By Harry C. Alford
Planning for retirement requires strong discipline, flexibility and constant awareness. Most African Americans do little thinking about it. Those who do have retirement accounts get it through their employers. As Malcolm X once said, “The eagle flies on Friday and by Saturday noon it is one dead bird.” We are mass consumers with our money. We spend what we have as soon as we get it. Not all of us, but the vast majority appears to live like that. For those of you who do plan for the future and value retiring, let me share a few thoughts.
Arrive at a total dollar figure needed to retire. This should be reviewed occasionally as the economic environment tends to go up and down. As an example, my wife and I had a portfolio of approximately $450,000 in 1982. The economy was in a terrible state of inflation that the buying power was reduced to $280,000 without our spending a cent. The inflation rate ate much of it up while it just sat in the bank. Things like that are bound to happen from time to time. Stay alert and make changes.
If we had converted it to gold, we would have been protected or even improved our portfolio. When you set that total dollar figure divide it by the number of years left before your planned retirement. Let’s say that figure is $1 million and you have 20 years before retirement. You would need to save $50,000 per year. If you have 40 years before retirement that would be $25,000 per year. Any interest you make may be offset by occasional inflation. The later you start saving the more you will have to save each year to hit your mark.
Smart people diversify their savings. As in the above, keeping it in cash can be dangerous. Mix up your portfolio with metals, certificates of deposit, blue chip stock, land that can be quickly sold when the time for retirement comes. Some of these items may drop in value and some will increase. Hopefully, the increased part will exceed the decreased part. Stay on top of this at least weekly. The richest person in the world, Carlos Slim of Mexico, counts his value on a daily basis. Every morning he gets on his computer and sees what is happening. He will make quick changes if necessary but will hold if it appears to be a temporary dip.
Many rely on a brokerage firm or a financial planner to invest their money. You should be very careful about this. No broker or planner is perfect. Also, the market can be volatile and do things the broker or planner is not expecting. Remember the recession of 2008. Many people lost most of their savings. There was an over dependence on home values. Home values that were propped up by shaky mortgage companies, bank and malfeasance of federal offices designed to protect the public from such a thing. I am talking about Freddie Mac and Fannie Mae. Many people were destroyed or seriously damaged because of that. They had mortgages that remained while home values fell below the mortgage amount. Thus, if they sold the home, they would cash out at a negative rate. Many home owners are still “under water” and their retirement plans will have to change. Meanwhile, metals are sky rocketing in value. The stock market continues to be iffy.
Watch out for Ponzi schemes or pyramids. Some of the wealthiest people in the world were damaged by Bernie Madoff, who bilked them of millions of dollars. Recently, a person I know has been indicted for taking $2.5 million dollars from senior citizens and spending all on himself via a Ponzi scheme. Twenty-three families showed up at his indictment hearing – they had been ruined.
Many of you depend on the company you work for to manage and help invest in your corporate retirement plan. I know too many families who relied on their General Motors plan, Delco plan, etc. The executives of General Motors lost their plans when the company went under and had to be bailed out by the federal government. A close friend of my wife lost her plan when Delco went under. Sadly, her father had the same thing happen to him when the company he worked for all his life went out of business and the owners fled to Brazil.
The key is to be wise and attentive to your wealth. Do not totally rely on anyone or any firm to do the wise and right thing. It is a volatile world out here so be on the offensive at all times. Stay disciplined with your savings and recognize the difference between an appreciating asset and a depreciating asset.