While the key concern before retirement is how to grow your investments, proper financial management in retirement involves much more. When trying to choose the most appropriate investment strategy or strategies, you will face a series of concerns that push and pull you in different directions. I am not going to go into each concern here but you can find a detailed discussion of these issues in my book Road Rules For Retirement.
Investing for retirement all starts with income. No matter what your account balance states, getting the money from your retirement account into your pocket can be challenging in good and bad times.
While investing for growth is exciting, if you depend on growth for the majority of your retirement income then reverse dollar cost averaging, bad luck or bad timing can blow your retirement plan up in a single year.
You will constantly be facing difficult decisions about how to generate income from your growth investments. If your investments are moving up, which fund or stock are you going to sell your winners, your losers, maybe a little of everything? If the markets and your investments are down, are you going to take a pay cut? Again, you have to choose which investment you are going to sell in order to generate income.
Income investing means focusing on cashflow . As an example, a dividend stock paying $100 dollars a year will continue to pay $100 a year whether the market is up or down so long as their business remains well managed and viable. Bonds pay interest on a regular predictable basis regardless of their current market value.
Let’s go back to the example I used in my last blog about how past generations invested their money. It was all about matching cashflow to expenses. Money flowing in equals money flowing out regardless which direction the economic winds were blowing.
Your key decision should be much of your money, how much of your retirement savings is going to be committed to income oriented investments and how much is going to be committed to growth oriented investments.
I will share the formula I use to balance these two types of investments strategies in my next blog.
My best, Mark
Please take a quick minute to learn more about how the U.S. is doing. How is the economy doing? A closer look at GDP