“It’s true. All of it” -- Han Solo, Star Wars: The Force Awakens
I am sure by now I have to be the only person on the planet who has not seen Star Wars: The Force Awakens. I hope to rectify this soon and see it with my daughter this weekend. So in preparation to see the latest episode, we have started watching the original Star Wars trilogy again for the first time in years. In doing so, I have rediscovered that my favorite character in the saga is, without question, Master Yoda.
Now, everyone knows that Yoda is the wise Jedi master that taught young Luke Skywalker the ways of the Force. But you may not know that much of Yoda’s wisdom can be applied directly to retirement investing. That’s right, it seems Yoda knows investing, too. So, here are three retirement investing truths from Yoda himself:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Truth #1: “Do, or do not. There is no try.” The most important part of investing for retirement is getting started. If you are reading this column, it’s likely that you are already serious about investing for your retirement years. But are you investing enough to adequately fund the lifestyle you desire in retirement?
It is extremely important to know how well your retirement goal is currently funded. Simply put, your retirement funding status is the present value of your retirement assets (which includes future contributions and an assumed growth rate), divided by the present value of your expected future retirement liabilities (income needs).
ASSETS / LIABILITIES = FUNDING STATUS
If the present value of your retirement assets is larger than the present value of your retirement liabilities, then your retirement is considered “funded” or on track. If not, then you must consider investing more, working longer, adjusting your investment strategy or all of the above.
Don’t wait to find out your funding status when it’s too late to do anything about it. Do it now.
Truth #2: “You must unlearn what you have learned.” When it comes to preparing yourself financially for retirement, conventional wisdom is not always so wise. This is particularly true given the current interest-rate environment.
For example, I am frequently asked by clients if they should invest solely for income in retirement and avoid stocks all together. Well, in short, I think such a strategy could be a colossal mistake. Just look at the investors who recently reached for yield in securities such as high-yield (junk) bonds and master limited partnerships (MLPs). In many cases, the promise of high, stable income has been met with principal declines to the tune of 30% or more.
Others look to fixed annuities for their “guaranteed” income promises. Again, given the low-interest-rate environment, the real guarantee of annuities is a guaranteed low return on your investment coupled with a guaranteed reduction in your standard of living over time due to inflation. This is simply not the right time to buy these products.
In order to keep their retirement goals funded, and fight off inflation, investors are going to have to invest a sizable part of their retirement assets in a globally diversified stock portfolio, plain and simple.
Truth #3: “Fear is the path to the dark side.” As we have witnessed recently, risk happens fast in the stock market. The nature of stock market declines tend to be swift and painful. As you might guess, this can lead to a great deal of anxiety that can rattle even the most seasoned retirement investor.
The pain caused by market corrections and bear markets can cause retirement investors to make purely emotional decisions and sell their portfolios at absolutely the wrong time. This could potentially cause irreparable damage to their portfolios, and their retirement lifestyle.
Remember, discipline always trumps conviction. Diversify well and stick to your strategy. Buy when others are selling. Sell when others are buying. Rinse and repeat.
Understanding these truths is a key step toward successful retirement investing. Executing a successful retirement portfolio strategy in this market environment is certainly challenging. As Yoda would say: “Simple yet difficult, the strategy is.”
Ron is the founder and CEO of ONE Retirement, an independent advisory firm focused on managing clients’ retirement assets. Follow Ron on Twitter @RonSanders.
-
Could This Little Known Data Shift Hurt Your 2026 Social Security COLA?The BLS has changed how it measures the inflationary data that determines whether Social Security benefits will get a Cost-of-Living Adjustment (COLA). Will it hurt your benefits?
-
Financial Pros Provide a Beginner's Guide to Building Wealth in 10 YearsBuilding wealth over 10 years requires understanding your current financial situation, budgeting effectively, eliminating high-interest debt and increasing both your income and financial literacy.
-
Financial Pros Provide a Beginner's Guide to Building Wealth in 10 Years
Building wealth over 10 years requires understanding your current financial situation, budgeting effectively, eliminating high-interest debt and increasing both your income and financial literacy.
-
Five Mistakes to Avoid in Your First Year of RetirementRetirement brings the freedom to choose how to spend your money and time. But choices made in the initial rush of excitement could create problems in future.
-
I'm an Investing Expert: This Is How You Can Invest Like Warren BuffettBuffett just invested $15 billion in oil and gas, and you can leverage the same strategy in your IRA to potentially generate 8% to 12% quarterly cash flow while taking advantage of tax benefits that are unavailable in any other investment class.
-
Integrity, Generosity and Wealth: A Faith-Based Approach to BusinessEntrepreneurs who align their business and financial decisions with the biblical principles of integrity, generosity and helping others can realize impactful and fulfilling success.
-
How Much Income Can You Get From an Annuity? An Annuities Expert Gets SpecificHere's a detailed look at income annuities and the factors that determine your payout now and in the future.
-
Your Paycheck Stops in Retirement, But Your Life Doesn't: An Expert Guide to Planning for a Confident FutureSocial Security will replace only about 40% of your salary, on average. A solid financial plan will help you plug the gap so you can rest easy in retirement.
-
Are You Jeopardizing Your Future to Help Your Adult Kids? An Expert Guide for How to Not Do ThatIf your adult child needs financial help, of course you want to provide it, but crafting a plan that also protects your financial and emotional well-being is vital.
-
I'm a Financial Planner: Here Are Some Long-Term Care Insurance Tips for Every AgeStrategies include adding riders to life insurance for younger individuals and considering hybrid or traditional long-term care policies for those in their mid-50s and 60s.
