The following is a guest post from Miles Saunders, the founder of MNS Wealth Management, an independent financial advisory firm that serves veterinarians. Here, he shares his thoughts about making sure that you’re on the right track when it comes to retirement.
“How do I know that I am on the right track for retirement?”
This may be the most common question I get asked. It is also one of the most important questions that should be asked. Of course, there is no one-size-fits-all answer and there never will be. (No matter how many people try to shove expensive mutual funds/insurance policies/annuities down your throat.)
I hope that by walking you through how I go about helping veterinarians find out if they are on track for retirement, you might be better able to see just how the process works –and how simple it can be!
STEP 1: DISCOVERY
This is a vital aspect of the entire process. By clearly defining and quantifying your retirement goals, you get to see the light at the end of the tunnel – a.k.a. your desired destination. This can be anything from living a modest lifestyle where you do not have to stress about money or it can be on the other end of that spectrum. The point is that your retirement is not identical to anyone else’s and needs to be looked at as such.
Additionally, during this process, I like to understand what your fears are. Not only your fears when it comes to investing but your fears in terms of things you do not want to have happen to you financially. The following question, “What would be the 5 most financially devastating things that you want to avoid?” is a great way to unearth your deepest money fears. After we have outlined your ideal (and non-ideal) retirement… those aspirations need to be quantified!
STEP 2: BUILDING A FINANCIAL PLAN
I am not talking about a boring 75 page document that is stale the moment it comes off the printer. I am talking about a financial plan that is dynamic enough to move with your ever-changing life variables. Too often do I see people make the mistake of trying to be very precise with their financial planning and it tends to have an adverse effect:
- People who are precise tend to be perfectionists, and when you miss your goal, it is demoralizing. Since most of retirement planning is behavioral mindset based, this may hinder your ability to reach your predetermined goals (i.e. trying to get ahead by taking too much risk). If you are planning with precision and not a general target (we will get into that in a bit) you run the risk of simply giving up. You planned for 7% annual returns? Guess what – the market does not care what you think will happen!
Instead, building your plan to adapt to various life and investment outcomes is much more prudent. It will allow you to stay mentally prepared and on track even when things do not go as you expect. You will be able to dial in more specific projections as you close in on retirement, but the fact that you have a general goal to start will make that possible.
Important to mention here is that part of the planning process is to understand your risk tolerance. The way I like to describe risk tolerance is that it is the amount of pain you are willing to endure before you break (sell). I refer to this as the “big mistake” as it means you have let emotions and fear get in the way of your quest to an ideal retirement – which brings us to our next step.
STEP 3: IMPLEMENTING/MONITORING YOUR PLAN AND BEHAVIORAL COACHING
Once you have your foundation in place and your roadmap to success in retirement, you have to execute. In 2008-2009, the “big mistake” was one that many people made. They sold any investments they had for fear of losing everything, only to not get back in the market, which recovered fully by 2012!
This type of market timing could foil the best plan in the world. It could wreak havoc on your dreams and can destroy all the hard work you have done. That is why I always explain to my clients that time spent invested, not timing the market, is one of the key determinants of wealth and helping you reach your financial dreams.
Will there be recessions before you retire? If you are young, it is as close to a guarantee as I can make. Will there be times where you feel as if you should have double mortgaged your house and put the proceeds into the market? If you have been alive the last 10 years, most likely yes.
The point is obvious, ups and downs will occur, and staying invested and to your plan requires supreme discipline and resolve. It requires a circuit breaker, such as myself, to explain that just because FOX/CNBC/CNN etc. talking heads say the market is going to crash, does not mean you should do anything. Do not chase the shiny object! Changes to your plan and investments should be dictated by your own life events and goals. This is why risk tolerance is so important, because if you have more risk in your portfolio then you can mentally absorb, destruction can occur when that risk tolerance is put to the test and you see X% loss on your statements.
STEP 4: YOUR RETIREMENT
Have you ever heard of the saying, “you only have to get rich once?” Well, that same mantra can apply to those who have reached retirement and achieved their goals. The “comfort zone” in retirement is a beautiful place to be, you want to stay there, right?! As you enter retirement, you will again be confronted will multiple ways to derail your financial goals. I put together the following list that is not all-encompassing but rather some of the more common ways an ideal retirement goes south (and I do not mean to Florida):
- Wanting to make more money, just for the fun of it – why take unnecessary risk?
- Being overly generous to family & friends
- Scams/embezzlement – know where your money is and whom it is with at all times
- Not strategically using your different tax buckets – think ROTH/deferred/taxable
- Not optimizing Social Security dollars
- Outliving your money – you should have a plan that accounts for this!
My goal with this 4-step process was to show you how important the question, “How do I know that I am on the right track for retirement?” is and how answering it can literally take a lifetime to fully complete.
Closing thoughts: Preparing and saving for retirement goes beyond having the “perfect” investment portfolio. As noted throughout this post, there is a huge behavioral component to investing. Life is fluid and ever-changing, which means that your financial plan needs to also stay flexible, yet focused. For those that are searching for ongoing financial planning services, it’s important to find the right financial advisor in order to ensure that you stay on track.
Thanks to Miles for submitting this guest post! You can reach him directly at firstname.lastname@example.org.