Depending on whether you counted your birthdays or used the mortality tables, many (including the author) are on “The Back Nine.” You have made the turn, grabbed a burger and a coke at the stand and are starting the last nine holes. Unlike real golf, with financial planning, there is no mulligan allowed. Your mission is to stay in the fairway, do not play too quickly and enjoy the game. So, what do you need to do? Here is your game plan for The Back Nine, Practical Steps to Retirement.
10 – Check Your Clubs
Ever leave your sand wedge behind? You are not alone. Each golf club is a tool. Most courses will have a couple of doglegs, bunkers, and traps along the way. To play the round and win, you will need all your clubs in your bag. Sure, if you are playing a par three course, you do not need all your clubs.
Par three course are like college: it is not the real world.
Similarly, there are plenty of tools with financial planning. Some tools are awesome (think of Roth IRA’s and the potential for tax-free compounding) and some are, at best, dubious (think meme stocks and get rich schemes). Make sure you have got the right tools in your bag to have a great round.
11 – Pack Your Bag
When heading out check your bag to see that it is properly packed with the right equipment – an umbrella, sunscreen, and a jacket. You never know what the elements will bring, particularly in New England.
Oh, I almost forgot, you will also need to pack a few extra balls. All right, some of you duffers will need to pack more than a few extra balls.
When packing your financial bag, you will need to make sure you are prepared for the journey. Just because the future is uncertain, does not mean you should not plan for it. Packing your financial bag means making sure you have protected your family, income and property. Here are 4 Things Every Investor Can Control.
12 – Double Check Your Bag
Many players should consider packing some long-term care insurance. This is a tool that is needed on the back nine. There is a reason it is called long-term care insurance – you could be around for a long time. Yeah, I know, the premiums are expensive.
What is not expensive these days?
The sooner you get this insurance, the better off you will be. Why? Simple, the younger you are when taking out this policy, the lower the premiums.
Hopefully, you have already packed your bag with life, disability and property (homeowners, auto and umbrella) insurance. Now it is time to protect your portfolio and other assets that took a lifetime to accumulate.
13 – Check in With Your Caddy
They are not as popular as they used to be, but on some courses, you can still get a caddy. Many moons ago when our son was about twelve, he read (yes, he was reading) in the New York Times how much money caddies made and wanted this to be his career.
This, of course, was caddying at the Greenwich Country Club. I had to break the sad news to him that his earnings would not cover his transportation costs, which he didn’t like hearing.
Caddies give you the club you need, put the pin back in and rake the sand if you go to the beach. Your real-life caddy is your financial planner. They will make sure you are using the right tools, point out the hazards along the way will help minimizing any potential financial messes. Here are 6 Easy Ways a Financial Advisor Can Add Value.
14 – Go Long
This does not mean you should always try to hit the ball past the hole. We are talking about investments here. Sure, it is temping to abandon the stock market because you are nearing or in retirement. This could be a big mistake.
You could be in retirement a long time.
Recently there have been two predominate trends regarding retirement. The first is that more people are retiring early. The second is the increase in life expectancy. This could mean spending thirty years or more in retirement.
Do you think many people are psychologically, much less financially, prepared to spend up to thirty years or one-third of their life in retirement? I doubt it.
A longer life expectancy and a potentially earlier retirement will cause problems for many retirees. Unfortunately, many think they cannot lose any principal with their ‘safe’ investments. Therefore, they will own Certificates of Deposit (CD’s), bonds and fixed annuities. Are these ‘safe’ investments over a thirty-year retirement?
Regrettably, the answer is no.
People in this station of life need to be educated about the new math of retirement. Taking the ‘safe’ approach by investing in CD’s, bonds and fixed annuities can lead to a challenging and poorer retirement. Without learning the new math, a lifetime of savings will erode over time.
The new math is all about projecting a longer life in retirement. This math can be so compelling, and, unfortunately, the old math so ingrained, that change can be difficult.
Spending decades in retirement means you will be fighting that old nemesis, inflation. Inflation has come down significantly from its peak in the COVID-19 pandemic in June of 2022 of 9%. 1)
The Federal Reserve Board (Fed) stated target for inflation is 2%. Their preferred index for inflation is the Personal Consumption Expenditures (PCE) Price Index. For the year ended December 31, 2024, the PCE inflation was 2.6%.
It is difficult to fight inflation with a portfolio of cash and fixed income. After taxes and inflation, there is little left over.
Go long and invest by maintaining some equity exposure as a hedge against inflation.
15th – Have a Backup Plan
One of your main objectives is to keep the ball in the fairway. As many of you know, this is easier said than done. Sometimes the ball ends up in the rough. And yes, unless you have a Tiger in your tank, you might be in the rough at some point.
Some holes will be an adventure and that is OK. You may even have to yell, “fore,” more than you want to. Even when you are not on the golf course, things can go sideways. For these times, you have got to have a backup plan. This backup plan could include saving more money, downsizing your large house, or perhaps working longer. I know, this does not sound very appealing.
That is why it is a backup plan; it will only be implemented if necessary.
16th – Plan the Next Shot
As with any sport, you are not just playing for the current shot or move. Most skilled competitors are already planning their next shot. It is the same with your financial plan.
What is different is that at some point you hopefully get to benefit from some shots you took earlier, which is done by accessing your portfolio to supplement your living expenses.
When doing this you will need to focus less on income. Many people think of income as yield. How much am I getting in income that I can spend.
Gosh knows I can’t spend my principal; just give me my income!
Many folks think they cannot spend their principal. It is time for them to adjust their thinking about living off your investment portfolio during your (hopefully) long, happy, and prosperous retirement.
Change the focus to total return. This means looking at both the income and the growth, or regrettably with the decline of your portfolio. Total return takes into account both of these elements.
You will need to calculate how much principal can be withdrawn from your portfolio annually. Draw out too much and you might “die broke.” This is acceptable if you die close to when you go broke. This is a very unpleasant thought if you go broke and live a long time after that.
17 – Stay in the Game
Is your goal to retire or to go do something you have always wanted to do? I cannot tell you what your goals are, but I can tell you that retirement has changed, a lot. Traveling, visiting your children and grandchildren or just playing golf are visions of retirement.
Back in the good old days, many employees went to work for one company their entire career and then retired. With a company pension, social security, and other savings many people could look forward to a reasonably financially comfortable retirement.
Today the retirement landscape is dramatically different. Many people will work for several different employers, or perhaps start their own business. Some may even have several different careers.
Many large corporations have shifted retirement funding to their employees by removing their pension plans and implementing a 401(k) plan. For golfers with no pension plan, this means relying on your 401(k) plan, IRAs, and other savings. Oh yes, and maybe a social security check for beer and pizza. If you are lucky.
18 – Enjoy the Round
This goes without saying, which is exactly the reason I am saying it. Why play the game if you are not having fun? Sure, the foursome behind you will constantly be hitting into you. Sometimes it will be raining and there is always someone looking to sandbag you, isn’t there? Learn to deal with it and do not let it spoil your round.
Enjoy the round…it is over before you know it. OK, it is time to putt out and hit the clubhouse.
Action Item
Unlike real golf, there is no financial planning 19th hole. You can’t sit in the clubhouse with a bunch of Average Joe’s watching ESPN with a pitcher of beer, chomping on pretzels and talking about how close you were on that birdie that turned into a double bogey.
To make your ‘Back Nine’ the best, give us a call at (860) 645-1515 or e-mail us at Thomas.scanlon@raymondjames.com
This is original content prepared by Manchester, CT Financial Advisor, Thomas F. Scanlon, CFP®, CPA.
1.) Nerb.org – September 1, 2023
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