Much of financial planning is based on this concept: Put your money to work in a basket of diversified investments, add to it and let compounding interest do its work. That is the resounding message told to all people, whether they’re 20, 40, 60 or 70.
But two critical ingredients are needed to make that concept work:
- Income, so you don’t need to use the money while it compounds
- Time — not simply months, but years, if not decades
Look at the rise of Warren Buffett’s net worth — 99% of it came after he turned 50, even though he started investing at age 13.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
Unfortunately, retirees lack those two essential ingredients. They don’t have the same income they used to (limited to Social Security and maybe a pension), and they certainly don’t have lots of time. That’s why, if you’ve achieved a level of financial success where you can consider retirement, you can and should think differently about your investments and the purpose of investing.
The importance of comprehensive planning
Many retirees lack comprehensive planning. Let me give you an example of how that plays out through the portfolio of a client I’ll call Joe. Joe came to me after working with two different advisory firms for a number of years. He had statements and reports, but he didn’t have a good grasp of how his money was going to work for him to meet his retirement lifestyle needs and wants. Joe had a reasonable lifestyle that fit his small pension and Social Security. He used his savings to cover travel expenses, house repairs, surprise expenses and much of the extra stuff he wanted to do.
As we had conversations and did a detailed audit of his investments, he was surprised to learn that he was taking far more market risk than he’d thought. He felt he needed to save money month by month from his pension, Social Security and required minimum distributions (RMDs) — he was already over 70 years old — in order to travel and before he could do house remodeling.
The result was that he was putting off the aforementioned things he wanted to spend money on for months, if not years, until he saved enough to do them. Yet, at over 70 years of age, he had $1 million more than he actually needed for his living expenses. But his previous advisory firms hadn’t helped him to integrate all the essential parts of a retirement plan or communicated well with him, leaving Joe overinvested in the market while they collected fees in excess. This left much of his nest egg unused, when it could have been adding to his retirement enjoyment.
Here was a retired man with a reasonable lifestyle who wanted to travel some, maintain his home and do a few home renovations. But those things were delayed because he had been beholden to the market-returns philosophy of the traditional financial industry. It was not the right philosophy for him at 70 years old.
After going through an integrated planning process, he said he felt comfortable for the first time in his years of retirement, saying to his adult daughter that he would buy a needed washer and dryer for her. That’s because he finally understood the money he had and could use it without concern of running out.
It’s about so much more than the market
Another cautionary tale involves a couple we’ll call Suzanne and John. She handled the investments; he hired the financial advisers. Several advisers came and went, and after a while, Suzanne and John felt they were on their own — even though they were paying the fee to the adviser and a product fee for the investments that were in their portfolio. But they didn’t know how much they were paying, nor what their investments had evolved into.
Over time, it gradually became unclear what they owned in their investments and how those would work to provide the retirement they wanted. Ultimately, it was left to Suzanne to figure it out on her own after her husband passed away in the middle of their golden years of retirement. She quickly realized she didn’t have a retirement plan, and the adviser didn’t know her or help her understand her money or what it would be able to do for her.
Like Joe in the previous example, she was hesitant to touch her millions in savings because the advisers had relegated her thinking to market returns and investment performance. She lived mainly on pensions and Social Security, and the millions she and her husband had saved were being left for someone to manage without them being able to use it for things they wanted — traveling, helping their kids and helping provide for their grandkids’ education.
Market returns are only part of a retirement plan
The financial industry often talks about diversified investing and financial solutions and even encourages comprehensive planning. This can often fall short of expectations, especially for retirees and those nearing retirement, when it means so much more. In fact, a J.D. Power study found that 89% of those promised comprehensive planning never got it.
Remember: Market returns are only one small piece of an integrated retirement plan. “Integrated” entails: your layers of cash flow and which account they come from over time; tax planning and legal tax minimization; protecting investments from market risks and possible future health care expenses; making sure there’s money to cover health and long-term care; predictable income to meet your lifestyle needs and some wants; and legacy planning.
Looking at it from all those angles allows you to integrate a true retirement plan that enables you to get your head out of the market, go live, give, travel and enjoy the money you've saved over the years. Perhaps even upgrade your retirement lifestyle!
Dan Dunkin contributed to this article.
The appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
These materials are for informational purposes only. It is not intended to provide, and should not be relied on for, any tax or legal advice. Please consult a qualified professional before making decisions about your financial situation. The specific tax consequences of any investment or strategy will depend on your specific tax situation.
Investing in securities involves risk, including potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Please see Item 8 of our ADV 2A Brochure for additional information on the risks associated with our services. The sources are provided strictly as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. When you access one of these websites, you assume total responsibility and risk for your use of the website.
Related Content
- How Will the 2024 Election Impact Your Retirement?
- Not Confident About Retirement Despite Financial Success?
- Don’t Let Market Downturns Rain on Your Retirement Parade
- Six Financial Actions to Take the Year Before Retirement
- Five Things I Wish I’d Known Before I Retired
-
Are You Ready for 65? The Medicare Initial Enrollment Period QuizQuiz Turning 65 soon? Test your basic knowledge of Medicare's Initial Enrollment Period (IEP) rules in our quick quiz.
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
How to Keep Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Giving Tuesday Is Just the Start: An Expert Guide to Keeping Your Charitable Giving Momentum Going All Year
Instead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard Personal Injury LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
A Financial Adviser's Health Journey Shows How the 'Pink Tax' Costs WomenFact: Women pay significantly more for health care over their lifetimes. But there are some things we can do to protect our health and our financial security.
-
I'm a Cross-Border Financial Adviser: 5 Things I Wish Americans Knew About Taxes Before Moving to PortugalMoving to Portugal might not be the clean financial break you expect due to U.S. tax obligations, foreign investment risks, lower investment yields and more.
-
Show of Hands: Who Hates Taxes? The Best Time to Plan for Them Is Right NowBy creating a tax plan, you can keep more of what you've earned and give less to Uncle Sam. Here's how you can follow the rules and pay only your fair share.
-
'Smart' Estate Planning Can Cause Huge Problems: An Expert Unravels Popular MythsSometimes no plan at all could be better than making these unfortunate mistakes. Don't let your best intentions mess things up for your heirs.
-
I'm a Financial Literacy Expert: Bubble-Wrapping Our Kids Robbed Them of Resilience. Now What?By raising them to think they're amazing no matter what and lifting them over obstacles, we left them unprepared to work in the real world.
-
I'm a Financial Planner: If You're a High Earner, You Need an 18-Month Safety NetNo job seems to be safe in this age of AI. If you make a larger-than-usual salary, then you need to have a larger-than-usual emergency fund. Here's why.
