Green Line and a Number

The achievement of financial goals is not accomplished by randomly throwing money at investments or just hoping you have enough to retire. You really need a Plan…. or at the very least, a number.  The idea of “your number” can be powerful if it is associated with a concrete visual objective.  Without that, it is just a number having little meaning. Solving for Y (your number) is based upon the idea that if you are planning on spending X each month during retirement, after taking into account your income sources, you will need Y amount of savings invested at Z return upon retirement to last until you (and your spouse) die. The “green line” is also wonderful imagery; but I am not confident that people stay on it for very long- it is too investment-focused and the concept is simplified: if you save when you are young, and your savings grows, you will have more at retirement than if you didn’t. But, there is so much more behind the simple act of saving. It is the purpose behind the action: what are you saving FOR? Most people look at the annual growth in their retirement savings account balance at year end and shrug their shoulders mumbling “it is what it is” with no thought beyond that. The general rule of thumb, eight times your salary, can leave one notably short of what they realistically need. Advice that carries significantly more value is this: one’s spending behavior during their earning years is the greatest determinant of financial success during one’s final quarter of life. People have the tendency to convert wants into needs which can lead to all sorts of goofy and impulsive spending, wrecking financial aspirations. When it comes to measuring your progress, at year end instead of looking at the dollar amount in the account, consider the efficiency of how you are utilizing your income (this year over last) and how your measured savings rate, in relation to your earnings, has moved you closer towards reaching your stated goal. As more and more baby boomers approach retirement, there is confusion about converting a three ring binder holding statements of retirement accounts into an income stream and the growing realization that longevity poses a real challenge to a retiree. This is the time, where if someone had not already done so, they might really benefit from astute guidance. Winging it is NOT the same as having a Retirement Plan. Contributing to a 401(k) is not A Retirement Plan. I serve a clientele who are intelligent, affluent, hard-working and independent. They understand that layered financial strategies and coordinated decisions made each year are far more valuable to investors than comparing a YTD portfolio return to an inappropriate benchmark. Instead work towards your own, more meaningful, personal benchmark. Financial Planning is not an event or project with an end; it is an ongoing process that requires insight, forecasting, measurement, adjustment and management. There are very few personal accomplishments in life that bring more inner peace and relief than knowing that you are financially prepared for the future and are going to be OK.

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