A friend commented to us recently that he has hundreds of dollars’ worth of maps in his car that he no longer uses! In the current era of GPS navigation, even on back roads far from civilization, we can determine our current location, type our desired destination and follow turn-by-turn instructions. Such on-the-fly travel requires no advanced planning, no mapping of a course. As we enjoy family excursions this summer, we should ask ourselves if we have taken the same laissez-fare approach to planning our futures as we have to navigation.
With the sting of the market decline lingering in our minds, it can be easy to ignore the need to “pay ourselves” (i.e. commit money to various savings instruments). Essentially the S&P500 has experienced a 10 year period of no growth. For our long-term investments, however, we need to broaden the lens through which we are examining investment options. Starting points make a big difference. If your stock investment experience began only in 2000, you may be disillusioned but, if it began in 1990, you have enjoyed a good return. 1980? Even better…you get the picture! Retirement and other long-term savings benefit from the same focus – the sooner you begin, the better prepared you will be when the purpose of your saving comes to fruition.
Realizing that “starting early” is easier said than done (especially if you are 50, 60….), let’s focus on what to do today. We suggest that you review your financial assets, future income, family obligations and desires, health and most importantly risk tolerance. A trusted and knowledgeable advisor can be both a sounding board and a resource to help you through this exercise. Avoid the one-size-fits-all pitches including simple mantras like the Rule of 100 (i.e. stock exposure equals 100 minus your age; a 70 year old would have 30% stocks). With current interest rates at a generational low, the remaining 70% of that portfolio could be equally risky.
Retirement income can come from a variety of sources. Along with social security, you may have a pension (becoming rare); these steady cash flow pieces are a great “fixed” part of the puzzle. Perhaps you will choose to work, which would likely allow preservation of 401k/IRA assets. If you have not done so already, begin reducing your debts.
Portfolio management, whether in taxable or tax-deferred accounts, should not stop once you retire. In fact, keen focus on your savings, including proper diversification, is a main ingredient in preserving assets into the future. History has proven that quality companies with stable and rising dividends are a beneficial way to participate in the market and earn income at the same time.
Always work with an advisor who allows and encourages flexibility. Consider that you may be retired for 20 to 30 years, your needs will change, and markets will fluctuate; being able to respond is a necessity. Retirement planning cannot be reduced to a computer program or a dusty old book; instead it should be a comprehensive and variable assessment of whom and where you are. A trusted advisor can be an invaluable source of guidance through this dynamic process.