Why is retirement planning like dieting?

Why is retirement planning like dieting?

Many people go through life from paycheck to paycheck without the ability to prepare for their future.  Some more fortunate people have ample incomes and the ability to prepare for their future but choose to ignore it while they prioritize all their wants for today.  Both groups are frustrating for a Certified Financial Planner® or a Registered Investment Advisor because they either can’t or won’t help themselves.  The reality is that we must counsel clients to make preparations for future income needs at a time when they are unable or unwilling to work.  As fiduciaries, we must legally place the interests of our clients before our own interests. 

Most financial advisors are not required to follow the same high standard.  Their industry lobbyists have actively opposed all efforts to mandate the fiduciary standard for everyone.  At Kaye Capital Management, we support the objectives of the fiduciary standard for both ethical and business reasons.

No one chooses to fail, yet many fail to plan because the need for immediate gratification is more pleasurable than planning for financial security several decades in the future.  This same dilemma often applies to matters of health.  The obesity of Americans is higher today than in the past.  We all know the benefits of exercise and eating nutritious foods but junk foods are faster and often taste better.  The research is readily available and the consequences are predictable but it’s easier to just kick the can down the road and deal with it later. Unfortunately, poor health and poor finances may not be reversible. 

We all know that eating whole foods, limiting fat and sugar, and regular exercise is essential for good health.  The problem is having the discipline to stay on track.  Working with a qualified dietitian and physical trainer may help to provide knowledge and discipline to stay on track.  Since the planning period is very long, we believe that the best path to success is partnering with a professional who shares your long-term focus, is a fiduciary committed to monitoring your ongoing investment performance and suggesting procedural recommendations for staying on track by making smart financial decisions.  You might believe that this recommendation is self-serving, but careful selection of every professional is crucial, whether you engage a financial planner, physician, attorney, accountant, therapist, and dietitian.  Education, credentials, experience, plus personal chemistry and a belief that he or she is committed to your success.

Less money invested for longer periods achieves the identical result

Fortunately, the solution does not have to be perfect.  Modest monthly savings over long time periods potentially create larger nest eggs than big investments made shortly before retirement.  

In finance, understanding the power of compounding is essential.  Consider the ease of creating a $1 million retirement account at age 65 by starting a monthly savings program at ages 25 or 35 versus ages 55 or 60, and earning an 8% annual return. 


                                                                                                                                                       The principle illustrated is graphic, but not complicated.  Proper execution requires discipline and recognition that unforeseeable events may cause temporary gaps in funding without causing failure.  Future salary increases will get the plan back on track.  The pattern of funding, future investment gains and other variables will change, including an evolving commitment to achieving a bigger future.  Self-discipline, plus a relationship with a competent and caring financial advisor, will help to maintain a continued progress toward perfection.  For short-term trading strategies involving greater risk with a small percent of one’s total investments, some specialists may be better qualified for these goals.  For long-term retirement planning, we believe that partnering with fiduciary advisors who continually monitor investment accounts and provide ongoing procedural recommendations for other financial aspects of your life will improve the likelihood of success over the long term.

Returning to the metaphor of health and diet, losing weight is much easier than maintaining an ideal weight over the long term.  I know because I’ve succeeded and failed many times.  Behavioral changes are required because success is a marathon, not a sprint.  Short-term strategies like checking your weight on the scale daily may give false or misleading information and contribute to poor dietary decisions.  Weighing yourself weekly avoids some weight spikes from increased salt consumption, stress, hormonal changes, skipping daily walks or other variables.   But the discipline of eating reasonable quantities consistently is difficult and doing it alone seems almost impossible.

Similarly, the daily market prices vary for both financial and emotional reasons.  Trying to trade frequently based on misinterpreting the reasons for daily increases or decreases in share prices leads to increased trading costs, taxes, and stress with worse performance.  To succeed, two decisions must be perfect – the buy and sell.  Over time, most investments fluctuate in value but when the economy is strong and quality companies are purchased, they tend to increase in value over time.  Sometimes their positive fundamentals change and the stock should be sold.  If not, patience and confidence is required during modest market declines. 

Discussions with a competent advisor whose objectives are aligned with yours, may help to avoid selling prematurely during these times.  We monitor prices frequently along with interest rates, multiple economic indicators, and fiscal, political and world events.  When our research or future unforeseeable events change our assumptions or forecasts, we liquidate positions with small losses based on the facts.  We try to not let our emotions interfere with our logic.  Non- professionals tend to hold positions in hopes they will break even so they don’t have to admit defeat.

Long-term investment success requires continued education and diligence, plus flexibility and creativity, because past performance rarely duplicates exactly.  If it did, everyone would succeed.  Since the future is always unknown, solely looking in the rear view mirror never works well for either managing money or driving.  Yesterday’s guru may be today’s loser.  Investment success requires a combination of science and art, humility and diligence, plus confidence and patience.

In good times and bad, the team at Kaye Capital Management works together to help our clients achieve their financial goals.  We win if they win.  That has been the secret of our success for 50 years, long before KCM was founded in 1997.

Marv Kaye, J.D., CFP®                                                                                                                          President and CEO                                                                                                                              Kaye Capital Management