Focus On What You Can Control
Planning for retirement can often feel overwhelming because there are so many different factors to consider. All of the factors can have a significant impact on your ability, not only to have enough money to retire, but make sure your savings can last for a lifetime.
We believe it's helpful to put the retirement equation in the context of the level of control we have over each of these factors. We've absolutely no control over future market returns and the potential for public policy changes that come out of Washington or our State capital, such reforms to the tax code or changes to social security and medicare programs. We have some level control over our life expectancy and when we retire (indicated in the blue circles)
The good news is we have total control over the key variables which are the biggest drivers of our success: how much we save and how much we spend. We know these two factors often are very much at odds with each other. We also have complete control over the amount of portfolio risk we choose take on within our investments and how we allocate risk through sound asset allocation. We can also control asset location which may help maximize your after-tax return as well as employing tax efficient strategies in the management of a portfolio. This may involve buying tax inefficient strategies in tax sheltered accounts, tax-loss harvesting and tax-gain harvesting.
What Can You Control?
We believe individuals should make the most of the things they can control. Especially saving earnestly and having a well-diversified, disciplined investment strategy. You should also have the right level of market exposure for your time-frame and tolerance for risks.
Younger individuals in particular should regularly re-evaluate how things out of their control may affect their future retirement picture. Younger individuals are likely to be the most impacted by entitlement reform future tax policy and the prospects for lower equity returns in the future. We believe the younger investors should save at least 15% of their gross income annually to mitigate against these potential headwinds.
The most important thing for your retirement success is to have a comprehensive retirement plan in which you defined your goals clearly, to identify the impact of the factors in which you have some level of control over and most importantly, to periodically update your plans to adjust to changes that occur over time.
Staying on the path to a successful retirement requires a intellectual honesty about what we can and can’t control.
Do you have questions about your retirement? We'd love to chat!
