Retirement Serenity Prayer

“Please give me the peace to accept the things I can not change; the courage to change the things I can; and the wisdom to recognize the changeReinhold Niebuhr

Reduce your pain and confusion

When you think about all the moving parts involved in planning your retirement income, it is easy to get overwhelmed by the complexity of everything. Complexity and confusion cause emotional pain, and we are pain avoidance creatures. It is therefore tempting to just mentally keep the whole question of “how much should I retire?” and turning to those activities that bring pleasure. Unfortunately, like it or not, retirement income planning is a “must do” task. Securing a few decades of retirement income is not something that “just happens”. You either have to do it yourself or hire a financial trainer to help you.

Calmness to accept things you can not change

A good place to start planning your retirement income is to know those things over which you have some control and can change, and knowing those things that you can neither control nor change. You cannot control or change the global stock market, inflation, bank interest rates, rising health care costs, or the cost of gasoline. So accept their existence and how they affect your plans, overcome it and tackle the ones you can control.

The courage to change the things you can

Two very significant things you can check are the tax efficiency of your investment holdings and your investment costs.

You Can Check Tax Efficiency

Bonds, bond funds, Real Estate Investment Trusts (REITS), high dividend stocks, and mutual fund dividend stocks all generate ordinary taxable income. If you do not need income, it makes no sense to pay income taxes on income you do not need. Wherever possible, place your regular investments that generate income without tax or tax arrears such as Roth IRA tax-free or annual deferred tax, 401k’s, 403b or fixed or variable pensions. That way, you do not have to pay taxes on ordinary income that you do not need. Not only will this reduce your current tax burden, but you will also save money on the money you are now sending to federal and state tax authorities. Tax deferral is a very powerful incentive for long-term savings and also removes tax pressure from your Social Security income.

You can control your investment costs

Mutually administered equity funds charge you fees that can consume up to 6% or more of your total fund balance each year! Not so, you say, the annual expense payment is much less than that. Well, all the purchases and sales made from these funds (turnover) bring trading costs which are deducted from your account. There are clear and implicit trade costs. Clear trading costs are simply what you pay people who do the trade (spread), implicit costs are what trades do to the stock price of what is bought and sold in large blocks (supply and demand). These trading costs can double or even triple your annual expense report, especially in small cap and international funds, and the amount of money you are charged is not given anywhere in your monthly or annual statements!

Investigate how much you are actually paying for your mutual stock funds. Either do the research yourself or ask your broker for a complete check of all the investment costs you are paying. Saving 4% or more of your total mutual fund account expenses is a big boost to your retirement income plans … and something you can control.