Training for a marathon, like funding a Retirement Plan, is about both quantity and quality.
My recent marathon training included very little quality work. I ran about 50 miles a week for the first three or four months of the year, but rarely did any “hard” workouts. Therefore, going into race day and even 20 miles into the race, I was very unsure of the outcome. I prayed that my decades of distance running would make me efficient enough for a Boston Marathon qualifying time.
Similarly, we see many people funding their retirement plan, mindlessly socking away 10%, 15% or as much as 20% of their income into retirement plans. And if they start early enough, they can accumulate a very sizable nest egg for their life after work. Most plans today provide a basic or default investment vehicle such as target date funds which put the investments into generally accepted allocations.
People who want an exceptional post-work lifestyle must be smarter.
While I beat my Boston qualifying time by over 20 minutes in May, there is an extraordinary goal for running next April’s event. I want to be competitive in my age group. With ten months of training, a top 10 finish is feasible. But simply adding miles to my workload is not enough. I need to develop, or rather reignite, the leg speed which I had as a much younger man. So, to get ready I need to incorporate interval training, tempo running, hill sprints & striders, and fartlek, or speed-play.1
Building a comparatively successful or exceptional retirement likewise requires some level of quality in addition to any level of quantity. As mentioned above, asset allocation is a key element, but retirement is about more than just the dollars socked away into a qualified retirement plan. That’s only the starting point. Like my qualifying race in May, years of accumulating assets can provide for retirement. But accumulating assets for an exceptional retirement requires positioning the assets to work as efficiently as possible.
Efficient portfolios can range from conservative to aggressive, but always attempt to produce the greatest expected return for a given level of risk. How that’s accomplished is beyond the scope of this article but suffice it to say that even the most conservative portfolios can and probably need exposure to risk assets while aggressive portfolios attempt to spread risk over assets that behave differently from one another.
Even more important than the asset allocation of specific portfolios are all the decisions surrounding the financial plan. The exceptional plan anticipates changes to tax laws, personal circumstances, social security and pension incomes, in addition to the investment climate. It also considers where individual components of the overall asset allocation can be most effective, a concept called asset location.
Asset Location decisions involve many variables, including the tax treatment of both the assets and the account registrations, the time horizons and expected and unexpected liquidity needs, and most importantly, the financial goals of the investor. There are no simple “rules of thumb” about utilizing the many types of IRAs, annuities, trusts and non-qualified accounts.
Running is my hobby, and if I never win another race, it won’t make the slightest difference in my lifestyle. If it would, I’d hire a coach to help monitor my progress, both physically, and more importantly, mentally.
On the other hand, the level of success achieved in retirement planning defines most people’s lifestyle for most of their adult lives. Recent studies indicate that people working with a comprehensive financial advisor improve their outcomes, far outweighing the fees charged by the advisors.2 Just like an athletic coach does more than build a workout routine, financial advisors add value by helping their clients understand the probable consequences of decisions made throughout their lifetimes.
Contact us for a complimentary consultation to discuss how we might help you pursue your lifetime goals more efficiently.
1Check with your physician that you are healthy enough for the planned exercise program before starting it.
2https://retirementresearcher.com/the-value-of-financial-advice/
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal. No strategy, including Asset Allocation, assures success or protects against loss
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