Cook On Concord: It’s getting near retirement, do you know where your money is?
The recent drop in the stock market caught a lot of peoples’ attention. Interestingly, a number of people commented to me on how worried they were about their retirement because of a one-day adjustment in the market. Clearly, this ignores history. However, the reaction was telling because people are becoming increasingly sensitive about retirement as they get nearer to it.
As a public policy matter, Congress debates how to “fix” Social Security, the New Hampshire Legislature worries about the New Hampshire Retirement System’s long-term disability formula for various segments of the retirees and various incentives for saving for retirement are passed and debated.
A number of investment professionals have commented to me recently that it is important to point out certain basics to folks who think about their retirement because, notwithstanding the frequency with which these points are made, a lot of folks do not seem to get it.
So, without any particular expertise and certainly without any pretense at giving investment advice, a few basic reminders:
1. It is important that money be put away as early as possible for retirement, even those with summer college jobs should think about contributing to a regular IRA or, more probably, a Roth IRA. The difference between these two is that the former is deductible and uses pre-tax dollars but the money is taxable when it is taken out for retirement, while a Roth is not deductible but it grows tax-free and can be taken out tax-free, one of the great bargains ever devised by Congress. Also, there are some unique opportunities to convert regular IRA’s to Roth IRA’s in 2010, if the rules stay the same.
2. If you did not start saving when you were in college, and you are getting close to retirement, you need to save more, and you had better start doing it now. Congress has passed generous provisions allowing “older” workers the opportunity to put away more money.
3. Putting money away is a good thing. However, putting it in a savings account or selecting some kind of investment and just leaving it there does not guarantee results. I know a number of people who, when examining the investments they have made, find that they were virtually equaling the return they would have had had they put it under the mattress! Not only should care be taken in selecting investments, but the performance of those investments should be reviewed periodically.
4. Any investment plan should identify what part of the total investment should be put in what segments (stocks, bonds, mutual funds, etc.). Ignoring investments leads to great peril, since today’s worthy investment may be tomorrow’s turkey.
5. Having good advice is helpful. It is said that the average investment adviser does worse than an index fund (an investment fund that just invests in the entire stock market). While this may be true on average, there are many excellent professional advisers in various categories who have track records to envy and who give excellent advice in the management of funds. The fact that one’s brother-in-law, friend, cousin or nephew may have gone into the investment advisory business is not a reason to hire him or her. The best way to find a good investment advisor is to ask others whom they use and see if a trend develops.
6. If you spend money, you will not be able to save it. Everyone should have a target portion of his or her income, no matter how large or small, that is saved. I have many friends who tell me that a good automobile cannot be purchased for less than $30,000. It can. They are wrong. One thing baby boomers do not seem to be terribly good at is denying ourselves and the result is a lack of savings and, therefore, less money available for retirement.
7. About every six months, it is a good idea to sit down and see what assets you have, what are targeted toward retirement, how each is performing and how your situation compares to that of six months ago. Such an exercise points out how assets are performing, or underperforming.
8. Federal deficits, public policy on Social Security, allowing deductible IRAs or closing those “loopholes” all have an effect. Encouraging the government to have policies that encourage savings and also keep the value of money sound may be among the most important parts of the retirement saving landscape. What legislators do does have an effect.
Each of us should think about our goals for retirement, our plans for retirement, our target retirement date and sit down and analyze our present situation. Then we can figure out where we should be going and get some good advice on getting there. After all, we are all living longer and will need that support. If it is not there, our children or the government will have to provide for us. I, for one, do not want that!
Brad Cook is a partner in the Manchester law firm of Sheehan Phinney Bass + Green and heads its government relations and estate planning groups.