutual Funds are OK as an investment, however I don't like those sales people slithering along every 18 months.   The fund itself charges you say 1%, and as your investment adviser only makes money when you buy, this is a profession that continually encourages you "to look for the next opportunity".   

But mutual funds are linked to the stock market index, and are swept along with it- whichever way the tide is flowing.   So if the market takes a major hit - as it did in 2008 - it could take many years to regain its original level (which it did in 2016) but you were suffering all those years.   And heaven help those who wanted to retire in 2009! 

No - I don't like mutual funds.

Best retirement investment 

I naturally have my own thoughts about the best retirement investments  and in particular I do like residential investment guide. If you think carefully about your ideal exit strategy - say 15 years out - BEFORE you purchase, you can virtually assure yourself of a successful financial outcome.

And of course you could look for some extra zing by looking at exotics.  Agarwood or sandal wood plantations look good to me, but you have to look very carefully at the quality of the management, and understand how much the promoters are being paid.  

Alternatively, you could place portion of your dollars into a passive business investment - perhaps one offering a high yield, for example vegetable greenhouses outside of Las Vegas. One of our associate editors has done this, however don't let it ever become more than a (minor) portfolio diversification, as you never know if any high yield investment will still be there tomorrow.

But no matter how you develop your retirement plan investment should always be a cornerstone. 

How Much Will Your Retirement Investment Plan Need?

You can use the back of an envelope to determine how much you're going to need later on (in lieu of an online tool) as your 401k retirement plans are always inadequate: "you're not going to have enough for 20-25 years of a comfortable retirement".

29 percent of workers said they would need to save less than $250,000, and another 17 percent say they need from $250,000 to $499,999.  So approximately half think that they won't need in excess of $500,000.    Of course, what we each need individually will depend, to some extent, on our criteria for the best places to retire.   

All of this will need to be factored into your retirement investment plans.

Now many financial planners and actuaries still refer to the hoary old figure of draw-down rate of 4 percent of assets each year for people retiring in their mid-sixties, if they want to generate an income that lasts for your life - or more specifically for 20 years.

However on that basis, if you have $250,000 in savings, using 4 percent of capital each year would give you $10,000 plus another distribution of the interest earned (say another $10,000 if your fund earned 4 per cent) - at least in the first year.    But financial securities are not protected against inflation, so you actual purchasing power of this income would drop year by year.

Obviously, $250,000 isn't going to be enough. Perhaps your retirement investment plans should be aiming to start a traditional retirement "when not working" with at least $500,000.  You may then be able to have a middle-class lifestyle, as many of us are going to be living for many years longer than our parents did.

And as we all know that Social Security is already seriously underfunded, you should plan to boost your income with alternative revenue streams - a retirement income opportunity (perhaps a profitable hobby) is something worthwhile to add into your pre- retirement planning checklist - or you might consider buying a one man business e.g. a laundromat or barber shop with your 401k payout

Consequently, if you have some years to go, it is a good idea to consider a retirement countdown calculator,  as you prepare for the 20-25 years after retirement (whatever that means today).

Medical and Hospital Bills

Then of course, the great unknown financial expense is going to be the medical and hospital bills we're going to face in our senior years. 

You need to allow a dollar amount in your retirement investment plans to cover the cost of health insurance for yourself and spouse in our later years.  "How much?" you ask.   Now that is a question for an actuary, indeed.

Of course it is already possible to get identical pharmaceutical drugs from Canada for less than 50%, but don't rely on this continuing. The Canadian government can't afford to be subsidising Americans, so this opportunity will end eventually.

Even your maximum Social Security benefit  (now seriously underfunded) will have to be reduced - even further as these programs aren't generous to begin with - Social Security replaces just 25 to 45 percent of pre-retirement income - and Medicare only covers one-half to two-thirds of seniors' medical bills.  Which is another reason why personal retirement investment plans are becoming more necessary, more common.

A partial solution is never to let your retirement become dull and boring, as working is scientifically recognised as maintaining both our mental and physical health and well being, in addition to providing an income!

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