GuidePost - Vol. 2, Issue 5 2006

The GRABot BAG
by Sherrie E. Grabot, CEO

November 2006
Turkey, holiday lights, football – and retirement planning

We all know the holidays are here. First came the parade of turkeys. Then the endless football games on TV. Then the twinkling lights went up, the carols started in, and seemingly everything turned red and green. What’s less well-known is that National Retirement Planning Week also took place recently. And we think it’s a good idea to take notice of this event, because it promotes a message about retirement savings that goes beyond the usual advice to save early and save often.

National Retirement Planning Week
Sponsored by the National Retirement Planning Coalition, a joint effort of a dozen prominent financial industry and advocacy organizations, Retirement Planning Week began on November 13. Its goal is to help ordinary Americans and financial professionals focus on comprehensive retirement planning. That is, to raise public awareness about how to plan and manage income after retirement, rather than putting all our industry’s effort and ink into simply accumulating savings.

It’s an idea we’ve discussed before. In fact, it’s central to our mission, and the driving principle behind our new GuidedSpending service and our plans for GuidedGiving. How an investor saves money, how she or he then spends it, and how it eventually passes on to others are all part of a single, lifetime financial planning process. Ideally this process should be enabled by a single, comprehensive set of financial tools – one that works automatically. But until everyone has access to this kind of resource, the world needs information, education, and promotion.

Avoiding second-half collapse
Waving the flag for full-spectrum retirement planning is National Retirement Planning Week honorary chairman Ben Stein, a well-known economist, lawyer, White House speechwriter, and author. (Yes, he was also the economics professor in Ferris Bueller’s Day Off. Really.) Appropriately for late autumn, he describes retirement as being like football. Both have a first half and a second half – and for investing, the “second half” is the spending phase that begins with retirement.

Just like a football game, even if you go into the locker room sitting on a big lead, you can blow it all and wind up on the losing end if you don’t have a strong game plan for the second half. Retirement these days can easily last 20 years or more, and planning for this phase is just as important, and just as complex, as any savings plan. The recommended playbook includes estimating retirement expenses, accounting for fluctuations in spending and inflation, creating a detailed plan, and making regular checkups and adjustments.

Fourth and long?
Of course, none of this means there’s any less need to be consistent and aggressive in the savings phase as well. The latest batch of scary news about the “savings gap” comes from a recent survey released by advisory firm RCA. Despite knowing that Social Security and defined benefit pensions might not be around by the time they retire, 23% of non-retired people surveyed still plan on Social Security being their primary income source in retirement. At the same time, 59% believe that they are likely to reach their savings goals – and fully one-fourth intend to retire by age 60!

Something’s got to be wrong here: either these people’s savings strategies are inadequate (we expected that one), or their estimates of what they’ll need to retire are way off. Or more likely both at once. Bad planning on both offense and defense, if you will, resulting in a dicey fourth-and-long situation when crunch time comes around.

Blocking and tackling
To stretch this theme beyond all recognition, not saving enough in the first place is rather like neglecting the fundamentals of blocking at tackling while you’re dreaming of the Big Play. If football is a game of inches, retirement planning is one of pennies. Adding those up, a few dollars and percentage points at a time, is what grinds out the yardage to put points on the board. A strong game plan, over a full four quarters, is what helps makes sure you can win.

If you’re reading this, you already know this stuff. But like us, it’s probably part of your job in one way or another to help retirement savers benefit from this sort of wisdom. So I’d like to close with one more metaphor. It’s very hard for anyone to be both the coach and the quarterback. This is especially true for the average retirement investor, for whom terms like constant-dollar averaging and the efficient frontier are probably even more arcane than the college football computer rankings. That’s why it’s so important to have a reliable, effective advisor calling the plays. And that’s why we’re in this game in the first place.

~~ Sherrie