Retiremyth

Unicorn

I’m a boomer.
And boomers, most of us anyway, always bring up the same thing.
Retirement.

Some of us count down the days until that magical moment,
“I’ve only got four years, twelve months and thirteen days.”
Others fret about finances,
“My advisor says I need a million bucks, I don’t think I’ll make it.”

And then there are others, the half-full type, who talk of how much fun they’ll have, “It’ll be like a vacation. Each and every day .”

Retirement’s a Myth
Sorry, to break the news, but.
It just ain’t so.
Retirement, at least the one touted by the banks and mutual fund companies—those retirement and financial experts (so called)—is a myth.
Why?
Why is retirement a myth?
Well, a whole bunch of reasons, some good and some bad.

The Good News – The Bad News
For starters, the bad news is it’s not going to feel like a permanent vacation.
As retirement specialist Denise Loftus explains,  “People have a certain degree of fantasy about retirement. After a few months they realize it’s still important to have some purpose and meaning in life… You just don’t play golf and fish endlessly for the rest of your life.”

The good news, on the other hand, is you won’t need a million bucks.
Actuary and retirement expert Malcolm Hamilton says that you don’t need anywhere near $1 million to retire, nor should you be targeting 70% of pre-retirement income either. Per Mr Hamilton, 50% is likely more than enough.

And the even better news is, if you really want to, you can retire right now.
OK, if you want to fully retire—right now—and you don’t have much money, you’ll probably have to move. Where to? Well, check out these six countries where you can live for as little as $1,000 a month

The most important thing
Here’s the thing, the important thing. Retirement is a personal affair. So personal that it can’t be packaged and sold like your basic smart-phone plan. And that’s the biggest peeve I’ve got with most financial planners and retirement advisors. All they do—most of them—is ask at what age you’d like to retire, and then they put you into some mutual fund. As if that’s all there is to it.

Put it all Together.
JugglingRetirement is important. It’s that crucial next-phase-of-life. And it’s something you’ll want to plan. Carefully. But where do you start? How do you start planning for life’s next phase? Well start by looking at those scenarios above. Odds are you won’t want to move to Thailand; you won’t have a million bucks; and you won’t want to be bored. Odds are you will—both now and in the future—want a meaningful life. So for starters, take the three scenarios above, and toss them around. Juggle them. Mix and match them so that you can start to arrive at your own very own, fully customized, fully personalized retirement strategy. Think about purpose and meaning. Think about passion. Think about how you can perhaps make a few bucks—just a few—doing what you love. Think about foregoing the whole retirement thing. Think about semi-retirement. Think about working two or three days a week at something you like. Think about living in a lower-cost location. It doesn’t have to be another country. Oftentimes another neighbourhood, or another type of home, is a great way to cut costs. Think about your income and your expenses, both now and in the future. Nail down your cash-flow. How much do you spend each month?  Then, from there, estimate (or work with someone who can help you forecast) how much you’ll really need to live on in 5 or 10 or 15 years.

Read Up
Retirement—your version of it—truly is the next phase. And, to my mind, it’s an exciting phase too. Retirement is when obligations disappear, and responsibilities evaporate. Retirement is all about you. And what you want to do. So it’s important that it’s not to left in the hands of your financial planner or investment advisor. It’s so important, in fact, that you should do some of your own digging. So, here are a few resources for you. 3D Book Cover #3 I’m sure you’ll find them, not only informative, but entertaining too.
The Blue Zones by Dan Buettner
The Real Retirement by Fred Vettese & Bill Morneau
Why Swim with the Sharks? by Diana Salomaa and Henry Dembicki
The Net Present Value of Life by Michael Di Lauro (OK OK, that’s me. I still think you’ll enjoy it though. Even if I did write it).

Last Thing
Take a vacation lately? What about a party? Did you recently throw a party? How much planning did you put into it? Well, retirement—your version of it—needs, at the very least, an equitable level of commitment and thoughtful consideration. Heck, it’s only the rest of our lives we’re talking about.

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How Not to Invest

This post is written by guest blogger Peter McMurtry. In this post Peter asks, Are Your Investment Advisor’s Cookie Cutter Asset Mix Recommendations Hurting Your Performance?”

CookieCutter $  Most retail clients are very aware that “asset mix” is the single most important variable in investment performance, but they would be surprised to learn that their advisors largely do not make pro-active investment decisions. Active asset mix investment decisions based on projected returns for each asset class are the exception, not the rule.

It’s all About Compliance
Compliance departments have become so important that they frequently override any actual active asset mix decisions that are made. The analogy is comparable to the medical community in the US that is afraid to perform procedures that are in the best interests of the patients for fear of being sued.

Clients are becoming much more investment savvy than ever before and are more impatient with legal jargon combined with flip marketing phrases. What the clients need, and want, is real advice that can benefit them. What they don’t need are simple strategies that protect their advisors’ interests only. I have seen retail client portfolios with the same asset mix throughout an entire economic and stock market cycle without any recommendations provided whatsoever. This is not investment  management, but purely sales tactics and adherence to strict compliance rules.

Cookie Cutter Investing
Whether your monies are managed by a bank branch, broker or financial planner, your asset mix selection will be a choice of four or five cookie cutter pie charts with titles like Income; Income and Growth; Growth; or Aggressive Growth. Each of these options usually offers a range of minimum and maximum levels of cash, fixed income and equity weights.

Despite their apparent interest in your risk tolerance and time horizon, these categories are essentially created by investment companies’ compliance departments to ensure that they are not sued by any disgruntled clients. Their asset mix selection is solely based on assessing a client’s tolerance for market volatility combined with a review of the age and time frame before any income needs become the number one priority for the client.

100 Minus You
Another traditional asset mix strategy still used by many advisors is to subtract 100 from your age, and this will determine your equity weight exposure. Many years ago I began to manage my grandmother’s monies when she was in her mid eighties. If I had chosen to use the 100 less her age strategy, my grandmother’s stock exposure would have been a maximum of 15%. I decided to actively pick her asset mix and maintained an even balance between stocks and fixed income for the remainder of her life until she went into a nursing home at the age of 103. By maintaining sufficient equity exposure I was able to grow her capital at the rate of inflation and this greatly helped to finance her nursing home expenses when she needed it at the end of her life.

You Deserve Better
Both large institutional pension investment managers and investment counsellors have traditionally actively managed their asset mixes for their clients. It is unfortunate that this is not the norm for retail clients managed by bank branches, brokers and financial planners.

This lack of flexibility, combined with frustration over high management fees and poor performance, are the main reasons that the discount broker industry has flourished in recent years.

Retail clients deserve the same benefits from active asset mix strategies that large pension funds continue to receive, regardless of the type of organization managing their monies.

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Peter McMurtry, B.Com, CFA is an Ottawa-based financial writer with 30 years experience in the financial services industry. Peter has worked, in both Canada and Bermuda, in  capacities including Investment Analyst, Portfolio Manager and Financial Planning.
Look for Peter’s monthly Financial and Investment Newsletter coming soon.
You can contact Peter here: peter.mcmurtry@yahoo.ca