mark diamond arizona, mark diamond senior education counsel, Senior Education Counsel, a nonprofit Since 1995, Arizona, California and North Carolina Mark Diamond, national senior advocate

Changing the Way You Think about Retirement

When it comes to retirement planning, what comes to your mind? It may require changing the way you think about retirement to best protect and preserve your wealth. You might be familiar with Social Security benefits, 401k, annuities, etc. You might even have taken a couple of seminars or is reading articles from various websites on what it takes to retire. For most people, retirement is a scary subject. Especially with the amount of money that you are “supposed to” target before retirement, people mostly shake their heads and sigh deeply.

Here is a new way to look at retirement that might revolutionize your planning thought process: stop thinking about the net worth of your retirement savings. If you successfully put away the amount of retirement savings that you planned to, what will be your monthly income? According to a Harvard Business Review article by Dr. Robert Merton, professor at MIT Sloan School of Management, what’s most important in approaching retirement is not the net worth but the monthly income.1

So what does this mean? According to Dr. Merton, you should be investing in a mix of both risk and risk-free assets that increases the chance of achieving your goal. Risky assets are mainly equities that are looked at in terms of income, and the risk-free assets should be annuities.1 This does not mean that you need to purchase annuities right away, but that you have your portfolio managed well enough to purchase the annuities on retirement, irrespective of inflation or interest. With retirement comes your retirement savings. Following this strategy will allow you to plan out a retirement that helps you to achieve the desired monthly income during retirement.

References:

  1. Merton, R. C. 2014. The Crisis in Retirement Planning. Harvard Business Review92(7/8), 42-50.
  2. Mark Diamond, National Speaker and Senior Advocate
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