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11/29/16 at 11:57 AM 0 Comments

7 Ways to Optimize Your Savings to Outlive You

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For some people, retirement is a personal reward, and they owe it to themselves to spend every last penny they’ve earned. For others, it’s important to pass their nest egg onto future generations—through one of several different applications. You could pass along your savings to a relative or a descendent, and help future generations of your family live comfortably. You could leave your money to a charitable organization. You could even intend the money for a specific purpose, such as starting a business or serving as a child’s college fund.

In any case, there are ample motivations to have your savings outlive you. But motivation isn’t enough to make it happen, so what are the best ways to optimize your savings?

Strategies to Optimize Your Savings

These are some of the best strategies to use to optimize your savings to outlive you:

  1. Diversify your portfolio. The first step is one you should have been following throughout your entire strategy; you need to diversify your portfolio. Putting too much of your assets in one area, such as stocks or real estate, could leave it vulnerable to massive fluctuations. Instead, hedge your bets by investing in more diverse areas, such as foreign stocks, mutual funds, bonds, real estate, or even annuities. You may also want to lean toward financial assets that generate reliable income, such as rental properties or dividend-paying stocks, so you can reliably count on a certain amount of recurring income.
  2. Arrange as much as possible in advance. There are bound to be some expenses to cover when you pass, so the more arrangements you can make in advance, the better. Making decisions early, such as how you want your funeral to be arranged, if you want to be cremated, and how it’s going to be paid for, can also alleviate a burden for your surviving family members. You’ll also want to consider any outstanding debts or other financial obligations that will need to be covered when you pass—again, the further you plan ahead the better.
  3. Never withdraw more than 3 percent of your savings. The general rule for savings withdrawal is to never withdraw more than 4 percent of your total savings. For most people in most circumstances, a 4 percent rate of withdrawal will protect you against market fluctuations over the long term, and ensure you never tap into your principal. If you want an extra layer of security to ensure your investments outlive you, consider withdrawing even less, such as 3 percent.
  4.    Explicitly plan how to bequeath your assets. If you don’t leave specific instructions on how to divvy up your assets, your next of kin will be entrusted with all of it. If you want your savings to outlive you, you probably have a loose plan for how you’d like to see it be used. Instead of leaving everything to chance, write up a plan for how you want your assets divided, and formalize it by drafting a will.
  5. Gradually shift to more stable, long-term investments. When you’re young and you have more time to tolerate massive market shifts, it’s advantageous to choose riskier investments, with higher volatility but a potentially higher payoff. But when you want something more stable to pass on, you need to shift your assets to more stable vehicles. Don’t do this all at once, or you’ll lose the diversity of your portfolio, but gradually move toward bonds and other low-risk investments as the years progress.
  6. Choose a good life insurance policy. Early on, it’s a good idea to find a solid life insurance policy. If your investment assets are strong enough, you should be able to take care of all your own expenses without much additional effort, but life insurance will make sure it happens.
  7.    Educate your successors. Before you pass, let your successors know what your plans are. This will help ensure that your plans are carried out according to your wishes, and may help ensure that your assets carry on further than just one generation.

Avoiding Obsession

No matter how much you plan, how well you choose your investments, or how far you look into the future, there’s always some degree of uncertainty with financial planning. Your investments will rise and fall in value, your plans may or may not hold stable, and of course, you don’t know how long you’re going to live. All you can do is plan the best you can and enjoy your assets and investments while you have them.

CP Blogs do not necessarily reflect the views of The Christian Post. Opinions expressed are solely those of the author(s).