Twelve Principles of 21st-Century Retirement Investing

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(ARA) - In his new book, The Grangaard Strategy — Invest Right During Retirement, author and teacher Paul Grangaard uses the Twelve Principles of 21st-Century Retirement Investing to offer readers an important new way to look at their financial affairs after they stop working.

The first three principles address some of the new realities faced by todays retirees. Principle 1 is Expect to Outlive the Averages. Since almost half of the people reaching age 65 today will live beyond an average life expectancy, its very dangerous to use averages in your own individual planning. Principle 2 is Adjust for Changing Income Needs. Because people are living longer today, its more important than ever to account for inflation and the possibility of fluctuating lifestyle expenses. Its simply not good enough any more to plan for a fixed amount of income throughout retirement. Principle 3 is Create Dependable Income for the Rest of Your Life, and its one of the most important concepts in the book. As Grangaard says early on, When you get to retirement, you have to be prepared to replace your paycheck as soon as you stop working.

The next four principles address some of the most important overall financial concepts. Principle 4 is Count on Compounding During Retirement. Of course, compounding is key to accumulating assets for retirement, too — but when youre living longer during retirement, its just as important over the last 20 or 30 years of your life. Principle 5 is Invest in the Right Stuff. You need to have the right amount of money set aside in lower-risk assets to replace your paycheck, but you also need to have enough invested in growth-oriented investments to take care of your income later on. As Grangaard puts it, you have to know how to thread the financial needle. Principle 6 is Be a Long-Term Investor During Retirement. If you decide to invest some of your assets to go after higher rates of return, youll need to be able to manage the risk of taking a more aggressive investment posture — and having a long-term planning horizon can really help. Principle 7 is Know When to Sell. During retirement, most people will be overall sellers of stock market investments, since theyll have to use the proceeds to generate the income they need to live on. In fact, the real value of being a long-term investor in retirement is that youll have more time to figure out when its a good time to sell.

Principles 8, 9 and 10 address some of the other key issues important to all retirement investors. Principle 8 is Dont Let Dollar-Price-Erosion Catch You Off-Guard. Dollar cost averaging into the stock market is great advice for younger investors, but dollar cost averaging out of the stock market can get you into a lot of trouble in retirement. Principle 9 is Diversify. Diversification is important at every stage of life, and even more so in retirement. Since you will be selling stocks periodically to get more income to live on, having a well-diversified portfolio will make it more likely that you will always have something in a good position to sell whenever you need to. Principle 10 is Keep It Tax-Deferred. Reducing income taxes is an important part of any investment strategy, and its particularly important during retirement. You cant afford to pay taxes too soon, because youll be giving up too much future growth — and therefore, too much future income as well.

The last two principles focus primarily on taking action. Principle 11 is Have a Plan. In fact, the goal of effective retirement planning, says Grangaard, is to live better during the day while sleeping better at night. Having a plan, he says, is the key to being able to do that. And finally, Principle 12 is Take Action Now. While Grangaard offers a lot of information, theories and strategies, there is also a practical sense of urgency and a plea for action throughout the book. Its never too early and its never too late to do your retirement planning, he says, and then wraps it all up by suggesting that most people dont plan to fail, they simply fail to plan.

The Grangaard Strategy (Penguin Putnam/Perigee, $15.95) is available online and in bookstores everywhere. Readers can find a list of advisors trained by Grangaard on his Web site at www.thegrangaardstrategy.com.