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Retirement
is never urgent until … by: Rick Hoogendoorn
& Cheri Crause If you’re like many people, your
retirement savings have not been growing consistently over the years. We’re
not referring to the wild fluctuations in the stock market, but rather the
fluctuations in our short-term needs. Every once in a while, it just seems
like a good idea to yank ALL those retirement savings out and pay for
something. You might need to pay for a down payment.
You might need to pay off some credit card debt that’s nagging at you. You
might want to ‘bugger off to As financial advisors, we have our
ideals. Ideally, you should put retirement funds away and ‘leave it there’.
Ideally you should never touch it at all, even when you retire! Why? Because
it is the ‘earnings’ from the nest egg that you should be using, never the
principal. As we heard one person suggest recently, your principal is like
your ‘goose’, and you never kill the goose, because then you’re eliminating
all those future ‘golden eggs’ (interest/earnings) it will lay. As financial advisors, one way we try to
prevent people from yanking out their retirement savings is by ensuring there
are other ‘short-term’ funds available for emergencies. These are meant to act
as a buffer zone against the yankers. It helps, but
it doesn’t always work.
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One problem is that a distant retirement will
never be more urgent than the current cash demands you have. It’s impossible.
How can long-term demands be more urgent than a current crisis? So what stops
you from yanking out those retirement funds? Their convictions? Simple
arithmetic? A more viable alternative? When a client is bent on yanking out
their retirement savings to pay off, for example, some credit card debt,
telling them how much they’re going to lose in retirement income in 25 years
time doesn’t seem to work. Even telling them how much the tax bill is going to
be next year can pale in comparison to the relief the person is seeking from
the anxiety over their current debt crisis.
So, the question is how can we provide
‘relief’ and still keep the retirement funds intact? Look at a debt
consolidation loan? Review the person’s cash flow and create a debt repayment
program? Maybe this will work for a minority of people. In the real world,
when people are looking for relief, however, they are looking for relief
NOW!!! The easiest way is to yank to retirement funds and be done with it.
So, in the moment, when you are in a cash
crunch and seemingly have no other place to go, you will yank your retirement
savings. Unless you have anticipated the problem and ‘pre-decided’ that under
no circumstances will you access your retirement savings. In this way, you
will do a pre-emptive strike on bad financial moves. Further, you will be
cognizant of putting yourself into situations where you might risk those long
term savings.
The alternative is to invest long-term,
make progress, encounter a short-term cash crunch, yank out your retirement
funds, survive the problem, invest long-term again, make progress, encounter
yet another short-term cash crunch, yank out your
retirement funds to get relief…
If you’re locked into an investment cycle
like this, your retirement savings have not been growing consistently
About The Author
Rick Hoogendoorn
has been in the financial services business since 1991. Cheri Crause is a certified financial planner in
www.chericrause.com
rick.hoogendoorn@shaw.ca