Have you thought to yourself that you may have all of your eggs in one basket?  When it comes to retirement account assets, you may be right.

If you have all of your accounts in the stock market and it goes down, you may lose your ability to retire the way you had planned, says Arif M. Halaby, CEP, CEO and President of Total Financial Solutions, Inc.  For many Santa Clarita residents and a growing number of people abroad, the loss of peace of mind is cause enough to reexamine where your nest egg is currently held.

Diversification is not sitting in a different seat on the same bus, Halaby says. Instead, it is having some of your money in an entirely different financial vehicle that fits your needs.

Everyone is happy and believes they are a ‘winner’ when they take a gamble and win. Few people admit when they have lost during their time in Las Vegas. But you know that those big hotels and casinos were not built because people are winning more than they are losing.

Who do you think pays all those bonuses to the workers on Wall Street?

Early Years of Retirement

If the market is on a high and you are ready to retire, it can instill a false sense of confidence to you.  Especially in relation to how much money you can spend each month.  But it can be much worse than you even imagine.

If during the early years of retirement, Halaby says, you believe the market will achieve a particular rate of return – perhaps even one that is unrealistic – then you may be inclined to spend more that month or year; you might even ‘splurge’ on a certain item, expecting to recoup that expense in short order.

So let’s say you spend $50,000 on a home remodel or buy an RV – that money you spend is money you will never get back.  In fact, over the course of one’s normal retirement life, that $70,000 expense could have been as much as $250,000 in lost potential savings when you add in growth opportunity over the subsequent twenty five or thirty years.

This illustrates the power of compound interest if it works in your favor!

Something to Consider with retirement

Another important consideration is making sure the percentage you withdraw each year is a sustainable figure.  Halaby says, “In the last 19 years of my financial practice, experts have used numbers like 6%, 5% and 4%.

They say that if you withdraw that amount of retirement savings account each year, you SHOULD have enough to live on for the rest of your life and the surviving spouse’s life.  Can you see the problem here?”  The number has changed, seemingly out of our favor.

According to Halaby, if a retiree played under the “old” set of rules that said it was ‘okay’ to withdraw 6% per year (which is $6,000 withdrawn for every $100,000 you have saved), then you may have reduced your savings significantly when the market lost more than 50% of its value (not once, but twice, since the year 2000).

If you had all of your savings in the market, there is a great likelihood that you would run out of money years sooner than you had planned.  And really, who wants to go back to work at age 80?

For some, the old way of diversification meant losing money in more than one place. True diversification should include safety. For some, that means not having all your eggs in one place.

Total Financial Solutions, Inc., is a Santa Clarita based financial and insurance services company that has been helping families with their finances since 1996.  They can be reached by phone at 800-990-7344 or at www.tfswealth.com