Creating a Retirement Plan that Works

By: Lynda Striegel

Thursday, December 06, 2012

Once you have created your retirement plan, start analyzing. This is a form of “stress test” for your plan. If you subject your plan to the “parade of imaginary horribles” and the plan survives, you have something you can rely on.

What do I mean?

Suppose you have a catastrophic illness. Will your retirement plan support unplanned medical expenditures? Make sure your plan gives you a cushion of cash. Cash or cash equivalent investments, such as money market mutual funds, will give you liquidity and the ability to handle the unexpected.

What about paying off your mortgage? Since your mortgage is probably the largest item of debt you have, paying it off before you retire makes a lot of sense. Can you refinance to shorten the mortgage life? Can you add additional payments to your monthly mortgage to do the same?

How can you create a situation for your retirement where your anticipated monthly revenues will be more than sufficient to cover your monthly expenses? I’m talking downsizing. Planning for living at a reduced level of expenditures. Maybe this means your retirement plan should include selling your home, investing the equity and renting.

That still means having equity in the home and therefore shortening the length of the mortgage is sensible no matter what your plans for your home.

While you are in the process of stress testing your retirement plan, try to avoid some of the most common planning mistakes by taking a proactive approach.

What do you want to do?

  1. Paying off that high-cost consumer debt. No matter how hard you try with your plan, carrying high cost debt such as credit cards will handicap your ability to move forward into retirement. This debt must be paid off and you need to create a plan of action to do that. How? Find out exactly how much you owe, cut up the credit cards (except for one for emergency purposes that should be kept at home and not in your pocket), create a payment plan and stick to it. Any job bonuses or raises should automatically go towards paying off the high cost debt.
  2. Create a cash cushion. Once the high cost debt is paid off, all of your disposable income should go towards creating a cash cushion. This is insurance against catastrophic events—this cash gives you peace of mind. Some experts say you need six months income as your cushion; others say 12 months or more. The total is whatever makes you feel comfortable. Whatever that is, again, make a plan, set aside the funds each month towards your goal.
  3. Take full advantage of your retirement resources. There are some people who do not contribute the full amount towards their employer-sponsored 401(k) plans. If the employer is matching your contributions, that means free money to you and you need to take full advantage of that by contributing as much as you are allowed. Of course, I am assuming you have read your 401(k) and know what investments you have selected. Make sure you also have kept your beneficiary designations up to date.
  4. Consolidate your investments. I have had clients with multiple bank savings accounts or CDs at multiple institutions. It’s no wonder that they lose track of what they have. Consolidating with one institution gives you a chance to see the complete financial picture. That’s what you need.
  5. Diversify, diversify, diversify. This is the opposite of putting all your eggs in one basket. If you diversify your investments, you have the chance to ride out falling stock prices in one sector with rising prices in another. Yes, this means you must be educated enough about investments to make sensible choices as you diversify, but this brings us to another important point. You do not have to do this alone.
  6. Select an investment professional to help you. When the financial markets were hot, everyone thought they were experts because all investments were profitable. Those days are long gone. Today and for your future, you need to invest your time and energy in selecting the right professional to help you. That means someone held in high esteem by your family, friends, colleagues. It means someone you interview face to face. It means someone willing and eager to learn about you, your family, your goals for the future. It certainly does not mean a person who is condescending to you. There are plenty of excellent choices out there but you need to find that person who will help you get on the right track and that is going take your time and energy. It’s also going to take education.



No one expects you to be able to select the investments you will need without help; but, you must at least be able to understand what those investments are all about. I’m talking homework before you meet with a professional.

Lyn & TeddyAbout the Author: Lyn Striegel is an attorney in private practice in Chesapeake Beach and Annapolis. Lyn has over thirty years experience in the fields of estate and financial planning and is the author of “Live Secure: Estate and Financial Planning for Women and the Men Who Love Them (2011 ed.).” Nothing in this article constitutes specific legal or financial advice and readers are advised to consult their own counsel.