Making sure your retirement money lasts

May 2015

A couple weeks ago I was a speaker at the Observer & Eccentric Spring Expo in Livonia. My topic was retirement and making sure that your money lasts. During and after the talk, I was asked a number of questions I thought I would highlight here.

One of the questions I was asked by a number of people was how do you balance between your needs and your kids’ needs? One of the people at the seminar was asked by their son to pay for their granddaughter’s college education. He wanted them to re- mortgage their home and use the proceeds to pay for college. She wanted to help her granddaughter, but was concerned that if she and her husband took a mortgage out, they would run into problems down the road. When we looked at the numbers, it turned out that in about two or three years they would have trouble making their mortgage payment. My answer to her: let your granddaughter get a loan. My view is that no one should sacrifice their retirement for their children or grandchildren. There are loans available for education needs, but that is not the case with retirement. There’s no doubt that a college education is important; however, before you can help someone else you have to make sure you’re in good financial shape.

Of course, I gave them another option to consider– a reverse mortgage– so that they would not have to make payments. However, the bottom line, as much as you don’t want to be selfish, you must be when it comes to your retirement. We live in the greatest country on earth, but there’s nothing worse than being old and poor. If you run out of money and can’t afford to pay your house payment, you’re not going to have many viable options.

Another question that I was asked dealt with whether someone should continue their life insurance after they retire. My view is that life insurance is not an investment; it’s a form of risk management. The question you ask yourself is, if you pass away does anyone lose out financially or are there other resources to protect them. If there are other resources, or you don’t have anyone financially dependent upon you, then why have the life insurance? My view is always that life insurance is not an investment. Life insurance is a means of covering risk. Therefore, if no one is financially dependent upon you or if someone is financially dependent upon you and you have resources to protect them, cancel your life insurance.

Always keep in mind that the life insurance companies and their agents are not necessarily your best friend.

I was also asked what was my opinion on target date funds. For those of you who don’t know, target funds are funds that invest in a variety of different funds with the idea that as you get closer to retirement, the portfolio becomes more conservative. For example, a target date fund for 2020 would be more conservative than a target date fund for 2040. On the whole, I’m not a fan of target date funds because most of them have not performed very well. In addition, some of them have very high fees and costs. Furthermore, and probably more important, when people invest based upon the year they’re going to retire, I believe they are making a mistake. The reason is that these funds become very conservative as you get closer to retirement. However, just because you’re going to retire doesn’t mean that your portfolio should become more conservative. Your portfolio should reflect your goals and objectives, not your age or when you’re going to retire. More important than when you’re going retire is when you’re going to need income.

Everyone’s individual situation is different. Your neighbor may have earned the exact same amount of money you did but their situation may be different than yours. Therefore, don’t do what the masses do, do what’s good for your individual situation. Also, keep in mind just because the majority of people do something doesn’t mean that it’s the correct thing to do. In fact, sometimes when it comes to investing money, what the majority does is generally the wrong thing.

Good luck!

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