When you hear an alleged “financial expert” provide sage planning ideas, do you ever wonder whether that expert follows their own advice? Do they have the self-discipline to follow through on what they are telling others to do? This question cuts close to home since I’m occasionally referred to as a financial expert in the press. So, I’ve decided to look back over my 45 years in financial planning and ask myself what I’ve done right in following my own retirement planning advice.
Don’t get me wrong, I’ve done plenty of dumb things. Three examples are investing in a leveraged gold partnership I didn’t understand, buying penny stocks when I couldn’t afford the risk, and borrowing money from a relative during a rough patch in my business.
Still, over my four-plus decades in finance, I’ve done some things right. These moves can be summarized in six maxims, and just to make it real I’ll add how I applied these ideas in my experience. I recognize we all have different financial needs and goals, but my hope is that these ideas will help you in your own retirement planning.
1. Maximize Your Employer Offers
It’s standard for financial experts to start with this idea, but that’s because it’s true. Employers want to recruit, reward, and retain quality talent, so they offer perks. Particularly where the employer provides a matching contribution to a 401(k), it’s a no-brainer to leverage employer benefits.
In My Experience: I followed the 15 percent savings guideline and maxed out my 401(k) contributions, and then put the rest into a voluntary nonqualified deferred compensation plan. Further, when my employer began letting participants direct contributions to an after-tax Roth account, I put half of my ongoing 401(k) savings into a Roth account. In retrospect, I wish I had directed all of my contributions to after-tax Roth savings.
2. Don’t Chase Yields
For most people, there are two sources of personal wealth: their dollars at work and themselves at work. The latter — i.e. working for an income — is the one that pays best and is most reliable. Sure, you want your money to make money, but chasing yield is a fool’s quest. Unless you’re a professional investor, your goal should be to have your savings supplement, not supplant, the money-making machine represented by your career.
In My Experience: After losing hard-earned money pursuing leveraged gold funds and penny stocks, I changed my emphasis to building a diversified portfolio of tax-efficient savings. With the advantage of hindsight, I can report that this was a good approach to retirement planning.
3. Pay Yourself First
In planning your finances, attitude should precede aptitude. If you can commit to forced saving as one of your goals, the “how” part of the process will follow. It’s easy to let the challenges of day-to-day expenses cloud your vision, but if you focus on paying yourself first, in other words saving a percentage of your hard-earned income each pay period, the retirement planning process becomes simpler to manage.
In My Experience: The 15 percent of savings that went into my qualified and nonqualified accounts at work did most of the heavy lifting. The other commitment we made was to pay for a cash value life insurance policy each year, timing the annual premium to come due shortly after I received each year’s bonus from work. Fortunately, I have not died yet, but the cash value in the policy has been turned into a tax-efficient lifetime annuity income.
4. Manage Your Debt
TV financial experts scream and demean over the topic of debt. However, borrowing is a fact of life for most Americans, and the management of that borrowing should be the goal. I understand that this is a highly personal topic because where you stand with debt currently affects how you manage your debt as you move toward retirement. You should do what works for you.
In My Experience: Managing debt meant using short-term borrowing for automobile purchases, and as we moved closer to retirement, accelerating the paydown of principal on our home mortgage. It also meant segregating borrowing for our children’s education from saving for retirement.
5. Get Professional Help — But Stay Involved With Your Money
Over my decades working in financial planning, I’ve seen people trend towards the extremes — either avoiding getting any professional advice or delegating all their planning to an advisor. The better approach is to place yourself in the middle of the advice spectrum. Even with the power of the internet, or perhaps because of its ability to confuse, individuals planning for a successful retirement will need professional help. However, to simply abdicate the duty of planning to an outsider rarely is a wise idea. It’s your retirement plan.
In My Experience: I used an attorney to help me with my estate planning, an agent to advise me about my insurance, and a combination of both breathing and robo advisors to manage my investments. And yes, as a financial expert, I threw in some personal DIY moxie to do my planning.
6. If You’re Married — Plan As A Team
It’s more than just window dressing to promote joint financial planning with married couples. In the U.S., both our tax and benefits systems favor couples who are married. Major retirement decisions such as Medicare and Social Security stand to create gain or generate loss depending on whether the couple plans their filing decisions together. Qualified plans, joint bank accounts, and other common savings vehicles all need attention as a team, not just as individuals.
Otherwise, benefits are lost, cash flows are impaired, and unnecessary taxes are incurred. The bottom line is you’ll have less income as a couple if you don’t plan as a couple. And an additional tip: if you are in a committed relationship, but not married, it is even more important to do joint planning. You won’t have the advantages the government affords married couples.
In My Experience: While I might have been the financial guru, my wife helped me think through things, keep track of our finances, and let me know about her hopes and dreams in retirement.
As the old adage goes, “none of us are as smart as all of us.” We learn from experience, but we also learn from the experiences of others. Consider these six maximums and see how they may apply to your particular situation.