Last week the first question asked at the "town hall" presidential debate was about individual retirement accounts. Neither candidate came close to answering the question. If I was a candidate here is how I would have replied.
Individuals are responsible for their own retirement. Government helps by providing tax incentives to encourage investing. The financial industry has provided a variety of ways to accumulate funds for retirement during your working years. However, the potential dangers and pitfalls have not been communicated very well as witnessed by the reaction to the current stock market decline. There are three major risks that could cause havoc with your retirement account.
1) Sharp decline in the stock market for those near retirement or retired.
2) Expanded life spans. If you live longer, your money needs to last longer, too.
3) Steep inflation.
With these three risks in mind, it's important to carefully and thoroughly review your approach to retirement. One simple method suggested is called the 3b or 3Bucket Approach. The goal is fill each of the three buckets:
1) Build Your Home Equity Bucket by paying off your mortgage a quickly as possible. This can be accomplished by using the Money Merge Account program which allows people to pay off their mortgages in a shorter period of time without any increase in payments of change of lifestyle. Once paid off this money can be used to further build your nest egg and guaranteed income buckets. Owning your home free and clear during retirement provides great protection against inflation and unexpected financial emergencies.
2) Build Your Guaranteed Income. Social Security provides a base for guarantee income. Is it enough for you? Or do you need to build this bucket? This bucket will provide income for life for you and spouse and lessen the dependence on the nest egg bucket.
3) Build Your Nest Egg Bucket. The financial experts suggest that you continue to contribute to your 401(k) and IRA as the law allows. The theory being that your monthly contributions will buy much more now with the market depressed and when market rises again it will carry many more stocks or units with higher value so that over time you will recover your losses.
The market drop devastated millions of Americans because they counted too heavily on their 401(k)s. Build your home equity and guarantee income buckets then in future market drops your retirement will be hurt but will not be devastated.
Homer Sweeney
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