How Conservative Should I Be As I Get Closer To Retirement?
Money management guru and famed financial presenter Robert Kiyosaki is often quoted as saying “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”
His statement is simple, yet simultaneously multifaceted. It informs us that we need not to be rich, but rather, we need to be wise. It insinuates that it’s not wealth that matters, but rather how prudent you are in saving the money you make. Finally, it apprises us of the notion that we need to make our money work for us, as well as to hold on to that money for the generations to come.
Like many things in life, Kiyosaki’s advice is easier said than done. On paper, it makes perfect sense. In reality, retirement planning is a difficult endeavor that requires discipline, restraint, and extensive planning.
Retirement: Spend Less, Keep More
The concept of spending less clearly indicates that we will then have more money in our pockets. However, spending less requires constraint. It means we don’t always get to buy the things we want. It means that our standard of living won’t always be picturesque. It means we don’t aggressively dump our money into the stock market hoping for a potentially enormous return and ultimately risking decades or even a lifetime of savings.
It also means that we must be conservative in our financial lives, making prudent monetary choices, investing intelligently, and diligently strategizing, especially as we get closer to retirement. However, fiscal conservatism is not a popular concept amongst the younger set. The high degree of interest in financial conservatism is from those entering the phase of their senior retirement plan.
Aggressive Spending: The Antithesis to Financial Conservatism
Today, social media is brimming with pictures of people in their 20s and 30s posing with their new expensive purchases, many of us don’t shake our heads in disgust – rather we feel envious of their seemingly grandiose lifestyle.
Living in a financially aggressive fashion is commonplace and is exhibited by individuals from every type of socioeconomic background. From the call-center operator making $14.75 an hour who blew $10,000 on a snakeskin Hermes handbag to make herself feel chic, to the newly minted law school graduate who heads down to the BMW dealership and gets himself a 7-series BMW, aggressive spending gives us the various toys and accouterment to make ourselves feel good about ourselves and our lives.
Living the high life may make us feel good in our 30s or 40s, but as we get older and closer to retirement, there eventually comes a cold, stark, and unyielding reality. We don’t have any savings to fall back on in times of sickness or catastrophe. It makes our golden years a little bit less golden.
Readying for Retirement
Financial intelligence and conservatism are more crucial now than ever. Whether you are in your 30s or 40s, living practically isn’t enough. It’s about carrying out financial practices that come from research and strategy – finding investment opportunities that will yield a return and provide us with the opportunity to make our money work for us as we get closer to retirement.
Concepts such as compound interest bolster our time, energy, and overall finances by adding to our collective pot of gold without having to lift a finger. The sooner you begin investing for retirement; the sooner compound interest begins its powerful effects that can possibly pay off for you enormously when you get older.
Admittedly, articles telling adults in their 30s or 40s to be fiscally conservative is not going to be among the hottest of topics. It’s those reaching retirement age that the fire of interest begins. As we grow older, we want to feel more secure and to know that we have something to fall back on in times of strife.
So How Conservative Should You be as You Get Closer to Retirement?
The answer is clear: you should be as conservative as you can as you are getting closer to retirement. No one is saying that you need to live a bare-bones lifestyle. However, when you are in your 50s and 60s, making extravagant purchases could be viewed as impractical and in some cases, could potentially lower the quality of your life.
Live comfortably, yet conservatively as you get closer to retirement. When it comes to making changes to your investment portfolio, it’s important to understand what you need your portfolio to do for you. For example, if you know you will need to withdraw $180k/year to supplement your income, you will want to ensure that this part of your portfolio is invested in more conservative assets such as bonds. This way, when there is a stock market downturn, you can withdraw from the stable part of your portfolio instead of selling stocks when they are lower.
As you grow older, many financial experts will tell you that you should incorporate more bonds in your portfolio to protect your money. That doesn’t mean to stop investing though; it just means to invest in a more conservative fashion.
Be smart and start being financially prudent today. Work with a financial advisor to build your own personal portfolio by increasing your savings, developing the proper budget, and ensure that you have the right tax-efficient withdrawal strategy. With every move you make towards protecting your money and assets as you grow older, you ensure not only the quality of life you want and deserve but the unbeatable feeling of having forged your own financial destiny.
Danny G. Michael is the founder and CEO of Satori Wealth Management, Inc. He has 20 years of experience in retirement planning working with individuals, families, and business owners.