Oh the Places You'll Go

From the great words of Dr. Seuss “Only you can control your future.”

I don’t know about you, but I love Dr. Seuss! His whimsical words and imaginative prose are fun to read at any age. He is delightfully eccentric yet full of wisdom to which we all can relate. Not only does Dr. Seuss instill positivity and confidence, but he tells it like it is. He encourages and motivates us, but he is brutally honest and lets us know that life isn’t always easy or fair. But in the end, we will persevere and thrive.

For those of you who know me, you know that I am a bit of a control freak. I prefer to not call it control, but passion. I am a planner. And it is no surprise that I chose a career that focuses on planning. I truly believe that well laid out plans lead to successful results. Unfortunately, as much as I wish that I could, I know that I cannot control everything.

When it comes to retirement there are things that we can fully control, things that we can somewhat control and then there are those things over which we have absolutely no control.

So, what are those things that we can control? First and foremost, before we retire, we can control how much we save by setting our standard of living beneath our earnings. Starting to save/invest early and allowing the benefits of compounding to work its magic is powerful. There are tools that are available that allow individuals to determine how much to save based on their current age, planned retirement age and income. Generally speaking, if you start saving at 25 and make $50,000/year you should save approximately 5% of your income. If you wait to start saving until you are 30 years old and you make $70,000 per year, you will need to save 9% per year. You get the gist, the longer you wait to start saving the more you will have to save.

Once in retirement, we can also control how much we spend. More on that later.

Second, you can control when you file for Social Security. Social Security can be a meaningful source of income in retirement. Making the best possible selection, as it relates to when to file, can make a material difference in the income it provides over the course of your retirement years. It is important to consider Social Security in conjunction with all your assets to determine an optimal strategy.

Third, how you invest your assets and how much risk you want to take is also something that you can control. Your asset allocation should be designed to match your unique circumstances including your time frame, income needs and risk tolerance. Determining an asset allocation which meets your goals is the most significant challenge and opportunity. While a more aggressive strategy could potentially produce higher returns over the long-term, you must be willing to accept the short-term volatility that is associated with such a strategy.

Subsequently, this leads to one of the things that is totally out of our control, and that is market returns or the sequence of returns. I have been in this business for many years. I remember all too well the run up of tech stocks in the late 90s. From 1995-1999 the S&P 500 had double-digit positive returns ranging from 21% to over 37%. The Nasdaq rose 86% in 1999 alone. The 90s were awesome! I recall a large group of employees from a local employer who were offered packages and chose to retire early. They were loving the outstanding returns that they were seeing and sadly they were spending accordingly. It was painful to watch! As investment professionals, we were skeptical that these returns would last forever and we knew that spending what the market was returning was a detrimental mistake. Sadly, the dot-com bubble burst and the markets came crashing down. The S&P 500 was in negative territory for three years. By October of 2022, the Nasdaq had come crashing down and fell 77% from its peak. In fact, the decade of the 2000s was the worst decade for the markets. Sadly, many of those retirees who were spending all of their profits had to return to work. The good news is that you can control your savings before retirement and your spending after retirement.

“I’ve heard there are troubles of more than one kind; some come from ahead, and some come from behind. But I’ve brought a big bat. I’m all ready, you see; now my troubles are going to have troubles with me!” ~Dr. Seuss.

As I mentioned earlier, we would come back to spending in retirement. This is something that you can control. Upon retiring, a sustainable spend rate is typically around 4% of the portfolio which also accounts for the eroding effects of inflation. This is your big bat! It can weather most market conditions and provides you with a high likelihood of not running out of money over a 30-year time period. Which leads us into something that we can somewhat control and that is longevity. How long will we live and how long can we continue to work. We would all like to think that we will live a wonderfully long and healthy life and work until we choose. If only it were as easy as eating more vegetables and exercising. Instead, we need to plan for both ends of the spectrum, a long life, a premature death or even a disability. If you come from a family like mine where people live into their late 90s and longer, and you chose to retire early, you would need to reevaluate your 4% spend rate as it may not last 50 years.

Additionally, you can somewhat control what your retirement looks like. Will you fully retire or will you ease into it? About half of those who decide to retire between 60 and 69 choose to continue working in some fashion, whether they “need” to or not. Financially, this allows you to delay dipping into your retirement savings, it may allow you to continue insurance and other benefits and maybe even allow you to save more. Moreover, most individuals who keep working do it because they enjoy it, and they like the ability to stay engaged. As we mentioned earlier, you can control how much you save and having adequate savings allows you to control your ultimate retirement date.

Inflation is another variable that we cannot control. Recently we have felt the impact of inflation. In June of 2022, we saw it peak over 9%, a number that we had not experienced since the early 1980s. Regardless of how good or bad inflation is, it must be accounted for as you prepare for retirement.

“Be sure when you step, step with care and great tact. And remember that life’s a great balancing act.” ~Dr. Seuss.

Not only is life a balancing act, but so is managing taxes in retirement. Which is another thing that is out of our control. There are strategies that can be deployed, but the challenging part is not knowing how taxes and tax laws might change over the years. Working with knowledgeable advisors and tax professionals is a vital component of a successful retirement. They can help you navigate the ever changing and complex tax landscape.

Like Seuss’ magical realms, the world that we live in is difficult to predict and is ever changing. We will constantly be faced with difficult decisions that have to be made with variables that we cannot control. While we cannot control everything, being aware is half the battle. Knowing the possibilities and risk involved and having a contingency plan (your big bat) for most risks is the best way to plan. So, the moral of the story is this. As you prepare for and or as you enjoy your retirement, focus on and prioritize those things that you can control. Have a contingency plan for those things that you cannot control. Focus on the long term and don’t let the blips along the way cloud your judgement and distract you from the path that you are on. As we say to our clients frequently after developing a well thought out, customized plan that fits their unique circumstances, “stay the course” and oh the places you’ll go.

“And will you succeed? Yes, you will indeed! (98 and ¾ percent guaranteed)” ~Dr. Seuss