Before I sit down and write an article, I like to research possible topics. Here is a quick review of today’s news sources: CNBC says Goldman Sachs has an options strategy that is a winner, Barrons lists 10 ways to cash in on the shortage of just about everything and even Kiplingers has the seven top lumber stocks to play Timber Mania. With so much noise surrounding short-term trading ideas, it’s no wonder so many people are confused about how to develop a long-term investment strategy.
Real financial planning is not about trying to get rich or how to exploit market dislocations. These short-term strategies are for speculation and entertainment; hardly appropriate for a retirement income plan where risk management is crucial.
Planning tends to be boring and makes for poor clickbait. Far better I title my article seven things you should be doing NOW. The upside to planning is that a carefully crafted retirement strategy rarely requires urgent action as long as the foundation has been established properly.
The following are 3 things you should do to play the retirement long game now!
Clarity of purpose
Start with getting clarity around where you are today and where you plan to go. How much income do you require to maintain your lifestyle? How much of your desired lifestyle represents needs versus wants and wishes? How much of your monthly expenses are fixed vs discretionary? How do you expect this to change over time?
Recognize your greatest hurdle is likely to be longevity. The average life expectancy of a non-smoking 62-year-old couple is 30 years. How will inflation impact your expenses over time? What is your plan for diminishing capacity and long-term care?
Actions are aligned when there is clarity of purpose. Once you know what’s important to solve for you can remove the noise and focus on the issues that are important for retirement success.
Circle of control
In his book, “Seven Habits of Highly Successful People,” Stephen Covey talks about being proactive and taking action on things you can control. We can’t do much about the economy, the markets, or the world so avoid the fortune-tellers and guru’s who say otherwise. You can, however, focus on your spending, your risk, your taxes, and your protection strategies.
Start with your spending and put together a withdrawal policy statement to guide you through the inevitable volatility you are sure to experience over your retirement years. The use of a rules-based formula for portfolio withdrawals will temper your heightened emotional state, and give you confidence during bear markets and corrections.
Create a tax plan that looks at the whole of your retirement and addresses foreseeable events like social security, required minimum distributions, Medicare penalties, and other taxable moments.
Review your portfolio to address an appropriate asset allocation, diversification, and rebalancing schedule that will help you generate a rising income and minimize unnecessary risk.
Put together an asset protection plan that looks at your estate planning, insurances, and reserves. You should inform all successors as appropriate of their responsibilities and your wishes. Run regular fire drills to ensure everything is in order.
Congratulations! As soon as your plan is up and running, the heavy lifting has been done, but the work is not done. As Mike Tyson stated, “Everyone has a plan until they get punched in the face.” A financial plan is not a product — it is an instruction manual that identifies your most important goals and objectives, identifies potential obstacles, and enables you to pursue them efficiently. The world will change, markets will shift, laws will change, and life will continue to evolve.
Maintain a routine for reviewing progress at least twice a year to keep the plan current. Assess your upcoming income needs, portfolio distributions, and rebalancing plan. Take this opportunity to stress test each area of the plan for better results.
By managing these simple steps, you can ignore the financial noise and bias that abounds on the internet, in the news, and in mainstream media. As a result, you can maintain your confidence, independent of world events, the economy, or markets. Retirement is a long game – play it as such and you will have better confidence and peace in the present.
Gardner Sherrill, CFP, MBA, is a CERTIFIED FINANCIAL PLANNERTM with Sherrill Wealth Management. To learn more, visit sherrillwealth.com, a Bradenton wealth management firm specialized on living in retirement. This information is not intended to be a substitute for specific individualized tax or legal advice. Individual circumstances will vary. Please see your tax professional regarding your specific situation. The opinions expressed in this material are not intended to provide specific advice or recommendations for any individual. Securities and advisory services offered through Commonwealth, a registered investment advisor. Member FINRA/SIPC.