Q: As a result of the last downturn, a number of my friends have had to delay their retirements and some have had to come out of retirement to work again.  The lucky ones have found new opportunities.  However, quite a few are unfit to work or can’t find an opportunity.  How do I ensure my safe retirement?

First of all, it is imperative that you have a plan with a high probability of success, and preferably with a financial advisor that helps you stick to that plan and adjust as needed.    It is well documented that without a plan and discipline, investors tend to succumb to greed and fear…buying high, selling low, and massively undermining their retirement dreams.

Significantly less documented is the evidence that conventional financial plans and advisors have struggled to help clients succeed during the last decade, stressed by multiple unexpected events that triggered two of the worst bear markets in history.

Investing the majority of one’s net worth in a buy-and-hold portfolio, combined with an annual draw of 4% income from the portfolio has not worked.  Investments declined far more than expected, and everyday cost of living rose rapidly due to commodity inflation.

Together, these factors have resulted in people needing to work longer and scale back their retirement expenses.

Towers Watson Consultants reported the following statistics from a recent study conducted on pre-retirees aged 62 (Oct 2010):

  • 40% plan to delay their retirements by 3+ yrs
  • 56% blame declines in investment values
  • 50% have cut back on daily spending

Poor planning and execution resulted in more years of working, and/or a reduction in lifestyle.

This isn’t all bad, as many studies show that meaningful work can provide value to one’s life outside of just financial gain.

But if you really want to be – and stay – retired, how can you better increase your odds of achieving this goal?

The LGA Retirement Approach

LGA designs retirement plans for HNW clients using a custom-developed approach:

Step 1

We have clients set aside 2-3 years worth of cash, with strict instructions to not invest these funds (we’ll come back to these funds in a moment).

Step 2

We recognize that these clients don’t need to take on risk just because they can “handle it.” Large account balances generally require lower returns.  Therefore, after reviewing client objectives, needs, and priorities, we position portfolios with the least amount risk needed in order to still achieve their goals.

Step 3

Finally, we stress-test the plan to ensure it would survive potential negatives such as: low returns, high taxes, reduced benefits, and high inflation.  This stress-test provides the worst-case bookend for our planning.

Most importantly, we have clients pull income from their portfolios during bull markets, while taking it from their 2-3 years of cash during bear markets.  Doing so allows clients to avoid selling investments at significant discounts.  As portfolio values rise into newly rising markets, their cash stash is replenished for the next cycle.

Leave Conventional Wisdom for the Masses

HNW individuals typically succeed by taking the road less traveled.  It’s no different with investing and planning.

Don’t let conventional planning dictate a risky future for you or your friends.

Contact us for an objective second opinion and concrete recommendations.