Happy St. Patrick’s Day, a day when the Luck of the Irish becomes topic for barroom discussion. One thing we all know is that a successful retirement has very little to do with luck. Beyond the possible sequence of return risk luck – good or bad – your retirement hinges far more on the effort you put into planning.
Luck of the Irish: Understand the environment in which you are investing.
Even the best plans need course correction, and understanding the environment is always a good place to start. Yes, retirement saving is long horizon, still there is room for prudence in where you invest new money. How is the economy doing? Do markets match up with macroeconomic reality? Is the Economy Doing Well?
Luck of the Irish: Leverage a combination of savings tools.
The foremost saving tool to leverage: compounding. That’s right, you do not need a government program to effectively save for retirement. You need to start early and be consistent in your saving habit. The power of compounding will repay you in spades. The Power of Compounding: A Patience Game (note that he points out the need to stay aware of the environment here)
While this comes at it from a different angle, the employer’s, it illustrates the power of the HSA. This tool is the Swiss Army Knife of saving, looking to become more powerful in Republican circles. What Clients Need to Tell Employees About HSAs
Luck of the Irish: Remain calm.
Understanding compounding, being diligent and consistent in investing you will accumulate a nice sum of money. Markets do have downturns and the key is not to panic. This article helps put this into better perspective for you. Early in the Accumulation Stage, Price Risk Can Look a Lot Different
Luck of the Irish: Focus on income in the distribution phase.
Once you retire the key is to transition your thinking to distribution of money from your savings. The distribution phase is largely about income, yet preserving principal is not a bad thing. You have the difficult balancing act of greater longevity and theoretically capped principal. That’s why we often highlight good dividend approaches and annuities as tools. Here’s an ‘income menu’ that could help retirees make their savings last Dividends Pile Up with This High-Yield Dividend ETF With Rising Rates Ahead, Stick with High-Quality Dividend Growers The right way to get the retirement income you need 4 Overlooked Tax Breaks for Retirees
With each installment, we try to impart financial wisdom on our readers. It generally comes by way of general rules and valuable pointers. This time we turn the focus to distilled financial wisdom. First from the Oracle of Omaha, Warren Buffett in his annual letter to shareholders. It is a lengthy read, but always worthwhile. You can find that here: Warren Buffett’s letter to Berkshire Hathaway investors explains how to use fear to your benefit. The second piece comes from Jim Gallagher, a personal finance columnist, it is here: 23 years of personal finance wisdom distilled into one final column. Before this one gets too dated I figure why not share Jeff Gundlach’s mid-January opinion piece. Here’s Jeff Gundlach’s full presentation on expensive stocks, the economy under Trump, and the Federal Reserve
Financial Wisdom: Always optimize the incentives Government provides.
I will start by saying Social Security is not given to you by Government, you fund and earn it. Still, there is an art to extracting the most value. This is the surefire way to maximize your Social Security benefits
Another really popular topic here is Health Savings Accounts (HSAs). We will not rest on this one until you fully appreciate the value of these. How Health Savings Accounts Work
Financial Wisdom: You need to be very, very attentive to your longevity risk.
You saw it above in the piece on Social Security and this article, too, deals squarely with longevity risk. Many find fault with annuities as a solution, but the guarantees have value and should not be dismissed. The biggest problem with traditional retirement planning
Financial Wisdom: Invest as wisely as you possibly can.
One thing vital to your planning is to understand that it is never a ‘set it and forget it’ process. This article helps drive that point home. Investor’s Alpha: Proper Asset Allocation
Then again, things are subject to change … what impact will Artificial Intelligence have on individual retirement investing? This article may give you some insight and hope. Artificial Intelligence Hedge Funds Outperforming Humans
Investing wisely also means being aware of your environment. This article, just published this morning, shares a Monte Carlo simulation for market performance in March. As with all prognostications, take it for what it is worth, but it is fascinating. I recommend reading it through. A Monte Carlo Simulation of the S&P 500 for March 2017
Stick to Fundamentals when it comes to your retirement planning. At the very least focus on the fundamentals first. You start with consistently saving as much as possible from your first day of work. You add to that using all the tools provided by the Government, i.e. tax advantaged savings. Next you focus on balancing fees and performance. You must keep in mind that fees will eat your returns alive. You also need to remember that retirement investing is a long horizon game. That means you should stay aggressive in your investing and not panic or chase markets. Lastly, when you do retire, change your mindset from accumulation to distribution. You are no longer adding to your assets, now you must make them last as you take income and enjoy retirement.
Stick to Fundamentals: Leverage tax advantaged savings.
This is not the first time and will not be the last that we mention Health Savings Accounts (HSAs). We also often comment on the incredible burden of healthcare in retirement. It is time you put the two together in your mind. Leverage the HSA structure to minimize the exposure in your later years. The Best Retirement Account You Don’t Know About Health Savings Account: Your Extra Retirement Funds
Stick to Fundamentals: Keep a keen eye on total returns.
Yes, we talk about fees a lot here, too, and they are hugely (bigly if you will) important. You still have to balance with performance. So, look at total returns or net returns, i.e. returns after fees. Vanguard is keeping the pressure on their competitors. More Fee Cuts at Vanguard
One interesting spin on total returns has to do with sequence of returns risk. It is hard to find a well written piece on this, but here is one. The bottom line is that when you retire matters. There are good years and bad years, and being aware may make a monumental difference. How Timing Impacts Your Retirement Portfolio Longevity
Stick to Fundamentals: Once you retire, change your mindset.
Once you retire you are no longer in the accumulation phase. Now, in the distribution phase, you have to manage principal, income and withdrawals. That calls for a different mindset. How to Invest During Your Retirement Years
Yes, you will find a million tips on how best to do all this. Here is one that balances the fundamentals. 3 ETFs to Help You Make More Money in Retirement
Each week we consider ways to improve your retirement health. This week we look at the right things for each phase to maximize your savings and optimize your retirement.
Your Retirement Health – use the tools they give you during the accumulation phase.
We will harp on HSAs (Health Savings Accounts) until you have one…it will improve your retirement health, both ways. 4 Things You Should Know About Health Savings Accounts
Don’t miss an opportunity, either, especially those given to you. 3 Valuable Incentives to Save for Retirement
Plus, of course, maximize all those tools you are given. 3 Questions That Can Help You Get the Most from Your 401(k)
Your Retirement Health – the transition from wealth accumulation to distribution.
Not everyone has it made, especially when it comes to retirement savings. So, what can you do if you really are not prepared? A retirement plan for the working 99%
Even if you think you have enough, can you weather an extended period of low returns? Retiring Early in a World of Low Returns
One thing to be sure of is avoiding missteps anywhere in the process. Derailing the Plan: How Retirees Shoot Themselves in the Foot How Couples Screw Up Retirement Planning
Your Retirement Health – be creative when you do retire.
For the real adventurer … or simply someone who has not saved enough … explore your options beyond the borders. After this election, you may thank yourself as it improves your retirement health. 8 Countries Where $200K in Retirement Savings will Last 30 Years The World’s 10 Most Livable Cities A Breakdown of Costs for Those Who Want to Retire Overseas
If you are not that daring, there are always these great spots right here at home. 10 of the Prettiest U.S. Towns to Retire
Your Retirement Health – be aware of the investing/retirement environment.
These gems are exquisitely crafted, quick condensations of 50 years investment experience. These are data driven, data laden even, yet they are easy to grasp and worth remembering. Bob Farrell’s (Illustrated) 10 Investment Rules
Everyone knows how great the bull market has been since the bottom in 2009. You also know that central banks around the world have been stoking the fire constantly since 2008, or before. How do the two relate? Are they doing your retirement health any favors? Deutsche Bank Calculates How Much of the S&Ps Value is Due to Central Banks
With each installment, I find the best thinking on retirement, and this week is a treasure trove of commentary on the longevity quandary. Michael Phelps presumably just wrapping his competitive swimming career is a great model for longevity. Both Michael Phelps and Usain Bolt competed in four Olympic Games … and neither won a medal the first time. There may be an analog here because that is not what you remember about either of them. The lesson for the rest of us is to work harder, longer on your savings because you will be retired longer.
Leverage the longevity quandary by watching expenses in your retirement accounts.
Sad to say I would not think to ask a Department of Labor employee for advice on retirement. This former one, however, makes a series of worthwhile points about common mistakes. I encourage you to read it. 10 Retirement Mistakes Baby Boomers are Making
We always harp on costs. When you consider the longevity impact on costs, it is even worse. So you must strive to lower your total investment cost structure. It can be as easy as having a simple, effective strategy and sticking with it. A financial planner says most people don’t need to pay someone to manage their investments
Leverage the longevity quandary by ensuring you save enough for retirement.
Here is a really good, comprehensive piece on just what challenges longevity brings, and ways to address them. The Longevity Paradox
We have mentioned HSAs before, but this drives home the point about. Fact is you will spend a lot of your own money on healthcare in retirement. An HSA is a way to save pre-tax money now, not get taxed on growth, and not get taxed when you withdraw for medical expenses … there is simply no better answer. Why Advisors Need to Know about HSAs
Just in case you forgot, or simply don’t believe me, here’s the latest on medical expenses in retirement. Health Care Expenses for Retired Couples Hit Record $260,000 : Fidelity
On a related note, long-term care insurance is an important thing to consider … just weigh the cost/benefit wisely. These tricks can help tilt the balance in favor of buying. 4 Tax-Friendly Ways to Pay for Long-Term-Care Insurance
Here is an advisor’s eye view of these medical costs in retirement. More importantly, the implications of the DOL fiduciary rule on advice you will get on them. It lays out some hard dollar costs and is promising in anticipating incorporation into plans under the new rule. Add this to your DOL checklist: health, LTC costs in retirement
Leverage the longevity quandary by focusing on building an income stream for retirement.
Switching mindset from accumulating wealth to generating income is a key retirement transition. Longevity, though, may have some bearing on when you make that move. Longevity and Your Retirement
Changing your mindset should begin with understanding your needs. This piece helps you put your retirement income needs into perspective. How to Solve the Retirement Income Equation
Here is some interesting insight on IRAs, and 401(k)/403(b) for that matter. They may not be the best in retirement vehicle for you when you consider longevity risk. IRAs are for retirement planning, not for retirement
Here is a fascinating, refreshing look at the retirement income puzzle. Is retirement spending a level pattern? Should you use a simple rule like the 4% rule? This says no. What is the “Retirement Spending Smile”