On The Road to Retirement... “If you don’t know where you’re going, any road will take you there.”
The refrain "If you don't know where you're going, any road will take you there" was essentially a paraphrase of an exchange between Alice and the Cheshire Cat in Chapter 6 of Lewis Carroll's Alice in Wonderland: "Would you tell me, please, which way I ought to go from here?"
For many new clients I meet, especially clients that are in their mid-50’s and early 60’s and on the road to retirement, which way I ought to go from here is the question they most want answered and the question I most love responding to.
Pre-retirement, that precious time in our lives when we attempt to earn and save enough money to last us the rest of our retired lives is a daunting task for many an investor. Although as daunting a task it may or may not be, sticking your head in the sand is not the answer. Nor is thinking you’ll just keep working through your 70’s. Although that may be your noble intention, it may not be up to you.
For many, one of the most difficult parts of saving for retirement is simply understanding how much they need to save by the time they reach this milestone in life. In other words, many an investor is flying blind on the road to retirement, raising the probability of a crash landing.
The Danger of Lacking a Plan
Without a plan, people will often build their investment portfolios bottom-up, focusing on investments piecemeal rather than on how their portfolio as a whole is serving their objective.
Another way to describe this type of investor behavior is ‘fund collecting’. You’re drawn to evaluate a particular fund and if it seems attractive, you buy it, often without thinking about how or where it may fit within your overall investment strategy.
Without a clear and well-designed holistic investment strategy, you’ll be tempted to buy funds with high performance ratings only to see those same funds underperform immediately after receiving high marks.
While paying close attention to each investment may seem like the smart thing to do, this process often leads to you eventually owning a hodgepodge of mutual funds, stocks and bonds that do not serve your ultimate needs. As a result, your portfolio may wind up concentrated in a certain market sector, or it may have so many holdings that managing and tracking all these investments becomes a nightmare.
Most often, what causes your investment portfolio to get so off track are common, avoidable mistakes such as performance chasing, market-timing, or reacting to market “noise”.
On The Road to Retirement Success
If you know how much you need to accumulate in total savings by the time you intend to retire and you have an investment strategy that aligns with your core values and goals, then you’re either a Spiritus client or you’re a DIY and you’ve done your homework.
Here's what I’ve discovered by having the opportunity to help my clients prepare for retirement and then actually retire and live their dream. Nearly all of them said that it was only when retirement was about 5 years away that it started to feel real. So if you’re 5 years away from retirement, has it begun to feel real for you?
If and when it does begin to feel real, that’s when it’s time to assess where you are right now, financially speaking, and determine which road to take on your journey to retirement. And although any road may get you there, ‘there’ may not be even close to what you had in mind.
I used the Alice in Wonderland refrain because I meet far too many people that are taking any road they can find to retirement and falling for any sales pitch that promises extra high returns or offers a short-cut to the finish line. Caveat emptor.
Some are taking far too much risk with their investments when they’re only 5 years away from retirement. Some have no idea how much they need to save in order to maintain their desired standard of living. Some do not know nor do they have a retirement income plan that maps out their income streams in retirement and the extent to which they’ll need to tap their investment portfolio.
All that said, what causes me the most distress is how many people in their late 50’s and 60’s are worried sick about being able to retire. They stress and worry and they do not live life with joy. Instead they live in a state of fear and high anxiety.
As a recovering money worrier, one of my greatest joys in life is not the first, but usually the second financial planning meeting I have with clients as we co-create their retirement plan.
It’s at this second meeting, after having conducted a full analysis of their current financial picture that we get to discuss options and possibilities.
Options and possibilities, two words worth repeating as these are some of the most comforting words a client can hear from a financial planner when worrying about money has been a full-time occupation.
As in most everything, there’s no guarantee, yet I’ve seen many a chronic money worrier be liberated from fear around their money and eventually become fearless once they took the bold and courageous step forward and put their financial house in order. It’s a beautiful thing to watch and be a part of.
Photo by Pat Chiappa