4 Parts of a Good Retirement Plan - InvestingChannel

4 Parts of a Good Retirement Plan

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As part of our focus on getting back to personal financial and investing basics to start 2023, The Juice spent part of January focusing on retirement. 

For a review of those installments, see:

In today’s Juice, we pull it all together and provide a step-by-step, comprehensive strategy you can adapt to your specific situation as you prepare for retirement. Or whatever the future looks like for you. 

Because you might not retire all the way, either because you don’t want to or because you don’t have the financial resources to live the life you want during what we tend to designate the retirement years. 

Whatever you pick and choose from what we outline below, there’s a universal constant: You shouldn’t put all your eggs in one basket. And we don’t just mean one stock or ETF (exchange-traded fund).

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Retirement Planning

How to Diversify Your Retirement Planning

Key Takeaways:

  • Retirement planning has to include more than stock investments. 
  • Solid retirement planning starts with sound personal finance, a viable plan for work now and in the future, and an assortment of investing activities. 

It’s time to shift some of society’s focus away from retirement nest eggs. Because study after study shows a majority of Americans don’t have enough cash saved to fund a quit-work-altogether retirement around age 60. 

So what to do? You can try what we outline below, or at least a variation of it. 

The Personal Finance Component

From general to specific:

  • Lower your cost of living. The lower your monthly overhead, the further the money you’ve saved and the cash flow you generate in retirement will take you. 
  • Eliminate high-interest and student loan debt. One thing we learned when putting together this retirement series is that more than a few retirees are still paying down student debt. Get rid of this and any other debt, particularly high-interest credit card balances, now. Don’t wait until you’re close to or in retirement. 
  • Go into retirement with a low or no housing payment. For most of us, housing is our biggest expense. So can you pay off your mortgage sooner rather than later? If you rent, can you use part of your savings to buy a place for cash or make a down payment? Will you need to move to get rid of or meaningfully lower your housing payment? Key questions to consider no matter where you are in life. 

The Spending Component

  • Focus your spending now and especially in retirement. What are the two or three things you really want to do now and when you’re older? E.g., travel, play golf, and be a full-time investor. 
  • Create pots of money you can start filling today so they’ll be well-stocked to cover the above bullet’s spending.
  • Don’t go through life and definitely don’t head into retirement without a spending plan. If you don’t focus your spending, it’s easier to lose track of where your money goes. And it’s much easier to overspend. 

The Work Component

  • Is there low-intensity (on the body and mind) work you can do during the typical retirement years? That work will allow you to be semi-retired or simply pick when you work and when you don’t. 
  • Can what you do for a living today morph into freelance consulting work when you’re older? Is there a creative (or not) side hustle you can cultivate today so it pays dividends tomorrow? 

The Investing Component

  • Keep a diversified portfolio across asset types and investment sectors. Investing isn’t limited to stocks, ETFs, and mutual funds. And if you own too much of one stock (we’re looking at you, Apple (AAPL) and Tesla (TSLA) shareholders!), rebalance your portfolio.
  • Use alternative investments such as crypto and private equity to further diversify. 
  • Real estate is an (alternative) investment, and if you own one or more properties, it can be a source of income and work in retirement. This income can not only help cover general living expenses, it can pay all or part of the rent or mortgage for your private dwelling. 

The Bottom Line: The idea behind today’s Juice is to get the ball rolling. And to move the retirement narrative away from the dying notion of building a nest egg for 20 or 30 years then drawing it down for the final 20 or 30 years of your life. Because we’re saving less and living longer (knock on wood), this model is becoming less relevant. 

Consider retirement planning within the context of inputs and outputs. You can save and earn money in a variety of ways. Exactly how much you must save and earn as you enter the retirement years depends a lot on your cost of living, which doesn’t have to be high to give you a good life. 

One of the smartest paths toward retirement is, as we started with, lowering your overhead as much and as soon as possible. If you can do this, anything you save or earn provides more runway to fund the type of life you want now and in the future.

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