On Sept. 8, we observe National Grandparents Day. If you have grandchildren, they will hopefully mark this occasion by sending a card, making a call or, best of all, paying a visit. But however your grandchildren express their feelings for you, you undoubtedly have a very big place in your heart for them. In fact, you may well be planning on including your grandchildren in your estate plan. If that’s the case, you’ll want to do the best you can to preserve the size of your estate — without sacrificing the ability to enjoy life during your retirement years.
Here are a few suggestions to help you achieve this “balancing act:”
• Expect market volatility — and don’t overreact. If you’ve been investing for a while, you know that volatility in the financial markets is normal. In fact, it’s not unusual for the market to drop 10 percent, or even more, in a year. Try not to overreact to this type of volatility. For example, don’t immediately sell investments just because they’ve had a down year — they may well bounce back the next year, especially if their fundamentals are still strong.
• Diversify. It’s always a good idea to diversify across a range of investment vehicles — stocks, bonds, government securities, certificates of deposit (CDs) and so on. While diversification can’t guarantee a profit or protect against loss, it can help reduce the effects of volatility on your portfolio.
• Maintain a cash cushion. During your retirement years, you may face unexpected expenses, just as you did when you were working. To help pay for these expenses without being forced to dip into your long-term investments, try to maintain a “cash cushion” that’s sufficient to cover six to 12 months’ worth of living expenses.
• Limit withdrawals from your investments. To keep your investment portfolio intact for as long as possible, set limits on your annual withdrawals. Your withdrawal rate should be based on a variety of factors — age at retirement, other sources of income, lifestyle choices, etc. A financial advisor can help you calculate a withdrawal rate that makes sense for your situation.
• Delay your generosity. It can be tempting to provide for your grandchildren — and perhaps even your grown children — as soon as you can. But you need to balance this impulse with the financial challenges that two or three decades of retirement can bring. It’s not being “selfish” to take care of yourself first — in fact, by doing everything possible to remain financially independent, you will be helping your family in the long run.
• Don’t delay creating your estate plan. If you are committed to leaving a generous legacy for your grandchildren, you need a comprehensive estate plan. And it’s best to create this plan as soon as possible, while you are mentally and physically healthy. You may never become incapacitated, of course, but the future is not ours to see. In addition to starting early with your estate plan, you’ll need to assemble the right team, including your financial advisor, legal professional and tax expert.
You might enjoy receiving attention on National Grandparents Day. But you’ll get even greater pleasure out of knowing that you’re maximizing your efforts to leave the type of legacy you want for your grandchildren — while still enjoying the retirement lifestyle you desire.
• This article was written by Edward Jones for use by Ahwatukee Foothills Edward Jones Financial Advisor Joseph B. Ortiz, AAMS, CRPS. Reach him at (480) 753-7664 or firstname.lastname@example.org. Accredited Asset Management Specialist and AAMS, Chartered Retirement Plans Specialist and CRPS are registered service marks of the College for Financial Planning.