Do you remember an old Saturday Night Live skit called Bad Idea Jeans?
In the 1990’s, SNL had a comical sketch featuring a bunch of dudes standing around
proposing some truly horrendous ideas. (I think it was a knockoff of a real commercial. Maybe Dockers…)
Here’s a sample courtesy of the Internet: (Do these seem like foolish ideas?)
I thought about it, and even though it's over, I'm going to tell my wife about the affair.
Well, he's an ex free-base addict, and he's trying to turn his life around, and needs a place to stay for a couple of months. What could go wrong?
Afterwards, an announcer would dramatically say: “Bad Idea Jeans…”
The bit has stuck with me all these years reminds me of another bad idea.
When a future retiree asks retirement advice from a friend, family member or co-worker. Or even a general financial advice type of financial planner.
It occurs to me: The people you ask may mean well but do they understand the specifics of your circumstances enough to truly give you expert advice. Are they trained sufficiently to give you meaningful guidance? Do they teach classes or study the subject as a financial planner does?
Or are they merely equipped to give you an opinion or tell you what might have worked or not worked for them in the past. Or what they know from watching television.
Retirement planning, and specifically, not running out of money, is tricky (and risky) business.
Your plan must:
Outpace the rate of inflation
Protect your principal
Minimize your tax liability
Convert your assets to income in an efficient manner
And much, much more
What’s at stake is protecting your assets and income, which you have likely accumulated over a lifetime of hard work - to ensure that you don’t run out of money when it’s needed the most. The fact is that you may spend nearly as much time retired as you spent working and 25 years is a long time to be unemployed. Further, in retirement you aren’t adding to your investments any longer. The last thing you want to do is go back to work after 10 years.
I mean, you may get an employee discount but does working at Starbucks as a 70-year-old seem like much fun? (Can’t be good for your knees either.)
Asking someone unqualified may also be placing an unfair burden on a friend or family member but that’s another story.
This may not shock you but I find it’s best to seek guidance from someone who understands retirement and how best to de-accumulate assets.
Someone like a financial professional.
And I know what you’re thinking: Financial professionals get paid to work with people like you. They sell things and earn management fees and commissions. It goes without saying that it can be tricky to navigate those waters.
But nothing in life is free. (Except, maybe, free advice from your friends.)
Is there value to working with an advisor?
I believe so. A good financial planner handles what I outlined above. He or she…
Explains inflation and how to protect your purchasing power
Scours the marketplace looking for ways to protect your principal while achieving reasonable returns
Helps you understand strategies to minimize your tax liability
Shares methods for converting your assets to income in an efficient manner
A good advisor understands that retirement is all about income, not net worth and that one should insure his or her retirement income like anything else. That it’s important to pay your fair share of taxes but not a penny more. A good advisor understands that a good financial plan is not for the good times. No, that’s easy. Everyone is a genius when the stock market is rising.
A friend of mine put it this way:
Having a good financial plan is for the bad times. When disaster strikes, when your health begins to slip, when governments shut down, when stock markets crash and when fear rules the day. These are the times when we rely heavily on the preparations made in good times so we can weather the storm in less pleasant times.
So, here’s my guidance. If you want to ask your friends something, ask them for a recommendation. The name of an advisor well-versed in the de-accumulation of assets or how to create a stream of income out of your lifetime of hard work.
And don’t focus on what your advisor is being paid. Rather, concentrate on what he or she is doing for you. What his or her suggestions are doing for you. What guarantees are being provided…
And when push comes to shove, call me or call a different financial professional. Just don’t phone a friend looking for meaningful guidance.
The advice might be worth what you paid for it…
That’s just the way it works.