Retirement plan should start with basics

Last updated on May 13th, 2019 at 02:24 pm

Retirement plan should start with basics

By David Stoeffel, for SBT

As the first of the baby boom generation enters into their retirement years, many are scratching their heads, wondering if their investment safety blanket will cover them throughout retirement.
This is where sound planning can make the difference between a comfortable retirement and one filled with sleepless nights. A few important issues should be considered as part of any plan to reach retirement goals.

Portfolio structure is key
The key to long-term investment success is asset allocation — or how your portfolio is spread between stocks, bonds, cash and other assets. That is the most important part of the process and will have the most impact on investment results. Each individual has a different set of investment needs, risk tolerances and investment savvy.
The reality is there is no guaranty that every allocation will have the desired results, but staying the coarse is critical. Retirees must determine the allocation that allows them to sleep well at night while still generating the income and growth required for a comfortable retirement.

Save in retirement accounts
To encourage retirement saving, federal and state laws provide an array of investment accounts and programs that offer income earners attractive tax benefits, including 401(k)s and Individual Retirement Accounts (IRAs). Depending on your situation, your contributions to such accounts may be tax-deductible. Even better, you don’t pay taxes on the income and capital gains generated by the investments in the accounts until you retire (in the case of the Roth IRA, none at all).
Taking advantage of those accounts should be a priority to anyone serious about growing his or her retirement nest egg. Industry experts, however, report that a high percentage of workers under-utilize retirement investing opportunities. For example, a recent publication by "Retirement Confidence Survey" reports that three in 10 claim they have not saved at all for retirement.

Investment selection
Investment selection for retirement, like the portfolio construction process, should be made with the help of a financial consultant. While no solution is universal, a few simple guidelines should be considered by anyone investing for retirement:

  • Keep income-producing investments in retirement accounts. Investment income is taxed at a higher rate than long-term capital gains. Often, it makes sense to keep income-producing investments such as bonds and income oriented mutual funds in your retirement accounts.
  • While the ideal is to put the most potentially taxing investments in your retirement accounts, often investors are limited by the available options in their retirement plan. For example, it doesn’t make sense to keep the entire the fixed-income portion of your portfolio in your 401(k) if there’s only one fixed-income choice.
  • Pick the right funds. Mutual funds that have structured investment portfolios and clearly defined risk profiles can help prevent unforeseen investment results.

    Investing for future income
    Today, a 62-year-old retiree can expect to live to age 80 or 90. That means investments must be able to provide a steady stream for 20 to 35 years. Although an income-only portfolio may produce adequate income in early retirement, it has the potential to fail, because it didn’t grow through the years. A retiree using such a strategy almost certainly will have to dip into principal.

    As baby boomers enter the ranks of retirees, there are three crucial elements they’ll need to consider:
    1) The structuring of their investments and whether they’ve properly allocated their investments;
    2) Whether they’ve done a smart job of allocating assets among and within their retirement accounts;
    3) And whether their investments are positioned to provide adequate income, while growing at the same time.
    The grand objective is to make sure you don’t run out of money before you run out of time to spend it.

    David Stoeffel is senior managing director of Ziegler Asset Management in Milwaukee.

    June 13, 2003 Small Business Times, Milwaukee

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