What's spookier: Halloween or Retirement Planning? (October 2020)
While far from normal, it has really been unbelievable fall. The weather has been perfect (at least in North Jersey), the colors have been amazing, and the Giants & Jets have 1 win between them after 7 games. Well, I guess that last part is believable. What’s most unbelievable to me is that this Saturday is Halloween! An event that should be a national holiday in my book. With all of those ghouls and goblins dancing in my head, I find myself thinking about something else that really scares people: preparing for retirement!
With so many variables that are out of our control, why do people and planners spend so much time projecting 10, 20, 30 years into the future and actually look at the results as something close to reality? Most of the planning world takes this deductive reasoning approach: tell me how much you need in ‘X’ number of years and based on what you have now, we’ll figure out what your shortfall is and how much you need to make up between now and then. The emphasis is on the output and rate of return (ROR). Many times recommendations include increasing savings/investing dollars going into the plan and increasing risk in hopes of increasing ROR. There is no talk of efficiency and often no emphasis on risk management. But how do you know what the world will look like in a year, much less 20 or 30? I think everyone would agree that 2020 is a good example of how quickly things can change and sometimes in drastic fashion. Unknown & uncontrollable variables include: how long will you live, investment returns, inflation, healthcare costs, and tax rates. Impossible to predict, so why try? It is more logical to follow an inductive reasoning approach: be sure your inputs follow certain guidelines that balance your model between protection, savings, and growth, and you thereby increase the probability of success and increase your ability to pivot if things don’t turn out the way you expected/were hoping for. The emphasis is on inputs.
When you think about preparing for retirement, what really is your goal? Is your goal to create more wealth for retirement, or is your goal to create the maximum income so that you can spend and enjoy your wealth at retirement? What if you could increase your retirement income with less capital? With less risk? What if you could spend more of your own money without fear of running out? Give more to charity while you were still alive? And without disinheriting your spouse/children/grandchildren? What happens to your retirement plan if you get sued, become disabled or die? The scary part is not having viable answers to those questions. The not scary part is those answers are just a phone call away!
I hope you and your family have a Happy, Safe, and Spooky Halloween!