Get “S.M.A.R.T.” to Achieve Your Retirement Goals
As we say a bittersweet goodbye to 2021, we tentatively welcome 2022 with prognostications about what fortunes the new year will bring. Humans have always tried to predict the future in an attempt to alleviate the discomfort of not knowing what the crops will yield, which labor-saving device will liberate/replace us, or what the market will return. We even have a somewhat awkward name for it – futurology.
We used to rely on oracles and mystics to dream of our tomorrows. With The Enlightenment of the 18th Century, we used new techniques to rationalize a future based on stars, math, and natural philosophy. Now we have artificial intelligence and almost unlimited data to feed to the futurists to predict trends that will hopefully line our pockets and allow us more leisure.
There is just one problem. Whether we are going up the mountain to seek council from the clouds or mining trillions of 1s and 0s, we are still not great at it. Markets that seem solid can be disrupted by unexpected events that can change the course of technology, work, and priorities seemingly overnight. Most of all, the people that make up our vast world, and who contribute in one way or another to the stock market, are wildly unpredictable.
We are in a market run-up through financial shenanigans like stock buybacks. This is where companies repurchase their own stock, often with the almost free loans available thanks to Federal Reserve Board (Fed) policy. This limits available shares and therefore creates higher prices. This practice was considered illegal market manipulation until the deregulation of the 1980s. The money that is used to repurchase shares and boost the price could have gone into research and development. This would increase the value of the company for the long run, not the sugar rush stock price acceleration we have seen in the last years.
The stock market is hyped up on Fed junk food, but people are starting to shift from FOMO (Fear of Missing Out) to FOBI (Fear of Being In). This is not illogical. If you had been invested in the S&P 500 for the last three years, your assets would have almost doubled. Why would you not have your finger on the “sell” button to protect those outsized gains?
Yet, that cloud formation looks like it is saying that the market could keep ripping upward. The shaman also divined that the Fed may not be as supportive of asset prices, with more concern about inflation than markets or employment. So, what is a mortal to do?
In regard to our retirement plans, leave the tea leaves at the bottom of the cup and take a lesson from corporate America. While that certainly doesn’t sound like as much fun as a Ouija board, we may benefit from looking at our retirement through the lens of SMART goals. Remember those? Specific, Measurable, Achievable, Realistic and Timely. Our portfolio and plan should be all of those things.
A Specific plan seems obvious. When will you retire, how much money will you have, how much will you earn in retirement, and how much will you need? You can control when, which will influence how much you have and need, but part of what you earn, outside of defined benefit plans and Social Security, may not be as easy to pin down. Rates and returns change, and how long your money lasts and what it is allocated to will change as well. It may start with money going toward travel and later need to shift to health care.
The Measurability of the portfolio and plan are not just the numbers on the quarterly statement. It is how much you are spending in relation to how much you have budgeted for. How much flexibility is there for unexpected expenses? Are you monitoring and preparing for tax expenses? One also needs to assess something less tangible. Can you measure your emotional reaction to that number on the page every quarter? Does it freak you out? On a scale of despondent to ecstatic, indifference is the goal. If you are ecstatic, you may be taking too much risk; if you are despondent, maybe there is a mismatch between you and your portfolio.
Making sure the specific plan is Achievable will rely on a plan that takes into account that whole bit about us not being able to predict the future. Some conditions of your retirement are in your control, and some are not. Will you retire into the teeth of a bear market or will the sugar rush continue? Only the soothsayer knows this, but make sure that your portfolio is designed with an intense focus on preserving your assets with a secondary focus on growing them.
How Realistic your goals are will depend on some soul searching about the balance between your different kinds of needs. What Brian Portnoy refers to as funded contentment takes into account many kinds of needs that include financial, spiritual, medical, and social. They are all important. If you have plenty of money and feel empty inside, then you have created an unrealistic plan. Conversely, if you spend it all on things that bring you joy, living in your kid’s basement will bring you to reality quickly. This should be a deep conversation between all of the stakeholders in your retirement.
Time factors into ALL of this. If you do not have a concrete plan in place that you understand and which takes you past this mortal coil, then now is the time. How long you will live in retirement can be estimated based on familial history, but that is not always available or reliable. Plan on living much longer than you think is reasonable. As time moves forward keep your plan flexible. You will likely need to adjust it based on the unfailing surprises life brings.
It is impossible to predict what next week, month, or year will thrust upon us, but we can be SMART about what we know and what we don’t know.
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