In our house, we have a 17-year-old daughter, Meghan, who we hope will soon make a decision about which college she will attend, a 4-year-old dog, a cavechon named Eleanor Rigby (after the Beatles’ song, of course), my wife, and myself. So, we are getting ready to begin paying for Meghan’s college education next fall.

Now, we’ve been saving for this event for several years. The asset performance has gone relatively well, with the exception of a flyer I took on a technology stock. I took this flyer on the advice of a friend; that stock is now worth $0. Note to self: don’t take any flyers from friends!

I am trying to change my mindset from: spending money on tuition to: being grateful for the opportunity to pay for college. Because isn’t our mindset what determines how we feel? Shouldn’t we be the masters of our own mind?

So, thinking about this money, with our daughter starting her college education in less than a year, I need to move some of it to a safe investment, as, we will need some of these funds for tuition next year.

But I don’t really want to take any of this money out of the account; I would love to leave it for Meghan to spend for some other purpose, like a wedding, or a home purchase. So, I have been thinking of ways to avoid taking this money out to pay for college. After all, it took me a while to save it, and I would like to be able to give it to her intact.

The way I look at it, we’ve been paying private school tuition for 15+ years, so I guess part of that long-standing expenditure can now go towards Meghan’s college education.

Now, compare and contrast this with your retirement account(s). First, you have to decide how much money you will put away every year. Next, you want to automate this process, so that the money is systematically withdrawn from your paycheck or your checking account. Then you have to determine the best vehicle to save for retirement – do you want your assets in an IRA, a 401(k), a SEP, etc. – and then, you need to properly allocate your money into appropriate investments, according to your goals.

I think the first question you should ask yourself is: “Why is money important to me?” Is it freedom? Security? Flexibility? What is the real driver of WHY money is important to you?

Once you are clear on the fundamental “why,” then you can move to: “What are my goals?”

What are your goals for your retirement money, and when do you anticipate using it? Should you adjust your portfolio’s allocation as you get closer to retirement? How much money do you estimate your retirement account(s) will hold by the time you want to start using it? How much money do you think you will need each year in retirement? Will you have enough money to comfortably retire when you want to? And, if not, what should you do about it?

And, when it comes time to start taking money out of your retirement account, how much should you take each year? Well, the IRS does have some funny things like rules; some of these rules are in place to make sure you take what are called “required minimum distributions” (RMDs). If you do not take these RMDs, the IRS imposes a 50% penalty on the amount of the RMDs not taken.

I guess it all comes down to this: think about what’s important to you, what steps will it take to get you there, and how can you measure if you are on the right path. Automate your investment process as much as possible, and remember – goals are guesses, based upon the best information you have at the time. Goals, guesses, and “best information” are always changing, so update your plan regularly!

And remember, too – a knowledgeable, objective, trusted advisor is your best buffer against making bad investment decisions – make use of that buffer, and don’t take any flyers!

Until next Wednesday –

Peace,

Eric