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behaviors

Rules For A Sound Retirement Reality

EBRI (Employee Benefit Research Institute) just released it's 2015 study of the longest running national survey of retirement confidence on Tuesday. And, there's good news....well, sort of. 

The 25th annual Retirement Confidence Survey said that 37% of workers are "very confident" about the ability to live a retirement on their own terms that's double the amount from 2013 and another 36% were "somewhat confident." Terrific. 

Reality is however that little has changed in the way of underlying data to conclude that those dramatic rises in confidence are based on anything other than "hoping it to be true." 

The data shows that 57% of workers have an aggregate value of less than $25,000 in savings and investment. That's frighteningly low.

So, how do we get to the dramatic rise in optimism? Well, frankly, it's a mere extrapolation of of data and you can pretty much pick the data you'd like to delude yourself into believing. If the price of homes in your neighborhood has shot up recently, simple, just assume that that meteoric rise continues. Even though it won't. 

Stock market up 32%? Let's assume that'll continue, even though it can't. 

Unfortunately, there's no substitute for answers. 

We can fool ourselves all we want, but in the final analysis, the joke's going to be on us. 

I asked a potential Client the other day; "If I have $5,000,000, do I have enough money to retire on?"  The answer was an enthusiastic, "absolutely!"

I followed it with the following: "If I have $5,000,000 and plan on spending $6,000,000 do I have enough to retire on?" The answer was, as you'd expect, of course not. 

So it isn't about what you have. It never has been. The commercials about your "magic number" were at least partially accurate...there IS A NUMBER and IT ISN'T MAGIC. 

In the parlance of wealth management, the question is, this.......

"Does the net present value of all your projected future spending and taxes result in a number that is greater than or less than, the projected future value of your assets and income, adjusted for inflation and predicated on the fact in whole or in part that the returns on your assets will be random?"

Complicated question. One which I can assure you with almost precision like certainty, only a handful of people "know" the answer to. 

Of this we can be sure; 

  • having "things" like a 401k and an IRA are nice, they're retirement assets but they don't assure you of anything
  • having more than the $25,000 than the typical EBRI survey respondent is also nice, but that doesn't assure you of anything other than your retirement will likely be better than theirs and yet fall way short of your ideal
  • having a lot more than the typical EBRI respondent assures you of nothing, other than you'll have a retirement better than them and the guy or gal next to them and the one, after that and the one after that. 

But if you're all still falling short, who's the winner. 

Quick recommendation here....get the math done. Not some math, not sorta math, your math. 

It's your retirement, you own the outcome.

"Survey says..........."




Which Lever Do You Pull?

My colleague Carl Richards at Behavior Gap has it just right in his video blog this month.

There are literally a host of things that we can do to improve our financial lot in life. We can spend less. And we can save more. We can continue to work past our retirement date which has it's own benefits, more income contributed towards goals and your contribution to the workforce is increasingly being shown as both needed and a benefit to your long-term health.  

There are literally a host of things that we can do to improve our financial lot in life. We can spend less. And we can save more. We can continue to work past our retirement date which has it's own benefits, more income contributed towards goals and your contribution to the workforce is increasingly being shown as both needed and a benefit to your long-term health.  

It's the things that you can control that count. 

It's the things that you can control that count. 

We can down size our homes, or take smaller vacations. We can carefully consider college costs and opt for high quality schools and our own ability to guide our kids as opposed to Ivy League schools and student loans. 

Why then, as Carl suggests, do we always focus on investment returns as the central issue to concern ourselves with? 

I'd suggest that it's easier for us to focus on the thing we can't control because we don't have judge ourselves if it fails. It's long been known that investors tend to pat themselves on the back for good investment decisions when markets pan out and to blame some nefarious other factor when they don't, be it Europe, the Fed or the current administration. 

As I wrote last week, we have an aversion to taking control of things. Pulling the other levers as Carl refers to it, takes more thought and places the responsibility on us and it will be squarely in our path. That's harder than surrendering to what you can't control. 

Imagine telling your son or daughter that they can't go to Brown University because you simply can't afford it after the 2008 market and the summer swoon of 2011. Not your fault, the market took that money from you, you didn't lose it. That's a lot harder than deciding to work till age 70 or just sitting your kid down and saying; "we don't think that Brown is a necessary expense. You can do just as well at a smaller school with more focus and working harder." That's not a subtle shift in the conversation. 

Knowing that your focus should be controlling what you can control isn't new, but for many it's almost impossible. Until we can resolve that without planning you can't know what to control...you'll continue to avoid it. 

The "doing/knowing" gap suggests that in many instances, knowing that something should be done is the equivalent of actually having done it. (Can't tell you how many married couples with kids I've talked to over thirty years that know that they should have a Will done and yet, after 13 years of marriage, don't have one.) 

We can finish on this note: doing/knowing will seem like the same thing, until it's not. And when that happens, you won't know what levers to pull, when to pull them or why. 

Save yourself the trouble and start making active decisions now, while you have both the time and space to consider their implications. Setting a course, a real course, has to be the first step in the process unless ignoring how you get somewhere is the way to go. 

Deciding where to end up is never hard. Knowing how to get there is, but doesn't have to be.