Plan Early and Properly: Outliving Your Funds
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities.)
As a married couple, you can get two checks-either two retirement benefits, or a retirement benefit and a spousal benefit that can equal up to half the primary retirement benefit. When one of you dies, the survivor will receive only one benefit, which will be the larger of the two checks you received as a couple.
It makes sense to maximize that benefit by waiting as long as possible to claim so that it can grow. After your full retirement age, which is currently 66, un-claimed retirement benefits grow 8% each year you wait, until maxing out at age 70.
If you have substantial investments that should sustain a comfortable retirement, but plenty of wrong things could go wrong.
That fact you’re spending all your current income is worrisome. If you don’t ratchet back your consumption a bit at retirement, you may draw down your investments at an unstainable rate. (Depending on your investment mix, an initial withdrawal rate of 3% or 4% usually is considered “safe,” or the most you should take running out of money.)
Even if you do rein in your regular spending, bad markets or unexpected expenses could cause you to exhaust your savings faster than you expect. The longer you live, the greater the odds you’ll run short of money. Maximizing one of your social security benefits can be a smart way to ensure you or your survivor, have more income when you may need it most.
Before you retire, you should consult a fee-only financial planner about the best ways to tap your retirement accounts and claim Social Security.
The secret to success is start early in your life and diversify. Do not put all your eggs in one basket. For example if you want to invest in the stock market, buy some blue chip stocks, a portion of your money should be in the highest paid dividend stocks with companies that have consistently paid dividends over the last decade or so. this way you’re sure that they will continue to pay similar dividends unless some unforeseeable situation comes up. I have personally followed these companies over the years some of them I have followed over decades and their dividend track record is fantastic and consistent. Don’t run after a company that has only declared only one or two years of big dividends. They may fall on their face because that one or two-year track record is a really small record to go by. Therefore, invest in the companies with the long-term track record. Take small portion of the money and invest in growth stocks. Once again look for the established companies that have had a track record growing year after year and getting better each year. This will also be your long-term investment that inshAllah will pay off handsomely. Then, you can take a very small portion of your portfolio and invest in aggressive stocks, but you must watch them closely. Last and final, find some young merging companies and invest a very small portion of your assets in this group of companies. This should be the money that you could afford to lose. For example, if you have lost all this money it should not make a difference in your lifestyle. On the other hand, these are the companies that may pay you handsomely. As a matter of fact, your investment may grow multiple folds within only a year. On one side you may end up losing all your money but on the other hand you will reap a great profit. Let me repeat that this should be a small portion of your investment. Maybe even 1% as always it doesn’t matter which sector you invest in. You should always take your time, do your homework and do good research before investing in any of the above companies.
You can also take some portion of your money and invest in real estate. There are many ways you can invest in real estate and I will write in a different article sometime real estate investing.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and no advice is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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