Retirement Principles

The average U.S. worker invests approximately 100,000 hours (+/- 25%) over their lifetime working. Retirement can last up to 50% of your life expectancy. Unless you are one of the few born with a significant inheritance, you will have to work at building your own retirement.

Rule #1: Nobody else is going to pay for your retirement

Starting in the 1970s, Congress passed the laws for IRAs and 401Ks to have individuals pick up more and more of the responsibility for their retirement.

Unless you work for the government, which still has pensions, only 11% of U.S. companies still maintain a Defined Benefit Plan (DBP). Most companies have implemented 401k and 403b salary reduction plans with little or no match and no guarantees. Most employees can enroll now as soon as they start working. One thing in common that all baby boomers, generation X and generation Y have in common is that we all belong to the “YOYO” generation. When it comes to retirement, You’re On Your Own.

The obvious answer is Time x Compounding = Financial Freedom.

As the old Mayor Daly of Chicago said, “Vote early and vote often.” You should start putting funds into an IRA or Roth IRA and 401K at work as soon as you can. The two basic rules of financial planning are:

1) Live within our means
2) Maximize your 401K contribution

Those who start early are going to have the best chance of securing financial freedom, which equals:

The freedom to retire worry free when you want to.

Besides financial restraints, there are several other important variables to consider:

  • Work/Business Endeavors
  • Health Issues
  • Life Expectancy

Financial freedom can enable many different activities for those lucky enough to retire:

  • Start a new business
  • Travel
  • Go back to college
  • Hobbies
  • Community/philanthropic work
  • Family time
  • Lifestyle

Years before approaching retirement, one should plan to get their cost structure (lifestyle) in order:

  • Pay off all debt
  • Develop a retirement budget:
    • Fixed costs (required periodic expenses such as insurance premiums and real estate taxes)
    • Variable costs (an amount that can change monthly, such as entertainment and food)
    • Luxury costs (truly discretionary; travel, hobbies)

On the fiscal preparation side of retirement, one should get their portfolio in order from day one and continue to manage it:

Know your risk tolerance (see Risk Tolerance questions). Although a subjective measure, your risk tolerance guides your investment choices so you can sleep at night. Is your style:

  • Aggressive
  • Growth
  • Moderate growth
  • Moderate
  • Moderate conservative
  • Conservative

The risk tolerance will help set your Asset Allocation, which determines our weighting between

  • equities,
  • bonds and
  • cash.

This is the most important tool in preparing for retirement. According to the Brinson Study from the University of California, done in the 1990s, the asset allocation will directly determine 92% of your annual investment return.

Specific investment choices contribute an average of 6%
Timing the market contributes less than 1%

Whether you are approaching or are already in retirement, you need to remember that investments are a continuous process that never lets up.

Depending if you are in the phase of:

Growth/Accumulation
Income, or
Capital preservation,

you should always

Monitor
Rebalance
Know when to sell
Manage your nest egg.

If you are not confident to do this continuous process, do not have the time or have other priorities, you should talk to and engage an objective, fee-only planning firm such as Quest Financial Services, Inc.

We will work with you as your advisor every step of the way to help you reach retirement and financial freedom.