7 Tips Present Day Retirees Wished They Knew When They Were 24
At the TD Ameritrade Advocacy Summit last week in Washington, a panel of four retirees spoke before forty hand-picked industry thought leaders. They shared their feelings about how they got to their retirement, what decisions they made – both the good and the bad – and where they stand today. While they would all have what many would consider a successful retirement, they did agree on one fact: Their path to retirement would have been much easier if they only knew what they know today when they were 24 years old. They identified seven critical lessons they urge today’s 24 year olds to embrace:
- Start early, not late – This is the old standby. Much has been written about the importance of starting early (see “What Every 401k Plan Sponsor and Fiduciary Should Disclose to Employees: How to Retire a Millionaire (Hint: It’s Easier Than You Think),” FiduciaryNews.com, February 25, 2014). The mathematics is obvious, but the psychology is not. What prevents young adults from taking advantage of the time offered them? These retirees were fortunate in that they were able to make up for past errors. The biggest error, though, was not starting earlier. That would have more than made up for any bad decisions.
- Cut spending and keep your eye on the retirement ball – Perhaps this is the corollary to the first tip. It fits well within a comprehensive retirement plan (see “5 Things to Do to Improve a Retirement Investor’s Goal-Oriented Target,” FiduciaryNews.com, August 12, 2014). Financial service providers will often recommend employees strive to save, over time, up to 20% of their salary. This has two positive effects. Most obviously, it increases retirement assets. Indirectly, though, it offers the advantage of reduced spending – if you don’t have it, you can’t spend it. Getting used to spending less helps a lot in retirement, and the panel of retirees can attest to this.
- Invest wisely (i.e. for the long term) – In the most general terms, this means keeping things simple, even if that means investing in only index funds. There’s no reason to try to outthink the markets by employing some sophisticated asset allocation formula (see “Why Asset Allocation Doesn’t Matter In The Long Run,” FiduciaryNews.com, June 24, 2015). Indeed, one of the retirees noted Jeremy Siegel’s book where he charted every stock in the 1957 S&P 500 through dividend reinvestments and mergers. This retiree was surprised to learn what stocks turned out to be the best performers. The lesson was obvious to him: Slow and steady wins the race.
- Warren Buffet says pick a stock and stick with it – Another of the retirees cited Buffet, who is known to have said, in effect, “I’d rather pay a fair price for a great stock than a good price for a fair stock.” This advice is important for those who prefer to avoid the downside risk of index funds and wishes to actively manage his retirement portfolio. It has been well documented that, over periods of extended down markets, actively managed portfolios tend to perform better than the indexes (see “Does the ‘Lost Decade’ Signal the End of Passive Investing?” FiduciaryNews.com, January 5, 2010).
- If you don’t have time, hire a professional – For the most part, these retirees tend to fall into the “Do-It-Yourself” category. Still, they recognize not everyone has the time, the aptitude, or the patience to personally manage their own retirement investment portfolio. In this case, they recommend savers hire a professional to handle the investments. Oddly enough, this is the same conclusion retirement plan sponsors have made when it comes to delegating their investment responsibility (see “The Easiest Way to Reduce Personal Fiduciary Liability for Plan Sponsors and Other Non-Professional Trustees,” FiduciaryNews.com, October 16, 2012).
- Keep a lot of cash for when the market goes down – The interesting thing about this tip is that it was famously recommended by Ben Graham, Warren Buffet’s mentor. While this might sound like a great idea for someone doing it themselves, it’s also something to confirm with any hired professional. But this is only in terms of reinvesting. What if you’re retired? Well that cash can come in handy for something else (see “The Hows, Whys, and Right and Wrong Way to Use Asset Allocation,” June 30, 2015).
- Don’t panic and stick it out – Into each life a little rain must fall. One’s long-term investment character isn’t determined when the market is rising. It is revealed when the market falls. Getting out the market after a correction remains one of the worst decisions long-term investors repeatedly make, (see “Why 401k Investors Chase Performance – and How to Prevent It,” FiduciaryNews.com, March 5, 2013). These retirees have experienced the highs and lows and highs of the many market moves during their lifetimes. They now know no tree grows to the sky, nor does any correction end at zero.
And that may be the most important lesson of all.
Are you interested in discovering more about issues confronting 401k fiduciaries? If you buy Mr. Carosa’s book 401(k) Fiduciary Solutions, you’ll have at your fingertips a valuable reference covering the wide spectrum of How-To’s (including information on the new wave of plan designs) every 401k plan sponsor and service provider wants and needs to know. Alternatively, would you like to help plan participants create better savings strategies? You can buy Mr. Carosa’s latest book Hey! What’s My Number? How to Improve the Odds You Will Retire in Comfort right now at your favorite on-line or neighborhood book store.
Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.