A Dose of Retirement Investment Viagra

I have a confession to make. I’m getting older and I’m not the man I used to be. At times it’s embarrassing and humiliating.

During my working career I spent 40+ weeks per year flying all over the world. I had millions of frequent flyer miles and knew all the ins and outs of the game. I was a genuine “road warrior”.

When I retired, my wife Jo and I had a blast touring the country in a motor home for 3-4 years. We never got close to an airport. It ended when Christmas was coming and we decided to fly to our daughter’s.

We got to the airport and I stood in the front of the luggage check in line. There was no agent, only a touch screen computer I had never seen before. I froze. Jo said, “OK your turn, get us checked in.” I didn’t move and she said it again. In much too loud a voice I said, “I don’t know what to do!”

My mind was racing. Where do I pay the $25, I don’t see a money slot? There has to be 50 people in line behind me swearing under their breath. What if I screw something up? My eyes were glazing over and I couldn’t read the screen. Jo spoke up again. In a louder voice I said, “I don’t know what to do!” Now I had embarrassed her in front of everyone.

The young lady behind us, ponytail, backpack and all, came forward and said, “Let me help you”. She got us checked in and sent us on our way. I was humiliated and felt awful about embarrassing Jo. I muttered under my breath, “Never again, from now on we drive.” Jo didn’t respond.

I forget that we had to fly back home. As we stood in line, Jo made a preemptive strike. She grabbed an agent about 20 feet away and said, “We have never done this before. Please teach us how to do this.” The agent was a good teacher; she never touched the screen. She told us what to do and walked me through the process – I did it! That was easy. She cured me of my check in impotence!

Thankfully I am married to a woman with a cool head, flying is so much easier than driving across the country.

I realized that embarrassing experience was symptomatic of a much bigger problem a lot of baby boomers face. I have many friends who were very successful executives with significant titles, who regularly made business decisions involving millions of dollars.

While they were captains of industry, for many something happened as they crossed the retirement threshold. When they took a lump sum payout of their 401(k) – the bulk of their life savings – it hits them like a ton of bricks. This money has to last for the rest of their life. With a giant knot in their stomach they realize “I can’t screw it up”. When it comes to managing retirement money they have no clue.

It’s a very scary feeling; I’ve been there. Many react like I did in the check in line. They don’t know what to do, have lost their confidence and experience Retirement Investment Impotence. Shhhhh! Don’t tell anyone, it is embarrassing.

There are good reasons to be concerned. Friends send me articles like this outlining that few, if any, professional mutual fund managers can beat their respective indexes. If the big boys can’t do it, how does the little guy stand a chance?

When you experience this challenge, don’t let your emotions take control, there is a cure.

I am going to offer a few milligrams of advice about things to do; however the multi-milligram dose is in the two things NOT TO DO.

The BIG DON’TS

• It’s normal to feel overwhelmed and vulnerable when you realize your job is to manage the nest egg for the duration. I’m told those fears pale in comparison to the fears experienced by a surviving spouse who delegated managing the money to their deceased companion. DON’T COMPOUND THE PROBLEM. Both spouses must embark on an educational journey to raise their financial understanding and comfort level. Manage your money together.
• The first “Do” tip will be to consult with a licensed professional; it’s a good thing to get qualified help. While you may delegate some responsibility to a trusted professional, NEVER ABDICATE THAT RESPONSIBILITY.

Abdicating financial control to anyone because they appear to know what they are talking about is much too risky. If they make a mistake, they lose a client. Stay on top of things – don’t allow anyone to be in a position to spin your golden years back into straw.

Some easy steps

Get a financial checkup with a licensed professional. They should be:

• Licensed
• Experienced
• Independent – not tied to one company’s investment products
• An excellent educator
• Held to a fiduciary standard of ethics
• Someone you both are totally comfortable with

Don’t settle for anything less!

You will have choices. You can become a do it yourself money manager with a professional coach – or – for a fee, they can manage all, or part of, your money for you.

Regardless of which path you choose, the following principles still apply.

1. Clearly understand the goal. Mutual fund managers not beating their respective indexes is not relevant; they have different goals. The goal for retirees is preservation of capital by avoiding catastrophic losses. You are not striving to get rich – just trying not to get poor. You may not be the man you used to be; but you don’t have to be – you already made your money.

If the goal is to beat an index, you are likely putting too much money at risk?

A good year consists of withdrawing enough to supplement your other sources of retirement income to pay your bills, while the remaining balance in your brokerage account grows ahead of inflation. Anything beyond that is a plus. Don’t go spend the money, because you will have a down year.

2. Allocate between asset classes. Retirees should allocate a certain amount to cash, safe fixed income investments and the stock market. Never put all your eggs in one basket.

3. Insist on proper diversification. Proper diversification reduces the probability of catastrophic losses.

Holding a few mutual funds won’t do the job. Sector funds rise and fall with the sector. Index funds work well for the long haul; however there are trillions of dollars invested in them. When fearful investors start withdrawing money they can drop quickly.

Proper diversification includes non-correlated sectors, geographical and currency diversification, and some metals (not mining stocks) to protect against inflation. A good financial professional should be able to offer detailed guidance on these issues.

4. Position limits. No matter how appealing a stock or mutual fund may appear, we suggest retirees allocate no more than 5% of your portfolio to any single holding. You’re not trying to get rich – protect your capital.

5. Use trailing stop losses. A trailing stop loss is one of the best ways to prevent catastrophic losses. “Buy and Hold” is not meant for retirees. You may not have 10-20 years to hold on to a loser hoping it will come back. As a general rule we recommend a 20% trailing stop loss. In the worst case, if you have 5% of your portfolio invested, and it drops 20%, you’ve lost 1% of your entire portfolio. You lost a little money but avoided a catastrophic loss.

6. Never invest in anything you don’t understand or are uncomfortable with. You worked too hard for your money and are betting on something you know little about or are afraid of. Keep searching, you will find a good choice.

7. Record your favorite TV shows and fast-forward through the commercials. You will save at least 30 minutes a day by not watching those damn commercials.

Use that time to read and educate yourself. There are several good educational investment newsletters. Websites like Marketwatch will keep you up to date. Hopefully you like our articles and continue to read them and forward to your friends.

My friend, Mike Maloney has produced a great series of videos about Hidden Secrets of Money. Spend a few minutes watching the series on YouTube and you will get a darn good education on money, markets and investment implications.

Both spouses should discuss what you learned and what it means to you and your investments. You will be amazed how quickly your skills and confidence will grow.

Curing retirement investment impotence is not as easy as a ticket agent showing me buttons on a screen; but, as the Turbo Tax commercial says, it’s not rocket science either.

At the end of the year when you review your portfolio together, proud of the fact you have done well – and your spouse gives you that special look, you never know what might happen…

On the Lighter Side

What a breath of fresh air last weekend was. No football, no big election coverage and a wonderful dose of springtime in our part of the world.

The countdown to pitchers and catchers reporting to spring training is just a few days. It’s fun to wander the practice fields and watch them practice. These bigger than life folks we see on TV are really young men who work hard at their craft. The few I have spoken with over the years look at me, old enough to be their grandfather, and have been quick to smile and were respectful.

A high school friend coached little league and one of his kids played in the major leagues for over a decade. He told me, “When the young man got the call to the big leagues, he was living the dream of every kid he ever coached.”

And finally…

I am feeling a bit philosophical today. This is a good tool when encouraging young people.

Until next time…