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With the stock market still in roller coaster mode and more and more companies reducing or eliminating retirement benefits, many people—from Boomers and Generation Xers to savvy Millennials—are facing the fact that they need to seize control of their retirement financial plan. And they need to do it sooner rather than later.
Boomers in particular are quickly realizing that the landscape for long-term savings has changed dramatically since they signed up for their 401(k)s in the 1970s, 1980s or 1990s.
Planning wasn’t as crucial back then, said David Krasnow, 44, President/CEO of Pension Advisors in Cleveland. ”Between pension plans, 401(k)s, and home equity, it was assumed that the continual growth of investments and home value together with Social Security would provide plenty of money when employees stopped working,” he said. With a formula that basic, professional planners didn’t need deep investment expertise to deliver solid results.
“There were few certifications or fee disclosure requirements,” Krasnow pointed out. “The same person who sold you health insurance might sell you an investment program.”
That laissez-faire approach might have worked for people who worked, uninterrupted, until 65 (not facing protracted periods of unemployment) and not as contractors and/or part-timers or small-business owners. It worked when the stock market produced steady 8% gains per year, not tumultuous volatility. It worked when companies offered generous 401(k) matches—and stayed out of bankruptcy to actually fund pensions. And it worked when home property values were growing—or at least stable.
But it doesn’t work now, and this is why:
So what does all of this mean for anyone intent on building a solid retirement financial plan?
“In a constantly improving market I used to be able to manage my mutual fund investments on my own,” said Peter Doris, 66, a career and nonprofit expert from Philadelphia. “Now I need a professional’s help. It isn’t just a question of putting money aside. It’s a question of being really smart and current about each investment, and I simply don’t have the time or the background.”
“There is a minimum set of skills and knowledge base you must have, even if you use a professional,” said Jim McGrath, an Executive Vice President of Law and Administration, 67, in Orland Park, Ill. “Take seminars, do online research and read up so that you have solid financial literacy,” he suggests. “You can’t make informed decisions without fully understanding your choices, their projected outcomes and their potential risks.”
If you’re married or in a relationship, make sure both spouses/partners are in agreement about life planning, investment objectives, reasonable returns and levels of acceptable risk. “My wife and I built our business together,” said Ted Vlamis, 78, an active CEO in Wichita. “She knows the numbers, so there are no surprises. We know that the chances are good that one partner will outlive the other, and any survivor shouldn’t be blindsided by financial problems they knew nothing about … or have to face, unprepared and grieving, the host of decisions that have to be made about a business or an investment portfolio.”
Dr. Deborah Ewing-Wilson, 58, a neurologist in a large Ohio medical system, advises people to “give the same due diligence to their personal and financial lives that they give to their work and businesses.” It’s time-consuming and sometimes tedious, she admits, but then again so is taking care of one’s health. “I’m here to help educate, recommend, and advise, but I can’t take responsibility for anyone else’s behavior or decisions,” she says. “It’s the same with a financial plan.” In other words, it’s your money, your plan, your life.
“Find a professional you trust, start saving as soon as you can, and stay on top of your plan, ready to make decisions as markets–and your life—evolve,” says Rich Iafellice, 57, vice president of an engineering services firm near Akron. He suggests working with an adviser who works on a fee basis, not on a percentage of growth of your portfolio. “That way they’re focused solely on your needs and risk tolerance, not the potential for them to make big profits off of a portfolio that might be too ambitious for your comfort.”
Two last caveats: When shopping for an investment adviser, look for the designations CFP (certified financial planner), PFS (personal financial specialist) and CFA (chartered financial analyst). Anyone with these credentials has to have completed training from an accredited body, and passed rigorous exams demonstrating their competence. Certification is only one indicator of ability, however. The real test is whether an adviser has been successful for an extended period of time and is recommended by people you trust and respect.
Image: RomoloTavani
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