Retirement Car

Why Winning in the Margins Matters in Retirement Planning

Retirement Car
Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.- Albert Einstein

A very interesting article published in the Financial Advisor magazine discussed some of the top reasons why people end up having a very difficult retirement. These are people who even worked with a financial advisor and had a pretty robust financial plan going into retirement. Most of the reasons had to do with unexpected cash flows that put a major dent in a retiree’s overall portfolio balance. Some of the reasons listed included the following:

  • Divorce
  • Second Homes
  • Adult Children
  • Medical Expenses
  • Starting Businesses
  • Spending Habits
  • And even scams that targeted retirees

Now some of these things can be very unexpected, such as a divorce or a medical procedure, but some of the other reasons are not necessarily hard to understand. Many retirees are living well into their 80’s, and some might not be satisfied with playing a round of golf everyday. For those who have the luxury of retiring before normal retirement age, they have the possibility of having second career.

Whatever the case may be, it is important as a financial advisor to take these into consideration when talking about a financial plan during an investor’s working years as well as giving investment advice. Discussions about savings rates, asset allocation, active vs. passive, fees, etc. all need to be considered and not taken lightly.

For example, when talking about savings rates with investors, many people like to use the “rule of thumb” of 10%, which as we know does not necessarily hold for all investors depending on changes in household income over time (see article). More often than not, we push investors into saving more than what is considered the “norm.” Although our advice might leave a retiree with more money than they necessarily need, we have yet to run into somebody who was bothered by having “too much” money. You can imagine how much harder it is to have the conversation about not having “enough” money. This also can be seen as a form of self-insurance against those unexpected cash flows either from life (medical expenses) or by choice (starting a business). An extra $100 per paycheck can go a very long way.

For those readers who have been following IFA for a reasonable amount of time, undoubtedly understand the careful consideration that goes into everything that we do for our clients. Topics like investment lineup, tax-managed versus non-tax-managed, fees, tax loss harvesting, rebalancing, IFA FinPlan, and tilts towards the dimensions of higher expected return in the equities and fixed income markets within our IFA Index Portfolios have aimed to provide value to our clients. We dedicate a substantial amount of resources into researching these topics and then educating our clientele through advice as well as articles, charts, and videos because those incremental pockets of value do add up overtime.

This is not to say that IFA can solve all financial problems. It takes years of work between a client and their financial advisor to come up with a game plan that is going to be sustainable and it could very well not end up as rosey as a picture as we anticipate. There is still the chance of outspending assets or having larger than expected medical bills. But you can be sure that IFA is continually dedicating resources to providing outstanding service, investment solutions based on the latest academic insight, and education to ensure that clients do not become their own worst enemies during retirement. It is a game that is won or lost in the margins.

If you would like more information on Index Fund Advisors retirement planning services, visit us here, or call us at 888-643-3133.