Best Strategies for Retirement Planning- Part II

Last week, I began a discussion of retirement planning strategies. If you missed that column, visit the Resource Center at; then click on ‘Stewart’s Column’. Here are the remaining strategies:

  • Save more money. If you are a pre-retiree, a detailed retirement analysis will likely suggest that saving more money is needed. Figure out how you are going to do this now! Two suggestions are to take at least one-half of any raises and commit that money to your retirement savings plan. You can do the same thing with any bonuses. Look for ways to cut unnecessary expenses in order to boost savings. In my experience, everyone can cut a minimum of 10% from current spending without feeling deprived at all. We simply waste that much money.
  • Start a new career. Whether you are a pre-retiree or retiree, think about what you love to do just for fun. Now realize that everything you love to do, somebody is making a very good living doing it right now. That person could be you! Turning a hobby into a business can be fun and a money-maker. Start small and build gradually or go for it in a big way! Realize that even a small amount of income can significantly help your retirement picture.
  • Delay Social Security. If you’ve made a decision to work longer, consider postponing starting Social Security payments. For every year you delay beyond full retirement age (currently age 66), up to age 70, you’ll get an 8% boost in payments…which benefits you as long as you live. If you start payments as soon as you are eligible (age 62), you’ll lose 25% of your full payment amount (called Primary Insurance Amount). My father, who is age 95, waited as long as possible (age 70) and has enjoyed substantially higher payments for twenty-five years!
  • Invest in dividend-paying stocks. I couldn’t cover the topic of retirement income without at least a brief discussion of the role dividend-paying stocks have in a retiree’s portfolio. When investing for retirement, you’ll want your money divided between fixed income investments (money market accounts, CD’s and bonds) and stocks. For the past several years, fixed income investments have paid paltry interest payments. Most money market accounts, for example, pay well below one percent. This has been devastating for current retirees who need cash flow for paying bills. Dividend-paying stocks have offered a bright spot for retirees looking for higher returns. A basket of blue-chip dividend-paying stocks can easily produce 3% or more in annual dividends. Look for a basket of at least twenty companies who have a long history of consistent dividends. Stock prices, even for the most conservative blue-chip companies, will fluctuate but you can remain focused on their consistent dividend payments as you wait for stock prices to rise. You should consider seeking the help of a professional advisor in constructing a portfolio of this type so that it can be tailored to your particular situation.
  • Annuitize a portion of your retirement cash flow. I’ve never been a big fan of annuities mainly because of high fees, commissions, and the fact that at death, there is typically nothing left for heirs. But if leaving heirs is of little concern to you, an immediate annuity might be worth considering at least to cover your basic living expenses. If you are interested in pursuing this strategy, be sure to shop hard for the best pricing and be careful to choose a highly rated insurance company because that company (or companies) serves as the security for your lifetime payments. I would only consider this strategy if you are in excellent health with an expectation and family history of longevity.

What’s most important is that you approach retirement having thoroughly assessed your financial situation, reviewed all of your alternatives and developed a decisive plan of action. If this feels like an overwhelming process, I encourage you to seek the assistance of a qualified professional.