We learned a little bit about my brother-in-law in our last segment. Some of the concerns he had probably hit close to home for you. We’re living in turbulent times, and it might be time to rethink your retirement plan and get a second opinion. Remember, an investment plan is not a retirement plan.
I’ve been a financial advisor for over 25 years, and during that time I’ve focused on helping families get to and through retirement with confidence and comfort. I believe that after you have worked your whole life you deserve to enjoy those golden years of retirement. You should be able to spend time with your children and grandchildren, play tennis or golf, go on wine tours, have dinner with friends, and volunteer at a church or charity. What you should not be doing is worrying about whether your money is going to last. I don’t want you to be checking and worrying about market updates. Once you’re retired you shouldn’t have to care. The state of the markets shouldn’t matter, but for far too many people, it does. They haven’t recognized that retirement planning is different than investment planning.
When you’re working, you’re probably adding money to your 401K plan. Every month, every paycheck, you’re putting money into your retirement savings and it’s growing over time. You’re turbocharging things. If the market is down while you’re buying more shares, then they’re cheaper. When the market goes up, you’re making money. Automatic deposits coupled with market growth over time make a 401K very powerful.
However, there’s a common mistake that many people make. When you retire, you’re not still adding money to the pot. You’ve lost your turbocharger. Not only have you lost acceleration, but instead of adding money to your accounts, you’re starting to take money out.
A 401K is kind of like riding a bicycle. When you’re going downhill on a bike it’s easy and you just keep going faster and faster. Adding money to your 401K while you’re working is like riding your bike downhill.
When you retire, you’re not adding money anymore. Now, you’re starting to take money out. Instead of going downhill, now you’re going uphill; it’s harder work. When you’re going downhill on your bike you can shift gears up to go even faster, but if you’re going uphill, and you’re still in the 10th gear on a 10-speed bike, you’re going to run out of gas fast. Going up a hill requires a change to your strategy. You shift down into an easier gear.
Many people get close to retirement and start going up that hill, but they don’t shift gears. They’ve got their accounts and their retirement savings set up a certain way and when you’re working and trying to grow, maybe it works fine. But when you’re retired, it doesn’t make any sense. You still need growth, but now you’re taking money out. You must adjust your strategy to protect your principle and to be tax efficient.
You can’t sit there and invest the same way. You wouldn’t try to go uphill on a 10-speed bike in the 10th gear. So why would you keep the same strategy in retirement that you used while you were working?
If you’re 30 years old and your strategy is to just buy and hold for a while, that’s not a problem. On the other hand, if you’re getting close to retirement or you are retired, you’re either on the uphill slope or it’s right in front of you. You can’t manage your money the same way you did when you were 30. You can no longer take the same risk because you don’t have time to take the market downs. You want to get as much of the upside as you can, but without the downs. It’s okay to lose a little bit. If you’re down 5% or maybe even 10%, that’s okay, but you can’t be losing 20-30%. You don’t have time to make that up.
The markets have been going down which brings me to a question for you; have your advisors done anything to protect you? Is your advisor moving money in significant ways, not just 5-10%, but closer to 60-70%, into cash or short-term bonds? Is your advisor getting you out of the way of the markets’ nosedive?
When you’re driving and it’s sunny outside and the road is straight, you can drive a little faster. If it’s pouring rain, or you’re coming up on a big S-curve, you know to slow down. The same idea applies to the markets. This year the markets have been hitting S-curves, and it’s pouring rain outside. Has your advisor slowed you down? If you’re like most people and your advisor hasn’t done this, why not? There are two common reasons. One, they could just be lazy. Two, they make more money if you just buy and hold. They want you to buy and hold because it’s good for them, but I would argue it’s not good for you. It’s not a fiduciary thing to do.
As you’re sitting here today, you should ask yourself if you’re getting the right kind of advice with your investments. Are you being moved out of the market when it’s not doing well? Are you being put back in when it is?
I’m going to tell you right now, winning at investing is not about getting all the upside in good market years. Winning in investing is about protecting yourself from getting slammed in the bad years. If you haven’t seen this happening in your portfolio, maybe it’s time to get a second opinion. Maybe it’s time for you to have an advisor who focuses on retirement planning. All you have to do to get a free second set of eyes is to give us a call!
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