Getting your financial house in order
Gary Hornbacher
Contributing Writer
You might live to be 90, but if you run out of retirement funds at 83, you’ll be stuck. Heading into retirement, there are certain steps everyone needs to take to ensure that they do not outlive their savings. The steps to develop a comprehensive financial plan are simple, but it is important to get them right, says Tony Fusco, ChFC, head of Towson-based Fusco Financial Associates, Inc.
Fusco identifies some key steps that will help provide a solid foundation for any retirement plan.
1. Set a goal
The biggest mistake many people make is that they do not adequately and definitively set their retirement goal, whether it be at what age one will retire, or the target income needed in retirement. The first step should always be to determine a reasonable and achievable goal, and then undertake the retirement planning process accordingly.
“Where most people go wrong,” says Fusco, “is in not setting long-term goals until they are only 10 to 15 years from retirement.”
2. Invest to reach your goal
Too many people fall into the trap of “catch up” investing. That is, they feel as though they must take unnecessary risks in order to make up missed returns during periods in which they had not been investing.
Nothing could be more dangerous, Fusco continues, in the overall retirement planning process. Individual risk tolerance and, most importantly, time horizon, should always dictate your investment allocation. As you get closer to retirement, your investment mix should generally become more conservative, which means introducing larger allocations in fixed income and non-correlated assets.
3. Take full advantage of what is given
“Surprisingly,” notes Fusco, “many people do not take what is given for free, even when it comes to retirement benefits.”
Fusco explains that in an era of defined contribution retirement plans, you must take full advantage of whatever matching contribution your company makes. The long-term investment potential of even one or two percent in additional annual contributions can be significant.
Also, be cognizant of the main benefit that your company retirement plan offers that cannot be duplicated anywhere else, which is that up to $15,500, the contribution limits for calendar year 2007 (or $20,500 if you are over age 50) can be contributed annually on a pre-tax basis.
4. Monitor and alter
No plan is flawless, and as priorities and time horizon changes, the need to re-evaluate and modify your plan is vital. Investment savings and retirement plans should not be put on autopilot.
Too many people plan once and assume that nothing further needs to be done to accomplish their overall goal.
“Get into the habit of reviewing your retirement plan at least annually,” urges Fusco. “Make asset allocation changes as you get older, replace under-performing investments, update your Social Security records, and seek professional guidance to help you along the way.” •
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