How Short Is Your Window to Retirement?
by Stuart C. Berkley
Last year, the first Baby Boomers began hitting the retirement age of 65. Approximately 10,000 people will retire each day for the next 18 years.
It is no wonder that this group is constantly bombarded with savings, spending, and investment advice. The Boomers are paying more attention to their wealth, and with good reason: Their windows to retirement are becoming shorter with each passing day. Upon closer examination, many Baby Boomers are beginning to realize their nest eggs are not all
that they had planned for them to be.
If you find yourself among those wondering why your nest egg looks unlikely to provide a sustainable income stream for life after retirement, then you should examine the balance between spending and saving first. We all understand that sometimes life just gets in the way of even the best-intentioned savings plans, but if your spending has been reasonable and you have been saving diligently, then maybe the issue is less about the amount you have stashed away for retirement and more about the investments you have chosen.
Many investors know they have problems with their portfolios, but they are unwilling or don’t know how to address them. One of the shortcomings seen in many otherwise successful investment strategies is a tendency to hold onto underperforming investments—whether individual securities, exchange-traded funds, or mutual funds. Investors need to realize that every day they continue to hold onto an underperforming asset is the same as agreeing to purchase that same asset at that day’s prevailing price. This is a particularly important issue to the Boomer generation, because the time to recover from these poorly performing investments is increasingly short.
Looking at it in this light, why do investors continue to “purchase” these chronic under-performers day after day? While no one enjoys taking a loss on an investment or even selling at a price lower than a previous price, there are two reasons that are most often cited for failing to pull the plug. First, investors are always hopeful that their investment will rebound—maybe even miraculously—back to their cost basis or old high price. Secondly, some investors have a misguided or misplaced loyalty to the company or investment, possible because it had performed well in the past or maybe even because they worked for the company.
If you look through your investments and see a long-term holding that has underperformed, ask yourself, “Why
do I continue to hold this?” If you find the answer is something like the reasons mentioned above, maybe selling and redeploying the proceeds into a more productive investment will be best for you mentally as well as for your financial future.
Remember: Hope is not a reliable investment strategy. And, if you have performed service for a company as an employee or contractor, or even if you just know many of the current employees, you need to step back and evaluate whether you have any misguided loyalty. This is particularly important for large concentrated positions of company stock.
One easy way to evaluate all of your individual investments as well as your overall financial planning strategy is to engage the services of an experienced wealth adviser. The wealth-management process encompasses more than just managing an investment portfolio. It is a dynamic process that includes a disciplined, strategic plan that is designed to help grow, preserve, and ultimately transfer one’s wealth from one generation to another.
On the investment side, we believe your adviser will help ensure that your portfolio reflects a strategy that is consistent with maximizing the probability that you will reach your retirement goals given your specific risk tolerances and cash-flow needs. An experienced wealth adviser should provide a much-needed independent, non-emotional analysis to determine whether your current underperforming investments should be a part of the solution going forward—or eliminated as a part of the problems of the past.
Finally, as investors transition from being “savers” to “spenders,” it is even more important that they communicate regularly with their investment advisers. It is essential that you determine a distribution rate that will help ensure that you can make it through your retirement comfortably.
Who knows? Maybe you can even leave something for the kids!
Stuart C. Berkley is senior vice president and portfolio manager at Financial Counselors, Inc.
P | 816.329.1524
E | Stuart.Berkley@fciadvisors.com