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Securing Your Retirement Years

The thought of retirement excites. No more rounds, no more clinics, no more erratic working hours, and no more emergency calls. Now you have all the time to go to places you might have missed during your working years. Trekking on some exotic places, dancing all night long with the spouse, and waking up late the next day—this sounds pure bliss.

On the other side, there is something else you might be looking forward to: financial independence. Retirement means you will no longer receive your regular pay but some retirement package that may include a meager monthly pension.This means a much diminished monthly income that needs to be supplemented through other means.

It is then a must to take your retirement future into your own hands to be able to live the quality of life that you desire. Some years ago, retirement future was already secured if a person put in an honest lifetime of work. But things have changed. Today, retirement money is no longer enough. There is now a need to ensure your retirement future by considering investment options and strategies that will give you the highest possible returns.

Antonio Roman, registered financial planner of Philam Life, gives five guidelines in planning for investments:
1. Have a clear plan. Think of what you want your investments to do for you. Retirees and those nearing retirement have two goals in investing: one is to provide for their daily expenses and the other is to make their money grow to maintain or improve their standard of living in the future.To make sure that these two goals will be met as you invest your money, it is best to see what works best for your needs.
2. Have a budget. Think of how much retirement money you want to have out of your investments. This willhelp you make decisions on how much you would shell out for your investment.
3. Understand the compounding power of investment. “This is very i m porta nt,” Roman says. “The earlier you start investing, the more value your investment will earn.” Always remember that investments increase in value over time. Thus, if you are already retiring or retired, your investment will no longer have compounding power.
4. Invest. Before identifying which kind of investments you want to put your eggs in, there are factors that you need to consider:

  • Time horizon: This means knowing when you will need to start using your savings. Is it still 30 years away, or 30 months away?
  • Retirement goals: You should determine if, upon retirement, you will just make your capital grow or you need to generate income for daily needs.
  • Risk tolerance. Are you open to risks towards greater earnings or do you prefer a slow but steady and sure kind of investment?
  • Overall financial situation. Do you have extra money that you can put into investment for a number of years? Or would you need cash on standby for any emergency purposes?

5. Diversify. “Don’t put all your eggs in one basket,” Roman underscores. “Spreading your investment will lessen the risk than any individual investment within a portfolio.”The good thing about diversification is that though some investments may reach the rocks, others may still be performing well.

Allocating your assets wisely can help make you manage risks and make you stable even during economic ups and downs. Spreading your investments will also increase your chances of better returns over time as you benefit from a greater number of economic or market developments.

Investment options
Roman clarifies that there are different kinds of investments that you may embark on, depending on the phase of life you are in. The basic investment that a person can have, according to Roman, is the creation of basic security and contingency fund something that can be used within reach when the need arises.

After this is taken cared of, you can start thinking of short-term investment, something that lasts for three to six months. These investments can be in the form of emergency savings, highly liquid savings account, or short-term time deposit.

There are also medium-term investments such as mutual funds, government funds, individual retirement account, and also growth funds, including real estate and insurance contracts, which may take several years to build up. And then there are speculative investments, the ultimate ones, which deal with investments in arts, precious metals, international foreign exchange, and others.

When these investments are illustrated in a triangle, what lies on the bottom and widest part of the triangle would be the basic security and contingency fund, while the speculative investments are in the apex.
Some options on medium-term investments include the following:

Real estate
Most people prefer to invest in real estate because it is tangible and constantly increases its value through the years. Real estate does not depreciate; instead it gets more valuable in time. However, most people planning their retirement often overlook this kind of investment. It is best to invest into real estate earlier as the property will be worth much more when you retire some years from now.

However, just like other types of investment, real estate investing has some risks. There are basic things to consider such as rentals, payment history, expenses, taxes, future modifications, pest problems, structural damage, or reoccurring problems. Moreover, property that gobbles cash on a monthly basis may drain your working capital. It is then important to study the processes involved in real estate investment and consult a financial adviser before embarking in it.

Bonds and money market
For doctors nearing retirement age, more conservative investments would be more preferable, such as bonds and money market funds. A conservative mix of bonds and money market would give focus on the preservation of your assets. Such investment will likewise allow your assets to grow in such a way that will support your retirement years while keeping pace with inflation.

Investing in bonds basically means you are loaning out money to the government or to a private company for a set number of years with certain interest rates. The bond is a promissory note from the government or company ensuring that you will be paid the total amount stipulated in the bond on a specified date. For a time investor or for someone above 60 years of age, investing in bonds is the safest choice because there is very little risk of losing your money and will not cause undue stress, unlike the yo-yo price movement that usually happens in the stock market.

There are also risks in bonds, just like every investment. Such risks may be that interest nor the principal on the bond might not be paid, the price of bond may decline and become less than the purchase price before it reaches maturity, or the bonds may be called before maturity.

Money market funds too have relatively lower risks as the net asset value, representing the value of one share in a fund, is quite stable. However, if the fund’s investments perform poorly, the net asset value falls. Money market works by paying dividends that reflect short-term interests. The returns are lower than bonds or stocks though, and there is a risk of inflation outpacing and eroding investments returns over time.

Mutual funds and stock market
Mutual funds refer to the pooling together of funds by investment or finance companies with the objective of giving high and better returns to investors.

This kind of investment works by creating a large pool of money that will be invested elsewhere by a fund manager. When the price of your units goes up (because it is performing well) and you sell, that is how you make money from mutual fund. Sometimes too, the money that the fund earns will be distributed to the investors in the form of cash or additional units. However, you should remember that with mutual funds, you can only make a few decisions as you have already entrusted the care of your wealth in the hands of a professional. For others, this set-up works best, though for some, it may not.

The stock market works by enabling companies to sell stock to get money to help improve their businesses. When you buy a stock in a certain company, you become a part owner. Many factors affect the price of stocks, thus the price rises and falls. There is a risk of losing your money as easily as you can make money.

Investment pie
In diversifying your investment, Roman suggests that most of it should go to stocks (45 percent), bonds (30 percent), cash (20 percent), and real estate (5 percent). He likewise mentions that it is best to go into equity funds—ideal for long-term investments—as these are sure to boost returns.

Planning your retirement money
There are a lot of retirees who are unsure in getting started with investing because they do not have a clear retirement plan. This is where a financial planner can give you valuable advice, help set realistic retirement goals, and even assist in your transactions.

Just like how your patients run to you for medical advice and how you turn to accountants for tax advice, and lawyers for legal matters, it is best to consult with financial planners to ensure that your hard-earned money is invested well.

Times have really changed, such that when retirement comes, there might not be enough money around to sustain your daily needs. Thus, it is important to start investing now to help secure a comfortable retirement future.

Maximizing your retirement money
Roman gives advice to doctors who are imminently facing retirement and those who have already retired. The principles are actually applicable to everyone who wants to build a secure, stable future:

  • spend less than what you earn
  • learn how to effectively manage your wealth
  • diversify
  • understand the theory of wealth management concept

Managing wealth actually consists of three steps, according to Roman. First, you have to accumulate wealth or gain income from various sources. Then you should preserve or maintain that wealth and make it grow. Finally, transfer your wealth.

“This should be one of the main goals of retiring or retired persons,” says Roman. “Transferring your wealth to your loved ones is ensuring that your legacy lives on to your dependents.”

By Framelia Viernes Anonas

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