The Ten Things You Should Consider When Planning Your Retirement

1. Keeping Some of Your Retirement Funds Safe

It is essential that some of your retirement funds are protected. We all realize that putting those funds under your mattress or burying them in your backyard isn't practical. We believe that the "rule of 100" is a helpful benchmark to determine how much risk you should be taking with your money. For example, let's say you are 70. Begin with 100, subtract your age (or the average age in the case of a couple), and that gives you the percentage of your money that should be invested in the market. So in your case this means 30% of your money should be in the market and 70% should not. The "rule of 100" is only a starting point as there are many other factors which may affect how your money is invested such as:

• Large pensions
• Significant real estate holdings
• Considerable difference in the ages between spouses
• Expected inheritances
• Pending home sales
• Rental income

Each individual situation will determine the appropriate mix of investment and retirement savings vehicles for the portion of money which should be kept safe.

2. Scrutinize Poor Performing Funds

As the market rises and falls you may think, "aren't all funds poor performing at one time or another?" This can be true but what you want to identify are those funds or investments which have done worse than their peers, and that may not do well moving forward in the event of a market recovery. With the right tools and familiarity with financial language it is not difficult to find the ratings for individual stocks or mutual funds. Morningstar is an independent research company that ranks stocks and mutual funds on a one to five basis, with five being the best and one being the worst. Although anyone can find these ratings it is beneficial to have a financial analysis performed. Just like the "rule of 100" the Morningstar ratings are a good starting point for determining if a fund is poor performing. When planning your retirement it is important to consider all aspects of your financial situation.

3. Eliminate Investments with Bloated Fees

Many investors are unaware of the impact excessive fees can have on their portfolio over time. On each individual account the percentage of fees you pay may seem reasonable, but when added up across accounts over time, you quickly see how this could take a considerable amount away from your savings. For example, if your portfolio is valued at $200,000 and you are paying just 1% extra in fees, over a 10-year period you would end up paying $20,000 in unnecessary expense. Think of what you could do with an extra $20,000!

4. Diversifying Among Economic Sectors

A good retirement plan is one that is well-rounded. Often we tend to invest in those sectors which we feel comfortable with or believe are stable industries. Although an individual sector may perform favorably, it is still better to be diversified in the event of a loss. When a portfolio is more balanced among many sectors, only a small portion will be effected rather than the entire amount. This protects against large losses that can greatly impact your retirement savings.

5. Limiting Exposure to Individual Stocks

Putting all your eggs into one basket, especially your nest egg, can be too concentrated an approach to investing. We believe it is best to keep your individual stock exposure to less than 1% to offset for unforeseen events a company may experience.

6. Investing in the Right Type of Bonds

Inflation can be one of the biggest challenges we face and can dramatically impact our desired retirement lifestyle.  A general area of concern for a retired individual heavily invested in bonds is the effect inflation may have on the principal value of the securities. Typically, the value of a bond will go down if the overall level of interest rates increases. However, if you purchase and hold an individual bond to its maturity date (the date you receive your principal back from the debtor), then you will not experience a real loss due to interest rate increases.  Conversely, if you sell your bonds during a time when interest rates are increasing (as the principal value of the bond is decreasing), then you may experience a loss.

7. Protecting Yourself Against Higher Taxes

There are two things in life you can be certain of death and taxes. We can also be certain that at some point we may experience a tax increase. You can protect your finances and financial well being by taking these safe guards:

• Recognize capital gains taxes and reinvest
• Municipal bonds
• Special trusts (for larger estates)
• Immediate annuity (exclusion ratio)
• Shield taxable income with deferred annuities (deferred variable annuity, deferred fixed interest rate annuity, and deferred index annuity)

Again you must consider your own situation, goals, and needs before deciding which strategy may work best for you.

8. Including Small Caps as Part of Your Portfolio

Too much of anything in your portfolio can influence the overall performance. Historically, after the 2000 to 2002 stock market downturn, small cap stocks substantially out-performed large cap stocks in the following year.* Prior performance is not necessarily indicative of future results, but the message remains the same, diversification is fundamental to investing.

      *As measured by the Russell 2000^® Index as a proxy for small cap stocks and by the Russell 1000^® Index as a proxy for large cap stocks.

9. Allocating a Portion of Your Portfolio Overseas

As you may have noticed the running theme of a sound retirement plan is keeping it diversified. The first step to understanding if you are diversified enough is to evaluate your current situation. You have to know where you are before you can know where you need to go. Another way of balancing a portfolio is by having a portion of your assets invested overseas. Some of the overseas markets fell more than our stock market in 2008 and yet in the following year, 2009, some recovered much quicker than our own.*

      *The S&P 500 Index was used as a proxy for US large-cap stocks, and the MSCI World Index (Ex-US) was used as a proxy for overseas markets.

10. Securing a Portion of Your Retirement Income

The stock market can be a great source for growth and hedge against inflation, but it is also important to realize it can cause stress and risk to your savings. In a down market, when the prices are lower, you have to sell more shares to take the same amount of money out. This decrease in shares may drive your balance too low for you to recover. There are better ways to obtain income during your retirement years. A few ideas include:

• Certificates of Deposit
• Immediate Annuity (creating your own pension)
• Bonds
• Fixed Interest Rate Annuities
• Lifetime Income Riders on Fixed Index Annuities

By carving out and dedicating a part of your retirement assets to a fixed income stream, you will also "free up" some of your assets to be invested for growth. When a portion of your income is secured, you can afford to have the rest invested in the stock market with hopes of investment gains. It is a lot easier to deal with the market's volatility when you have a steady income stream firmly in place.

Retirement Planning doesn't have to be complicated, hard to understand, or stressful. Whether you are currently retired or on retirement's horizon, these years are meant to be enjoyed. Planning is the best way to get you to where you want to be.

The information contained in this article is an excerpt from David Holland's "Top Ten Turn Around Retirement Strategies" seminar. Founded in 1997 by David Holland, Holland Financial is a financial services firm providing Retirement Planning, Investment Management, and Wealth Management services to retirees and pre-retirees in Central and North Florida through its subsidiaries Holland Insurance Services, Inc. and Holland Advisory Services, Inc.