- Posted by Michael Kane, CFP
- On September 11, 2017
- guessing, plan, procrastination
Sound like a familiar saying around your house? It does around mine. I am notorious for saying I’m going to do something, only to turn around and it’s several months later, and still nothing has been done – just ask my wife. Whether it’s cleaning out the garage, organizing photos from your vacation last summer, or rebalancing your 401k portfolio, we all procrastinate in some form or fashion.
All too often our grandiose plans to research and rebalance our investment portfolios are left to languish as we deal with other items that we can accomplish more quickly. As it has been said before, most people spend more time planning their summer vacation then they do their financial future. Why is that?
Most of us are educated people who know that the path to financial security means starting to save early and often. The best way to do this is through a payroll deduction plan like your 401k, 403b, or Thrift Savings Plan (TSP). I can remember 26 years ago when I was just starting out at my first job that offered a 401k plan. My dad’s motto was always “pay yourself first”, so I took that to heart. I started off saving 10% of my pay into the company’s 401k plan, in which they would match 6% of my pay. We all like free money, don’t we? However, I remember looking at my account statement after one year with a balance of $3,500 and thinking “how will I ever be able to retire on this?” Fast forward 26 years with continuous contributions through good markets and bad ones, and things look much different. I’m not there just yet, but I can certainly see a light at the end of the tunnel.
WHY YOU NEED A PLAN
I’ve always been an aggressive investor, typically having 100% of my portfolio in stocks and none in bonds. We have all heard the rule of thumb that we should have 100 minus our age in stocks and the rest in bonds, but I’m not ready for that… it just doesn’t seem very exciting. Why not? Why do I or anyone else take on unnecessary risk with our retirement savings? I certainly like it when the market goes up by 14%, 20%, or more, yet get sick to my stomach when the market drops by 12%, 22%, or 38% like it did in 2008. In fact, many people I know got so sick of the ups and downs of the market that they got out and have been sitting in cash ever since.
This is where having a written financial plan comes in handy. Instead of guessing about how much you need to set aside today, having a written plan will let you see how you’re doing and if you are on track for that comfortable retirement we all desire. Having a written plan also allows us to review our goals to see if we are taking the appropriate amount of investment risk in our portfolio to attain the results we desire. All too often, most investors are swinging for the fences trying to hit that proverbial home run, only to strike out. What’s wrong with hitting singles and doubles along the way or drawing that occasional walk? Eventually, we will make it around the bases. It might take a little longer but our batting average will be much higher. Most investors who have been disciplined savers and are within 10 years of retirement can have a very successful retirement when they take some risk off the table and try to average an attainable 5%, 6%, or 7% annual return. The compounding effects are incredible.
We all want the money we’ve saved to last us through retirement, which may last 30 years or more. Recent research published in August 2015 Financial Planning has shown that having a 50/50 equal-weighted portfolio of large-cap stock, small-cap stock, bonds and cash, along with a 4% withdrawal rate, provides us the best chance that our retirement accounts will last for this duration. As with all good plans, we must continue to review and monitor our financial plan and make adjustments when necessary.
If you’re someone that is a procrastinator, fess up and seek the help of a financial planner that you trust. Start to build a relationship where your interests are put first. Get a written plan that you both can agree on, monitor the results, and make changes as necessary. In the long run, you will be glad you did.
To learn more about how RAA helps our clients craft a customized financial plan, give us a call at (800) 321-9123.
NOT SURE WHERE TO START?
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- Common investor pitfalls
- An outline of your retirement benefits
- A retirement timeline to help you know what to expect
- Key topics to consider in your estate plan
- The importance of survivor assistance
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