 |
| Adrian Mastracci, president
of KCM Wealth Management, says “First
become aware of what it takes to achieve and
sustain retirement. Then explore the appropriate
strategies to make it happen in light of personal
goals.” |
For Immediate Release
Vancouver, BC (September 19,
2003): In last week’s “Part
1” we observed that charting the retirement
path has undergone plenty of changes. Particularly,
since the arrival of the new millennium.
Adrian Mastracci, investment
counsel & financial advisor with Vancouver
based KCM Wealth Management
comments further, “The job description of
retirement architect means that an investor wanting
to map the appropriate retirement roadway has
to consider many facets all at once. Some of the
tasks are a science, others are an art.”
“The retirement architect begins the redesign
of the long haul journey with the number crunching
exercise,” says Mastracci, “That’s
the science part. I call it the financial independence
analysis.”
“First become aware of what it takes to
achieve and sustain retirement,” observes
Mastracci, “Then explore the appropriate
strategies to make it happen in light of personal
goals.”
“Focusing special attention on three areas
helps to create the roadmap fitting for retirement,”
explains Mastracci, “This is the artful
part of the assignment. The creative ingredient.“
“The financial independence analysis, together
with the considerations that follow, are instrumental
in arriving at informed decisions for the long
haul,” concludes Mastracci, “They
provide precious answers to the question of what
is important about retirement.”
Mastracci suggests reflecting on these considerations:
Estimate the lifestyle costs
during retirement
Decide on the retirement lifestyle and
become familiar with its costs. As a starting
point, assume that the pre-retirement expense
grand total will be the same after retirement.
In my experience, the individual allocations
change. However, the grand totals of the before
and after retirement expenses often remain much
the same.
Three unknowns most feared by retirement portfolios
are rising inflation, health related costs and
long life expectancy. Each can have significant
impact on capital requirements.
Design the investment strategy
suitable for retirement
Investors approaching retirement will likely need
to switch from accumulating the nest egg to drawing
income from it. This may require investment changes
to initiate the income draws.
One key area to evaluate is the appropriateness
of the asset mix. The four investment pillars
of portfolios typically include a mix of equities,
bonds, cash instruments and real estate.
Sometimes investors make radical changes to the
retirement asset mix, such as becoming too conservative.
However, financial independence has to be sustained
for a lifetime.
Capital preservation strategy is uppermost. Perhaps,
also a need to continue growing the nest egg during
retirement. Therefore, the long haul investment
horizon is ever so important.
A touch of tax friendliness along the way helps
maximize income available for spending.
Evaluate portfolio risks
in light of retirement income needs
Don’t let risk be the dreaded four-letter
word. Understand the types of risks to which the
investment portfolio is exposed. Along with the
levels of risks that can be safely tolerated.
There are many types of risks that investors
may incur, knowingly and otherwise. Focusing on
three major investment risks brings perspective
for the long haul retirement needs.
First, the ability to take risks is associated
with investment time horizons. Someone accumulating
the nest egg has more time to recover from setbacks
than a retiree does.
Second, the willingness to take the risks is
associated with the investor profile. A conservative
investor has far less inclination to incur capital
fluctuations than an aggressive investor does.
Lastly, the need to take risks is associated
with the rate of return to achieve or maintain
the retirement goals. The risks of seeking a 5%
portfolio return are different than seeking 10%.
“For many investors, the sensible approach
may be to pursue partial retirement,” indicates
Mastracci, “Some retirees agree that a gradual
easing from the full time career to, say, two
days per week is a wise decision. Often, employers
have flexibility for reducing work schedules.”
“The outcome of this exercise is that the
plan may require some rethinking of personal strategy,”
suggests Mastracci, “Such as added savings,
working longer, or adjustments to expectations.”
“Then again, retirement may well be on
target,” remarks Mastracci, “That
is a welcome thought.”
“The retirement architect’s task
is now well under way,” summarizes Mastracci,
“The appropriate blend of art and science
assists in proceeding with confidence. Happy planning.”
|
