It’s so easy to get caught up in the headlines of the day and their potential impact on our investments. Today it’s the debate over how to go about addressing the debt ceiling. But there’s always something: interest rates rising (or falling), the stock market rising (or falling), tax rates rising (or falling), and on and on.
If we stop and think about it, most of us probably recognize that the one variable we have no control over is our rate of return. Yet that’s where we focus much of our effort. Instead, we’re usually better off focusing on those areas where we are directly in control.
Times that seem particularly uncertain tend to paralyze many investors. They can’t figure out what to make of the information bombarding them, so they shrink into a defensive posture where they’re afraid to do anything.
If that’s been you, SmartMoney author Glenn Ruffenach has a list of areas for you to focus on as you work on your retirement plan. The good news is these are all under your direct control. (Read the full article for more on each one.)
Setting a budget. It’s among the most important steps in planning for later life, but less than half of workers have put pencil to paper, according to the Employee Benefit Research Institute. Why are budgets so critical? Projecting expenses and income can help you pin down your “number,” the amount of money you need to save for retirement.
Timing Social Security. If you’re married, the timing of exactly when each spouse first files for benefits can translate into thousands of dollars gained — or lost — in retirement.
Reducing debt. Between 2000 and 2008, the average debt for households headed by a person age 55-plus almost doubled to $66,000, according to Strategic Business Insights, a research firm in Menlo Park, Calif. Again, here’s where would-be retirees can take the reins.
Creating a pension. If nothing else, the recent financial meltdown underscores the need for investments that throw off income, regardless of what’s happening in the markets.
Managing taxes. No, you can’t control tax rates, but you can practice “tax diversification,” says Randall, of Financial Enlightenment. … “You don’t know what your effective tax rate will be in retirement,” Randall says. “That’s why you should diversify.”
Planning for long-term care. Yes, this is a tough one. But it’s also an area where failing to act could prove devastating. Among your options: self-insuring, if you can set aside sufficient funds. Long-term-care insurance, which is complicated and expensive, is another possibility, as are so-called hybrid policies that provide some long-term-care benefits and some life insurance (but perhaps not enough of either).
Too strapped for time to dig into these areas? Ruffenach isn’t buying it:
I know: The invariable response is, “But I don’t have time.” Please. It never fails to amaze me how people will spend weeks planning a visit to Disneyland with the grandchildren but won’t take a few hours to assemble a retirement budget that could easily last 30 years. Believe me: You can find time. Take control of what you can control — and take the anxiety out of your retirement planning.
By Mark Biller
Mark Biller is Sound Mind Investing’s Executive Editor. His writings on a broad range of financial topics have been featured in a variety of national print and electronic media, and he has appeared as a financial commentator for various national and local radio programs. Mark is also the Senior Portfolio Manager of the SMI Funds.