If you think about it, retirement isn’t so unlike golf. Paula Dorion-Gray, CEO of Dorion-Gray Retirement Planning Inc., in Crystal Lake, compares the links with financial planning.
I absolutely love to play golf, except for when I hate it. If you have ever played the game, you know that while approaching the green, you can scramble to recover an errant shot. However, the closer you get to the green, the more finesse it requires. Misreading the green for undulations or speed can result in adding three or more putts, which has a major negative impact on your score.
I like to equate golf with retirement. The closer you get to retirement, the more attention you need to put into the details. You can generally make up for mistakes made during your earning years, depending on how long you have until retirement. Once you get within five years of retirement, the risk of making a mistake or not considering all of the issues can have a huge impact on your long-term retirement plan. The biggest concerns in retirement are inflation, longevity and market conditions – none of which come with a guarantee.
To begin, you need to decide what your annual expenses will be – including the cost of Medicare. Many people underestimate the cost, including out-of-pocket costs and annual premium increases.
Next, determine when to take Social Security. There are many strategies surrounding Social Security. Taking your benefit at 62 is not always the best long-term decision to make. This decision should not be made in a vacuum.
Lastly, decide which investments will provide income in order to subsidize your Social Security benefits. While living off certificates of deposit, or CD income, usually isn’t sufficient, selling stocks or equities each year to cover the gap between Social Security and your annual expenses can be a dangerous approach. Think back to 2008. If you had to sell something in the beginning of 2009 to cover your expenses, you might have sold at a 20 to 30 percent loss. It wouldn’t take long to deplete your accounts if you took this avenue.
An approach we have found to be effective in designing income during retirement is to segment your income needs into five-year increments. The first five years will consist of the most conservative types of investments: cash, CDs, short-term bonds, etc. These investments will not provide a high rate of return, but they will provide you with a fair amount of certainty. Like putting in golf, it is definitely the most conservative and steady shot.
Each five-year increment gets more aggressive, so that during the last five-year segment you can invest in assets such as emerging markets, which could involve much more volatility. Consider this the ‘shot off the tee.’ Keep your eye on the ball!
Paula Dorion-Gray, CFP, is CEO of Dorion-Gray Retirement Planning Inc., 2602 IL Route 176, Crystal Lake. Securities offered through Securities America, Inc. Member FINRA/SIPC. Advisory services offered through Securities America Advisors Inc. Dorion-Gray is not affiliated with Securities America companies. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.