The market has surprised me many times in thirty years. People — far fewer.
What surprises clients most, when they first sit down to plan retirement, is how little of the work is about predicting markets, and how much of it is about preparing for ordinary human life: a daughter’s wedding, a husband’s surgery, a roof that needs replacing, a car that finally has to be a car and not a deferred decision. The market does its thing. Life does its thing. The plan has to hold both.
You don’t really know how the plan works until you stop earning.
When I started in this business in the mid-1990s, “retirement income” mostly meant pensions, Social Security, and a portfolio that you withdrew from at four percent. The defined-benefit pension is mostly gone now. Social Security is still here, and useful, and rarely optimized. The four-percent rule is still here, and useful, and rarely the whole answer.
What’s changed is the responsibility. The risk of getting it wrong used to belong to an employer or an insurer. Now it belongs to you. Most retirees I meet have two questions, even if they don’t quite phrase them this way: will the money last, and who is paying attention. Almost everything we do together is in service of those two questions.
What actually matters
A few things, in the order I think about them:
Spending you can defend. Not a budget. A picture of what your real life costs, including the parts that vary — the trip you’ll take, the help you’ll hire, the medicine you didn’t plan to need. Most plans I review underestimate variability and overestimate discipline.
Income that doesn’t depend on guessing. A portion of your retirement income — Social Security, a pension if you have one, sometimes an annuity if it earns its place — should arrive every month whether the market is up or down. You should be able to afford the essentials without selling anything. The rest of the portfolio can then do what portfolios do, which includes occasionally falling forty percent.
A bucket between the two. A short-term reserve, big enough that you’ll never be forced to sell long-term assets at the wrong moment. This is the single most under-appreciated decision in retirement planning. Two or three years of essential spending in something you don’t have to flinch about owning.
Costs you can see and explain. Fees compound the same way returns do. I don’t believe the cheapest portfolio is always the right one — but I don’t believe an opaque one is ever the right one. If you can’t write down what you’re paying and what for, something is wrong.
Insurance where it actually fits. Not as a product to sell, but as a tool to use. Sometimes it fits. Sometimes it doesn’t. Anyone who tells you otherwise from the first conversation is selling, not advising.
Behavior, behavior, behavior. The market has not in three decades ruined a single retirement I’ve worked on. Decisions have. The most expensive ones almost always begin with the words “I just had a feeling.”
What I’ve stopped trying to do
Predict the market. Time the market. Talk anyone into a strategy they don’t believe. Apologize for being conservative.
In thirty years the most successful retirement plans I’ve watched have one thing in common: they were boring on purpose. The clients were not bored — they were busy living. The plan, behind the scenes, was just doing its work.
That’s the work. Quiet, integrated, attentive. Designed to last at least as long as you do, and quite possibly longer.
If you ever want to talk about whether yours is doing that, you know how to reach me.
— Bruce