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What’s in Your Retirement Plan?

Category: Retirement Planning

October 21, 2015 — Maybe the better question is, “Do you have a retirement plan”. According to Richard Russo in a recent MarketWatch Retirement Weekly article, having a plan greatly increases your chances of success. So if you don’t have one, now is a mighty good time to start. This article will explain what sorts of things should be in your plan, and how you can use it to help you achieve a successful retirement.

Russo, a senior financial adviser with Clarity Financial in Houston and author for Random Thoughts of a Money Muse, cautions that you shouldn’t get uptight about your plan if it isn’t working out exactly as you had thought. He says they are “extraordinarily imperfect… 20% science and 80% forecast (or art)”. He believes you should start your plan 5 to 10 years in advance of when you think you might retire. If you do, you can greatly improve your odds of success. Without one, your retirement could be like a ship without a map, a compass, or even a destination!

Retirement is a chance of a do-over on life – if you take it. Having a plan gives you a fighting chance at making that successful transition to the life you have always dreamed of living. But making the plan once and forgetting about is not the idea. Chances are your reality won’t be perfectly tidy – you will undoubtedly need to make adjustments along the way as your situation and external developments unfold.

What’s in a plan
There is no perfect prescription to what should be in a retirement plan. But here are some commonly included elements which you should at least consider having in yours. Many planners concentrate only on the financial aspects – we think you should expand the planning to many more lifestyle areas. You might want to put your answers, particularly those in the financial arena, into a spreadsheet so when you do yearly checkups against your plan you can easily change the numbers.

Over the years many Topretirements Members have taken the time to explain their retirement plan process, or at least the parts of it pertaining to where to retire. These articles are well worth the read for the insights you can gain as others go through this experience (here are some of our favorites):
Jay Michaels Retirement Tour
Sandy’s Active Adult Visits and Adventures
It Is Rocket Science: How This Space Engineer Planned His Retirement

Longevity and health
It is uncomfortable but important to give some consideration to how long you think you will live, and what you expect your medical situation to be. Although longevity and health are great unknowns, you have to do some planning so, for example, should you live to be 95 years old, you have the financial assets and living situation that lets you do that comfortably. It is not a good idea to simply say you will be gone by age 75 – because what happens if you are not, or you reach that age and have expensive medical conditions to cope with.

This is a starting point for the financial part of your plan. Undoubtedly your financial planner or even sources on the Internet can provide greater detail than this quick overview. There are many online financial calculators that can also be very helpful in this area. If you have a financial planner they probably have a set of questions and tools to help you with this.

Here are some elements that you probably should have in the financial part of your plan:
– Your current retirement assets
– What you expect to have for retirement assets by the time you retire (additional savings, portfolio performance)
– Expected Social Security benefit, and what age you expect to take it
– Any pension income
– Employment or other income (part time, investments, rents, etc.)
– Current monthly/yearly expenses
– Expected monthly/yearly expenses at retirement (don’t forget medical)
– Shortfall or Surplus (income minus expenses)
– If your plan indicates there is not going to be enough money to maintain your pre-retirement lifestyle, what are your preferences for solving that (working longer, part-time job, moving, reducing expenses, etc.)

Where you’ll live
Choosing a place to retire should be purposeful, not a default. We suggest that simply going on living where you have always lived, without at least considering the options, is not a good idea. Going with the default could lead to all sorts of issues that affect your happiness as the years go by, including: budgetary, safety, social, recreation, transportation, and maintenance. So devote some planning energy to whether you might be better off choosing a new location and type of housing situation – one that better fits your desired lifestyle, mobility, and financial situation. Here are some considerations:
– Downsizing
– What climate do you want to live in
– What region/state/country do you prefer
– More favorable tax environment
– New environment – a college town, small town, city, region or part of the world
– Move near family or friends
– Type of housing (single family, villa, condo, rental, independent living, active community, cohousing, etc.)

You need to consider your current medical situation and the future. Don’t think for a second that your health can’t take a sudden turn for the worse – unfortunately it can.
– Need/want to be near a major medical center
– Do you need certain types of specialists
– Does your intended location have quick access to a good medical facility

What you’ll do in retirement
We like to say that if you haven’t thought about what you’ll do in retirement until the day you do it, you are probably headed for trouble. Folks who have hobbies and interests they like have a big advantage here. These are some areas you should jot down ideas about – are you interested in doing them, and if so, what would you like to do?
– Will you work in some capacity
– Volunteer
– Help with your children/grandchildren
– Sports/hobbies
– Travel
– Study

You and your spouse/significant other
– If married or in a relationship, what does your partner want to do in retirement on all the issues discussed here?
– Are your plans compatible, and if not, how are you going to resolve your differences? (see “What to Do If You and Your Partner Don’t Have the Same Retirement Plans“)

Your plan for very old age, should you be so lucky to achieve it
Someone said that you should think about retirement in 10 year increments. As an example, lets say you retire at 60. Your activities and interests are probably pretty close to those of your working days, except now you have more time to do them. But as the decades go by, from 70 to 80, 80 to 90 and even above that, you are likely to slow down. The type of place where you can live comfortably will change. You might lose your ability to drive, and your health will probably decline or at least have some rough patches. So your plan should give some attention to your preferences on these considerations (your thoughts on these points might change dramatically over time, but at least you will have thought about them):
– Independent living, assisted living, CCRC (Continuing Care Retirement Community)
– Cooperative retirement villages or arrangements
– A location where you might only have to move a short distance to find a place where you can get some help in your everyday living (e.g.; an active community that has an assisted living or CCRC in close proximity)
– Proximity to family and friends
– Access to transportation

Bottom line
We think the better you are prepared the higher the chances of a successful retirement. The earlier you start your planning process, the better. Review your plan annually and see how you are doing, then make adjustments. The elements in the retirement plan above are a guideline, your own plan might have more, fewer, or different things to plan for.

For further reading
Baby Boomers Guide to Selecting a Retirement Community (has checklists and other planning tools)
12 Lies We Tell Ourselves About Retirement
5 Warning Signs You Aren’t Psychologically Prepared for Retirement

Comments? What has your retirement planning process been like? Please share your experiences, concerns, successes, and failures with the rest of this community!

Posted by Admin on October 20th, 2015


  1. If you will be downsizing or relocating after retirement, your plan should include getting your house updated and everything repaired so that your house will sell quickly. Along with that, start the process of getting rid of all the stuff that you no longer need so you don’t have to move/store it. Both tasks are daunting especially if you have a big house and/or have lived in one place for a long time. You will have many things to fix/update and many items that may have sentimental value but that you won’t need or have space for in your new house.

    by LS — October 21, 2015

  2. So as my sign in name goes, we are on a journey that started in June of this year. Husband retired/downsized out of a job in April as a manager in insurance claims, I retired as an RN in the Operating Room. Neither of us is 65 yet so health insurance is a big issue as the ACA cannot be had this year. Maybe next year.
    Plan started a year ago and put into action in January of this year when we listed house for sale. It sold in 5 weeks. After that the frenzy began. What our children did not want or take, we sold on Craigslist and at a neighborhood yard sale. What did not sell was donated. We kept very few “things”, which is stored at our son’s house in an unused basement.
    We already had a 40 foot motorhome and moved into that 6 months ago today! (We had camped since we were 16 so this was old hat to us.) We have traveled mostly on the East Coast since retiring, staying close to NC because of elderly parents. For the winter we have rented a spot in Florida at an all Motorcoach Resort and cannot wait for that adventure to begin!
    We do not as of yet know where or when we will settle down. With one son and family being in Atlanta and the other in Pittsburgh, the sky is the limit as far as we are concerned. We just want to travel and see the US and do things you simply cannot do in a weeks vacation time.
    This was our plan and we now are executing it!

    by Journey15 — October 21, 2015

  3. Journey 15. Congratulations on your retirement! Sounds like you were very busy but motivated to move on!

    Just a comment on the Affordable Care Act. You can get insurance anytime during the year if you have a qualified life changing event such as retirement. I was unemployed and Hub was working at his job until April 1st and then retired. His insurance covered us till the end of April. We filed for insurance through ACA and our first month was May 2015 to be covered.

    Good luck on your journey!

    by Louise — October 21, 2015

  4. Thanks Louise but our income for 2015 was too much for the ACA. We went with Cobra, which is not too bad and is for 18 months if we desire, for right now. I know once we go to the ACA health insurance we can’t go back to Cobra so we will be looking very carefully at the ACA before making our decision. We will be eligible for the ACA, income wise, in 2016.

    by Journey15 — October 21, 2015

  5. Your income does NOT matter to get an insurance policy through the ACA website. You may not qualify for the SUBSIDIES they offer to those with lower income, but you CAN purchase insurance. I am a dentist who, being self-employed, must insure myself. I purchased a policy with BCBS that is also offered on the ACA website. But, of course, I do not qualify for the subsidies and pay the full ACA premium. I feel that there is still a lot of misunderstanding out there about health insurance and the ACA…

    by Bonnie — October 21, 2015

  6. I am going to suggest that folks who want to discuss ACA and other health care issues post their comments on our Blog post of that topic,

    There are a great number of comments there that you will probably find helpful. We will move all of the comments made so far on this Blog over there, so we can concentrate here on other aspects of retirement planning. Thanks

    by Admin — October 21, 2015

  7. Good advice and from the few comments so far, I think more people really need to plan BEFORE retirement not after it happens. A couple we know just retired and went house hunting in their target area. All of a sudden they realized that he wants a cabin on 50 acres in the woods and she wants a condo downtown. A little late for that discussion!

    We have been discussing retirement for the last few years and are just now starting to come to an agreement. We’re just 60 and 59 but husband has now been diagnosed with Parkinsons so the time line has moved up. This still gives us plenty of time to divest of all that extra stuff, sell properties and carefully select the next place. Since we have moved around a lot – we have plans to go back to New England – focused on an area where we have access to as much medical support as we can as well as close proximity to an ultimate full care retirement community. We have discussed out plans with our financial advisors and recently made a week’s trip to check out the area. We were very pleased with what we found. Now we start a 2-year count-down. Networking helps a lot and we’re still doing research.

    by Flatearth6 — October 21, 2015

  8. I have been working on my Retirement Plan for a little over three years, since there have been a number of life-changing events in my life that occurred 36 months ago, 18 months ago, and over the last 14 months. Looking back, I realize that life changes occurring now impact what my retirement will look like in the future. I know it sounds obvious, but death, divorce, and other life events changed my retirement location, finances, activities, spirituality, insights into who are my real friends, and a myriad of other things, both for the better and not.

    I made major revisions on my retirement plan several times; my first plan had me living where I live now, doing many of the activities I do now, and working PT where I work now. The current plan has me living 1200 miles to the east, doing very different activities, studying, and still working, maybe even FT rather than PT for several years. My life’s plan was dumped up-side-down, which impacts retirement. It went from romance to reality, but reality still will be good and an adventure. Better then than in retirement, I say.

    Many of my family members live into their 90s and 100s, so my chances are good I will too. I eat whole foods, exercise, focus on my spirituality, and have a number of hobbies/sports that I will take with me into retirement. Since I am single, it’s important that I don’t allow myself to become a recluse (which I would easily do since I love solitude) because I believe healthy relationships are critical to longevity. So I will have challenges (social life, finances) to keep me striving forward, along with the other things I do now and want to do in the future.

    I’ve talked with retired family members about their experiences, what they would have done differently and when, what they do now to adjust, what went as planned and didn’t, about financial issues, and so on. Everyone has different answers based on their former and current choices and values. What I find, however, is that no one planned out their lifestyle. Those who planned their finances were in better shape than those who did not, but the lifestyle choices came after they stopped working. My current plan covers the next 5 years of lifestyle and money, with financial readjustments at 70.5 when I access my IRA. At this point it is difficult to see how lifestyle changes will occur; most of my elderly relatives in their late 70s to 90s are physically building things, traveling, working for pay, gardening, debating politics, etc., and living independent lives. They do the same things they did 15 years ago, but slower. I hope I get to do that when I’m their ages.

    by Elaine C. — October 21, 2015

  9. The key is start planning well ahead of time and talk to each other about what is important to each person. Finances drive the train on what all of us can do. A budget in Excel started in the early 90s and gets updated as things change. Each yearly spreadsheet is linked to the next years spreadsheet and now goes out to 2034 when we will be 80. One of the keys is to figure out how you spend your discretionary income, we tend to spend a lot eating out, so I make sure that I budget more than enough. Having some extra money left over is better than going, Uh Oh, we need more money. Our youngest graduated college in 2011, and we retired. We had everything paid for – house, cars, sons educations, etc. Every year on vacation, we looked at the area we vacationed at to see if it would work. We don’t like the cold, so we went further south. Our plan was to be near Moody Air Force Base as I am retired military. The wife’s sister moved to Florida, we visited and my wife said that she wanted to live near her sister. As always the only constant is change. We live in a gated community about 15 miles from the sister. The new house is paid for and we save up money to do the extra things and pay cash – extend the lanai and add a screen room (done), put in granite counter tops and sink in the laundry room (done), buy a golf cart to go back and forth to the clubhouse (done), next project is a back splash in the kitchen on two walls 17′ and 15′ (just haven’t decided on the materials). Planning it out is the key!

    In our gated community, we have made lots of new friends, do one or more activities almost every day, I play pickle ball six days a week, hit the pool 3 times a week, and the gym 3 times a week for my exercise. My knees are shot and replacement for both is coming, but I just keep going. My wife goes to exercise classes taught at the club, we attend dinners and shows at the club as well. There are many clubs that we can join and each of us has joined several clubs. We move which is the key to staying healthy and intend to keep moving as long as we live. I call our house the DIP house – die in place because we have no intent on moving out of here because we love it here!

    The weather here is hot in the summer, nice in the fall and early winter, slightly chilly in late winter. My normal attire is shorts and a t-shirt, which I can wear year round except for maybe 4 or 5 days. It went below 32 twice last year. We were fortunate to buy our house when solar panels were included as an incentive. Our electric bill is just under $18 a month which is fees, taxes, special meter cost, and whole house surge protector. That makes a significant savings in our budget. We have one important rule for our budget – live within our means! We pay off credit card bills in full. Our only debt is the wife’s new car, a Prius V, the old car was 14 years old. We keep cars a long long time.

    Our club house has a small restaurant. We eat there several times a week. The grocery store is about 7 miles away. The doctor is about 10 miles away. Nothing is really very far. We don’t want for anything that we truly need. We learned a long time ago to distinguish between a NEED and a WANT.

    We are now in our early 60s. Something that most people will not talk about is what happens when one of the spouses dies. We have done that. In the budget are two unique spreadsheets, one is titled no husband the other no wife. It shows income for each if the other spouse dies and using up the assets at different percentages. Neither of us will run out of money because we have pensions, social security, life insurance, and investments. We are not rich, but we are comfortable which is our goal.

    We both got the main things we wanted, warm winters, nice retirement house, new furniture, friendly place to live, live within our budget, and the situation where we can just enjoy our golden years. Should health seriously deteriorate, we have health insurance. We have a plan, worked the plan, and continue to revisit the plan to update it. We wish that everyone could live the lifestyle that we worked to achieve. Life is good, enjoy it while you have it.

    by Bobby J — October 21, 2015

  10. I’ve played with the numbers so many times that I’m cross-eyed, calculating potential budgets under different scenarios. My target was 66, but I’m going to move it back to 65. I don’t even think it’s likely that I’ll get to 65. For some strange reason few people ever manage to retire from my company. They are typically laid off in their 60s. Most of my family members and friends who are in their early to mid-60s have already been downsized involuntarily. Some of them are doing fine. It seems to depend on how much thought they had put into retirement before being downsized. The people who were doing retirement planning seem to be ok, but the people I know who expected to work til 70 are in shock. They are struggling with on-line applications, the lack of call-backs from their networks, and the fact that they don’t seem readily employable in their 60s.

    Having seen my likely future, I’m diligently working on paying off remaining debt. I am also working to maximize my use of company health insurance to get ready for that inevitable termination (whether voluntary or involuntary.) I spend a few hours a week researching retirement communities and budgeting. If I make it to 65, I’ll purchase my new home while still working and move on a leisurely timetable. If I’m laid off, it will be trickier financially but I think it will be easier to adjust if I have my retirement planning ducks in a row. So yes, I am doing a LOT of planning. It would be fair to say that I spend some time on my retirement planning every day, with potentially another 2 years to go before I hit 65.

    by Kate — October 22, 2015

  11. Sounds like as if you were able to make a plan and execute it well. Good for you! Do you mind sharing where this piece of paradise may be? As I have said in an earlier post, we are not yet actively searching but enjoy reading about others who have settled down and how they got there.

    by Journey15 — October 22, 2015

  12. Several folks have already stated that planning for retirement is the key. The better, longer and the more detailed the plan (within reason), the more likely it will be a successful plan for a longer time.

    I applaud Journey15 for making things work well so far, but note several things. While you may not have planned long and hard, the fact that you know how to deal with a “camping” life gives you a leg up — you adjust. Also, you clearly have the means to pretty much do what you want. But I still suggest going back (and forward) to a good long-range plan. Just looking at what you expect to need, may trigger a major discovery that will make for a better future.

    Bobby J, you seem to have hit it on the nose! But extend that spreadsheet beyond 80! Ours (and we are about 5 years older) goes out 40 years even though we would run out of money before that (around 30 years ahead) — be we have seen what we think may be coming and we THINK we understand how to deal with that future should we live so long. As was said before, no plan is perfect, but no life truly is either. Thinking ahead and being prepared to adjust is the best you can do and a lot better than taking it on the chin.

    My only real addition to this discussion is actually to reinforce the idea of what it means to age. It happens to us all and in different ways. My wife and I both have discovered that the 60s have been a decade of surprise for us. Nothing disastrous, but we hurt much more, we get tired faster, we’ve acquired new, unanticipated problems and recently I’ve discovered that my wanderlust, my need to get on the road and travel by car, has faded. And that is partly because I just don’t have the fine balance, attention and multi-task ability I had even 10 years ago. My car tends to drift off the in direction I’m looking instead of staying in lane. At 67 I’m still in decent health, have reasonable strength, and retain good mental acuity — but I’m just not the person I was (seemingly yesterday). When this begins to happen is not predictable. It has happened to some earlier, to many it may be later. But this “aging” is probably the hardest thing to plan for. You can plan your finances, plan for deteriorating health, plan for less physical ability — but the overall impact is more difficult. Fortunately, I think that doing the planning that we can and staying alert for change and what it means to you, will help us ride through these latter stages. Fail to plan and this can all be really difficult. You CAN start now…

    by Rich — October 22, 2015

  13. All of the posts are providing really good insight on this, but Rich’s last paragraph felt particularly insightful. I remember when my Dad retired and moved to Florida. I was disappointed that he was moving away from family. Our 2 weeks of vacation time was typically eaten up by the kids, such as their sporting events and scholastic conferences. My Dad believed he’d be traveling a lot and that he’d come to see us often. As Rich’s posting suggests, that certainly didn’t happen. It wasn’t long before Dad didn’t feel the urge to spend hours behind the wheel of a car, whether to see the country or to see family. He no longer felt safe driving long distances or driving at night. Long car trips were difficult for him physically, and he wasn’t comfortable with leaving his doctors as medical issues began to surface. Doctors warned that long drives could be dangerous, both due to the potential for blood clots from circulatory impairment and because the drives could impair mobility. Air travel was even more intimidating, when he faced the stresses of today’s flights and having to get through massive airports. Instead of visiting, we ended up using the phone and computers more…but the overall impact was that my Dad didn’t have the mobile and care-free retirement that he expected. By the time he was in his early 70s, there is no way he would have willingly driven long hours anymore. This was a man who used to love long drives and thought nothing of 8 hour+ trips (even with kids in the backseat who were begging for a rest room and a McDonalds). I never would have imagined that he’d ever lose interest in car trips or travel.

    I’m trying to keep this experience in mind with my own retirement planning. I think Rich’s point is very valuable about the overall changes associated with aging, and how the changes might creep up on us and affect our planning. This entire process might be more complicated than just looking for an inexpensive community in a warm climate with lots of activities, a golf course, etc.

    by Sharon — October 22, 2015

  14. If your retirement plan includes buying another home, investigate Home Equity Conversion Mortgage for Purchase Program.

    You can sell your current home and buy another with the equity and still put money in the bank from the sale of your home. It will require a down payment of anywhere of 40-55% of the purchase price but you never have to make payments. This program will also include closing costs in the equity loan. This is still a little known program.

    It has it’s drawbacks like loss of equity in the home if you have heirs but for those who need income it is a good way to generate cash. For those who have no heirs, it’s a win, win! For those who buy and want to sell, it could pose problems as far as losing equity.

    Age plays a factor on down payment amounts. The younger you are the more the down payment, the older you are the lower the down payment.

    I have not done this or know anyone who has but I am going to keep this information at the top of my list of things to remember if we decide to sell our current home for another.

    by Louise — October 23, 2015

  15. Rich, your last paragraph also struck home for me. Planning for the aging process is difficult because that’s one of the great unknowns. We certainly know it will happen, but how quickly is an unknown. My dad says that the difference in physical abilities between 66 and 70 is significant, and I should retire early enough to enjoy good health. I’m not as physically strong as I was 5 years ago, and after years of commuting for work, I want to travel more by foot and bicycle than combustion engine. This means relocation for me, since I live in the toolies now. Beyond physical limitations, my interests are evolving to creative and quiet pursuits with maximum returns that enrich my retirement life. I need to earn money, but part-time doing something fulfilling, working for someone else who is the boss, at least for the next 5 years. I still want to rent a bedroom in my house to a foreign graduate student, for extra money and infusion of a different culture into my life.

    by Elaine C. — October 24, 2015

  16. Bobby J., do you mind mentioning the area in FL where you are happy living? Your comment of a couple of nights of 32 deg was interesting to me as my husband wants FL and I want a little bit of colder weather….just a little bit. Thanks.

    by Carol — October 25, 2015

  17. FL cold weather. I am not Bobby J, but do know that the Jacksonville, Fl area gets some colder day and one of the reasons that I would consider it if I were considering FL. Also remember years ago when driving down from Chicago to visit my folks, I had some snow flurries right after entering while driving on I-75. The only snow that I had on the trip.

    by elaine — October 26, 2015

  18. Our son lives in Panama City Beach FL and I remember seeing snow flurries while walking on the beach a few years ago.

    by Jim C — October 27, 2015

  19. Retirement-Phase 2 and beyond
    I know that some folks with larger families integrate that in their plans for retirement phase 2 or phase 3 and that adds its own complications.

    However, I have never married nor had children. I also have no real home in that as my sole support, i moved for jobs to locations where I knew no one. No problem, you can make friends relatively quickly. The problem is when you move on for the next job, you are busy with the job and making new friends so do not always keep up with old friends. Often my new friends would be from my interests at the time. For example, skiing. loved it then, but not what I want now. There is longevity in my family with relatively good health.

    I want to enjoy my time now, but also consider the future. Will I need to give up driving or maybe just driving at night? (do not like that very much now). I have been independent and hope to stay that way.

    If you are not interested in a CCRC or there are none where you want to live now or there are none you can afford, what do you look for in phase 1, that will help you in phase 2? Or do you just enjoy today and hope for the best? I have seen people that have retired and spend a long time in their ideal place and have many friends…then those friends move near children or die off…it is kind of sad.

    I know I am already rethinking rural places in favor of being closer to conveniences.
    I am rethinking active adult vs mixed communities or just cities or towns.
    Still love some snow, but think that would not be hard to give up. and real easy to give up ice storms.
    Need a dog or dogs…that will not change! but may downsize in that too.


    by elaine — December 12, 2015

  20. After we sell our home I am confused where to place the profits. I will be keeping a nestegg available for emergencies and open some CD’s but can’t decide where to invest my money after that…..don’t really want to take a chance on the stock market or an annuity so would like some input on this…..thanks.

    by mary11 — May 31, 2017

  21. Mary11,

    Please ,please, please; if you are uncomfortable with the characteristics of or don’t fully understand any type of investment product, please do not invest in that product. From what you briefly describe, only ladders of bank CD’s and U.S. Treasury notes and bonds are what you are looking for at this time. These are the only investment alternatives with a guaranteed rate of return if held to maturity and the least risky. By “ladders” I mean your amount of money divided equally over several different maturities. For instance, one-sixth of the amount invested at each maturity time horizon: 6 months; 12 months; 18 months; 24 months; 30 months; and, 36 months. The ladder can be constructed for as long as you want and with as much frequency as you want (for instance – spaced every 3 months versus 6 months). When the investments mature, you roll them into the next ladder period you need to maintain equal spacing between the steps of your ladder.

    Beware of “guaranteed” returns of any other investments types except CD’s and U.S. Treasury Securities. This does not exist. Generally speaking, annuities have very long (7-10 years or longer) early redemption/surrender fees that are very expensive. In my opinion, the only annuity product that is straight forward and easily comparable is an immediate annuity. These will essentially bear rates of return equal to CD’s … so no real advantage to tying your money up with an insurance company potentially subject to early surrender charges.

    The only way to reduce anxiety with regard to stock market investing is education about its long term performance and risk. If you are 80 years old and have never invested in stocks or mutual funds, then stay with what you know and are comfortable. If you want to begin leaning about equity investing (stock market), start at Paul is a retired investment advisor and has established a foundation to teach individuals how to invest in mutual funds. He has books on this site which are free to download. In addition, he has a wealth of detailed information on structuring retirement portfolios and withdrawing from retirement portfolios. Podcasts provide additional insight into information contained in his articles. This site is well worth your time if you are interested in the subject.

    by Doug — June 1, 2017

  22. Sorry, I forgot to add:

    The reason for establishing a ladder of maturities is so one is not locked into a specific interest rate on all your money. This is interest rate diversification. It may not mean much in our somewhat flat interest rate environment at present, however, if rates increase, it would be nice to gain some benefit of that environment.

    by Doug — June 1, 2017

  23. Doug, I know you explained this very well but I guess I am a little confused. So let’s say you have $60,000 to invest. You would take the $60,000 split it into six and invest $10,000 into 6 time frames of 6 mo, 12 mo, 18 mo, 24 mo, 30 mo and 36 mo. You also mention you can space the time frame 3 months vs. the 6 months. Can you tell me what the difference would be if you just put the whole $60,000 into one investment that matured every 3 months vs. breaking it up into six investments?

    We have our money invested with a financial advisor who knows our tolerance level and the money is divided up in low risk and some in higher risk. Most in moderate risk.

    by Louise — June 1, 2017

  24. Louise. Regarding distributing the principal amount, you correctly state that the money is equally split for each maturity date/period. My 3 months vs. 6 months example was just to illustrate that you can increase the frequency of the maturity dates or smaller , if you will. In each case you would keep the same three year period so the ladder of maturities with 3 month intervals would result in 12 different maturity dates (vs. 6 maturity dates in the example previously given). The principal amount would then need to be divided equally by 12 for the 12 different maturity dates.

    A 3 year ladder is considered a short to intermediate CD/bond ladder of maturities. Your ladder can be based upon 2, 3, 5, 7, or whatever duration you feel comfortable with. Right now I feel comfortable with a shorter to intermediate ladder because I think interest rates cannot get much lower and I want my investments to reprice more frequently in a rising interest rate environment thus earning increasing rates of interest with each renewal at each maturity date.

    The benefit of splitting the principal into equal investments is to hopefully earn higher interest rates for the longer maturity investments (the 30 and 36 month maturities should bear higher interest rates than the 6 and 12 month investments) thus getting initial interest rate diversification. Also, over time, each matured investment piece will be reinvested for 36 months at the market rate available at that time. We’re just moving the rung of the ladder at each renewal/maturity date. Again, usually 36 month investments bear higher interest rates than 6 month (or in your case 3 month) investments. In a rising interest rate environment, this repricing of your investments will yield more income in future years because the 36 months market interest rate will be rising.

    But the overarching reason to ladder CD or bond maturities is to not “bet” on interest rates. You simply accept the market rate of interest (the 36 months rate of interest in my example) at each maturity date of the ladder or every 6 months (again from my example). Because the rates of interest are generally fixed rates of interest for these types of investments, constructing a ladder gives you interest rate diversification, does not lock you into a 6 months rate of return on your entire balance of money, and should provide increased overall portfolio income because the portfolio contains longer maturity investments. I hope this helps explain the ladder concept better. It is how banks structure their bond investment portfolios.

    The idea of having more than one risk “bucket” is a good way to view investing. Safe money (money I need within 3-5 years of today is in the safe bucket of CD’s or US Treasury Bonds and longer term money can be diversified into other investments that are not need for over 5 years.

    by Doug — June 2, 2017

  25. In my pervious post the second sentence should read as follows:

    “My 3 months vs. 6 months example was just to illustrate that you can increase the frequency of the maturity dates to make the portfolio reprice more frequently, or make the ladder rungs smaller, if you will.”

    by Doug — June 2, 2017

  26. Thanks Doug, you have really done your homework!

    by Louise — June 2, 2017

  27. Thanks Doug. You seem very knowledgeable in these areas and it makes sense to distribute your investment in this manner.

    by mary11 — June 2, 2017

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