In a conversation with a prospective client, some things came up that can serve as a lesson to many retirees and pre-retirees. Let’s call the guy “George”.
George had expressed interest in our radio show and had called in. George told me that he’d been with a financial firm for decades.
The firm, based in Chicago, had managed his 401k while he was working. After he retired, he rolled his 401k into an IRA with them.
His portfolio consists of stocks, bonds and mutual funds.
When I was asking him about his current income plan, he told me that his current plan is to increase the amount of bonds he owns and decrease the amount of stocks and from that “less risky” portfolio, he’s taking systematic withdrawals for income.
George decided not to take us up on our offer for a second opinion. His reason was, “I think I’m going to stick with them for now because they’ve had good returns lately”.
He had a pretty low standard
First thing, the DOW Jones is up 18% on the year. Of course their returns have been good “lately”. Whose haven’t?
It’s not very difficult to be good when the market is going up. The true test of a plan is whether you will stay on track when things aren’t going as well.
He hadn’t transitioned his mindset
Secondly, it’s very clear by George’s focus on “returns”, that even though he’s 67 years old and retired, he has not transitioned from an accumulation to de-accumulation mentality.
This is key.
From the day you first start working until a few years before you retire, you’re in the accumulation phase of life. Your goal is to grow your assets so you can use them someday for income.
When you get within a couple years from retirement, you enter the preservation phase of life, where you should decrease your risk and develop the income plan that you will implement on your retirement date.
Finally, when you retire, you enter the de-accumulation phase of life where your goal should be to have a sustainable, strategic and comprehensive plan for how you will sustain your lifestyle for the possible decades of your retirement.
With each of these transitions there should be a different mindset.
George did not shift his thinking to the goal of building a sustainable de-accumulation plan.
There’s a difference between just having assets and having a plan
Lastly, and possibly most importantly, George doesn’t understand the difference between a portfolio of investments and an income plan.
Most people who are close to or already in retirement have a “bunch of investments”. The question is- are those investments working efficiently and strategically to accomplish your goals? Is every piece of your plan strategically built to work together?
That’s the difference between just having some investments that you hope grow and having an income plan.
We wanted to help George, but until he grasps these three things… we can’t.