What can air travel teach us about retirement planning?
Suppose you want to fly from Los Angeles to London. The weather and atmospheric conditions will determine whether you fly east over the United States and Atlantic Ocean or north over the north pole, then south to London.
But here’s the thing to know: the decision regarding which route will be taken is not made after takeoff. Weather patterns are studied, and flight plans are laid out well in advance of the actual flight.
This is no different than your retirement. You should not retire and then say, “I guess I should figure out what I’m going to do with my free time and determine how I’m going to get income from my investments.” That conversation with yourself needs to be initiated much earlier. Unfortunately, many people head into retirement without a flight plan for their time or their money.
Some people are not bothered by turbulence and might even sleep right through it. Other people don’t like it at all and suffer physical and/or emotional distress.
You rarely know when turbulence is coming ahead of time, but rather, you realize there is turbulence when you are right in the middle of it.
The same thing applies with market volatility. You do not know when volatility is coming; but if you’re paying any attention at all, you know when it is currently happening. And just like turbulence, some people aren’t bothered at all by market volatility, while other people go into freak-out mode.
Wall Street has taught us that the only things that matter are growth, growth, and growth.
We believe that what really matters is income. Income that is dependable. If your income needs are met, then volatility is easier to handle. Your investments need to produce income whether the market is up or down.
Even the best pilot in the world needs help to get from point A to point B. No matter how long the pilot has been flying, he cannot see and know everything necessary from the cockpit. Air traffic control is always present to inform pilots of the things they can see; but which the pilot cannot.
No matter how long you have been investing into your retirement plan, there are things that you cannot see from where you are situated. That is because planning for retirement is different than investing for growth and accumulation. And if you have never planned a retirement before, how can you be expected to know everything that you need to? There are pitfalls that you probably would not think to be aware of, so it’s important that you have a guide to help you along the way.
The destination is lifetime income. You may need to acquaint yourself with an advisor who specializes in retirement income. Face it, you may be retired longer than you worked. I like to use my dad as an example of this. He retired from General Motors when he was 52. In 2020, he will have lived more years being retired than he worked. If you are relying on the 4% rule (you can withdraw 4% from your savings every year), you may be in trouble.
We may have another market downturn where you could have 40% less money available, yet you still need to withdraw funds for income. If the market doesn’t correct itself quickly you could be in real trouble. I call this the death spiral - where you slowly run out of money.
If you are looking for a plan to get you to and through retirement, please give us a call. We are happy to review your current flight plan or create a new one with you.