You don’t need to replace 100% of your income in retirement
Why?
Because you are no longer saving for retirement *in* retirement
If you spend $80k a year, but $15k of that is going into savings…
You only need to cover $65k
This is often overlooked
Why?
• Big raises → Your plan wins
• Costs stay low → You gain margin
• Don’t live to 100 → More wealth left behind
Planning conservatively gives you options, not constraints
Your financial plan is only as strong as the assumptions used
Not sure where to start? Be conservative
• Modest investment returns
• Life expectancy of 100 years old
• Money In (Income) → 2.54% increases/yr
• Money Out (Expenses) → 4.00% increases/yr
• Long Term Care Costs → 6.00% increases/yr
If we look at financial planning as a pie, think of investing as 1/8th of the pie
We still have room for other slices like:
> Insurance
> Tax planning
> Estate Planning
> Education Planning
> Employer Benefits Optimization
> Cash Flow & Debt Management
> Retirement & Long-Term Planning
→ Control over taxable income
→ Adaptability to future tax policy changes
→ Strategic retirement withdrawal planning
→ Estate and legacy planning
The more tax buckets you fill up
The more levers you can pull later
Most think of diversification as just *what* you invest in
But it is also *how* you invest from a tax perspective
Pre-tax → Tax deferred
Roth → Tax free growth
Taxable → Taxed but flexible
A mix of all three gives you flexibility and control over your tax situation
A lot of people justify home renovations by convincing themselves they will increase the home value when selling
The reality is that unless you are putting in six figures, you will be lucky to get a 1 for 1 return on your investment
• Trigger additional tax
• Lower investment returns
• Limit tax-advantaged savings
• Impact Social Security benefits
• Push you into a higher tax bracket
Every part of your financial plan is interconnected
Even a small change can have ripple effects
Small changes → Big impact
Got a raise? Great!
You may think about saving more, paying down debt etc.
Yet a pay increase can impact other parts of your financial life
On the backend this could:
...
Poor temperament can quietly erode performance by:
ⅰ.) Sitting in cash, waiting for “the right time”
ⅱ.) Panic selling on short term noise
ⅲ.) Trading frequently on speculation
Discipline really can make all the difference.
Returns are important.
Tax efficiency is important.
Investment selection is important.
But long-term success hinges on an even greater factor.
<< The investor’s temperament >>
There is nothing wrong with just swimming per se
But families deserve to maximize their financial opportunities and swim competitively
Sometimes, that demands the help of an outside expert
We all get one chance at this life thing
Why not maximize it
Meaning they want to:
→ Have great income while lowering lifetime tax paid
→ Maximize every benefit their employer offers
→ Assign every dollar to your specific objectives
→ Identify risks that could derail future plans and proactively protect against them
to name a few items of priority
~ To use an analogy ~
Families may have the things written above
They are “swimming”
They won’t drown and can get far with their current course of action
However, they find experts in their situation because they want to “swim competitively”
You’ve got a healthy income, great benefits, and solid savings habits
So do many of the people we work with
Here is why they still choose to work with us
So, if you can hold firm in your belief that:
1.) Technology and products will continue to improve rapidly
2.) Companies are a direct incentive to stay in business and provide value for shareholders
Then it is reasonable to have angst in the short term and have optimism when you zoom out a bit
Public companies are driven to succeed – short term to hit targets, long term to survive and grow
Leadership is incentivized to focus on quarterly results
But a business itself must keep delivering value to stay in the game
All of this means that companies will do everything in their power to be successful
When you invest in the S&P 500 for example, you are literally investing in the largest U.S.-based companies in the world
Why is this important?
Public traded companies have a large motive for being profitable:
→ Employees get paid
→ Product/service makes money
→ Shareholders are happy
→ Positive economic outlook
A substantial portion of their annual compensation is tied to performance and stock-related performance and incentives
These incentives are usually things like:
→ Stock price goals
→ Quarterly revenue goals
→ Revenue generated from sales
2.) Profit Incentives
Companies will continue to focus on profit for shareholders
Even if you are of the opinion that “CEOs of fortune 500 companies are corrupt and evil”
One thing is still true
Examples of this include:
Think about the phone in your pocket
It literally has more computing power than any platform anywhere would have 20 years ago
Companies will continue to iterate and improve their products and technologies
If you can believe this, you should have long term optimism
Why is this important?
→ Technology will continue to improve
→ Innovation leads to new products and economic growth
Now while the pace is slowing as we literally hit physical limits, innovation continues
Even as this law slows, companies will continue to find new ways to drive performance, efficiency and profits
Innovation does not stop, it simply evolves
That is what you are betting on long term
1.) Moore’s law – The number of transistors on a microchip doubles approximately every two years
Okay Daniel, what does that mean?
For consumers, this has meant better tech at lower prices (iPhones, laptops, etc)
It is okay to have these thoughts
You can be troubled about the economy today but still be optimistic for tomorrow
Just remember the following
Do you find yourself hearing or saying things like:
→ “Will the economy collapse?”
→ “Is this the end of the stock market?"
→ “Should I put all my money under my mattress?”
If so, this post is for you!
You have heard it before
“Stay the course” and “Think long term”
But when the markets and news make you feel otherwise, it is hard not to worry
The next time you feel anxious, remember the following points:
This logic applies to any short-term goal (~ 3 years or less):
→ Home down payment
→ Emergency funds
→ Tax payments
→ Renovations
→ Vacations
Speculation feels exciting
But sometimes, playing it safe is the smarter flex
A difference of $750
Not insignificant – but ask yourself:
"Is the chance at an extra $750 worth the risk of losing your entire $5,000?"
Especially if that $5,000 is tied to something meaningful and due in short time – like a ring
