A Foolish Retirement
And a trip to school...
by Phil Weiss
TOWACO, NJ (Oct. 9, 1998) -- Did you ever wonder why some people look forward to their retirement years only to get there and be disappointed? A few months ago I took a retirement planning seminar. Most of the course was dedicated to the ways of the Wise and suggestions about how to invest in underperforming mutual funds.
When they got to the point in the class where they started talking about dollar cost averaging into a variety of mutual funds that paled in performance comparisons to the S&P 500, I could sit there quietly no more. I tried explaining to the instructors that people could dollar cost average into stocks at minimal cost via Dividend Reinvestment Plans. Believe it or not, they doubted that such plans even existed. Then they went on to tell me that individual investors needed to have someone to watch their stocks like a hawk. For example, who was watching my investment portfolio while I was sitting in the class listening to "this drivel" ï¿½ my words, of course, not theirs.
I found their question about tracking stocks like a hawk to be rather confusing. They spent a lot of time telling people things like don't try to time the market. They suggested buying and holding your mutual fund. They warned against moving into and out of funds, claiming it was a very inefficient strategy over the long haul. I raised my hand again (of course with a big happy smile on my face. . . no one likes an angry Fool). I asked them why I couldn't just buy and hold great companies, and in the process avoid the annual expense payments to a mutual-fund provider. Why did I have to watch stocks like a hawk but not funds that own stocks? This comment drew nothing more than a blank stare. No kidding.
I'm not a rabble rouser, nor a nuisance. But it was obvious to me that none of them had heard of Cash-King investing -- an approach that, I think, will beat the performance of funds, provide the same sense of stability that funds do, and do both without charging a hefty annual expense fee.
Despite this minor confrontation and my attempt to give the other course attendees a little Foolishness to consider, I did get something very interesting out of the course. They shared the results of a survey they'd run on past course attendees and clients. Out of it they built a list of the Top Nine reasons that people fail to capitalize on their retirement years. I thought that I'd share it with you tonight.
The Top Nine Reasons People Are Disappointed by Their Financial Situation in Retirement
1. Procrastination ï¿½ Why do today, what I can put off until tomorrow? I know it well. I need a deadline to make sure that I complete any major project. In a more serious vein, though, when it comes to saving for retirement, procrastination is your worst enemy.
The advantages of compounding are most evident for those who got started twenty years ago, or last year, yesterday, or today. For example, if Amelia were to invest $2,000 a year on October 9 of each of the next 10 years, and earn 10% annual growth, she'd have $35,062 in her account on October 9, 2008. If she then stopped adding money to this account but continued to earn the same 10% per year, her $20,000 investment would be worth $235,882 on October 9, 2028.
If, on the other hand, Brandy were to invest nothing for the next 10 years and then decide to invest $3,000 per year on October 9 of each year from October 9, 2008 through October 9, 2027, her $60,000 investment would only be worth $189,907 on October 9, 2028.
Time builds wealth.
2. Unprepared for the life change ï¿½ Many people fail to adequately prepare for the social changes that come with retirement. After all, without all those office meetings to attend and projects to complete folks are left with a lot more free time. The survey suggests that before heading into retirement, we should all spend a lot of time figuring out just what we want to do with all that time.
3. Failed to clearly define retirement objectives ï¿½ As at any point in our lives, it's important to set a few goals, a couple targets to shoot for. Without even just a few, we can wander into a slumbering life, never quite sure what it is that we're working towards or where exactly we are.
4. Ignorant of what money must do to help accomplish retirement objectives ï¿½ In addition to defining our objectives, we have to have an idea of the role that money will play in helping us to achieve those objectives.
5. Failure to understand and apply our tax laws ï¿½ If you don't understand these laws, hey, you're not alone. I should know. I deal with them on a daily basis in my job, and I know how easy it can be to become confused by tax returns. But, this stuff is important. Proper tax planning can add a lot to your bottom line. There are a number of tax advantaged retirement accounts which can help your investments grow on a tax-free basis. And, plug, plug, we just put out The Motley Fool Investment Tax Guide, which can save you a lot more as an investor than you'll pay for the guide. Promotional, that one... but true.
6. Failure to make the best use of retirement income sources ï¿½ There are a number of good sources of retirement income. One of the best is taking advantage of tax-advantaged accounts such as 401(k)'s, Roth IRA's, deductible and non-deductible IRA's.
7. Failure to prepare for the unexpected ï¿½ At the time that many people retire, they expect to have certain financial needs and requirements. They design their retirement investments to help them meet those obligations. But then an unforeseen expense pops up or maybe some investment bonds are called back by the issuer early, and they realize that their investments will no longer meet their objectives. This is a tough one, but preparing for the unprepared, as best one can, is part of life for the Foolish retiree.
8. Worrying about who gets what and when ï¿½ Being able to leave some money for your family members is nice, but it shouldn't be done at the expense of your chance to enjoy your retirement years. After all, you worked hard; you spent time on your investments. If you get too wrapped up in who gets what and when during your retirement, you can lose sight of one of the key reasons for being: joy.
My personal opinion is that a great way to share some of your savings is to spend it on your family while they're alive. Another great way is to gift them money for the explicit purpose of getting them to start investing -- a great gift.
9. Failure to develop a winning attitude ï¿½ Look out, whoa there, is that Tony Robbins? Eeeek. Well, use whatever language suits you, but believing in yourself and looking to the future is just simple, Foolish, common sense. Turning failure into reward, keeping your chin up, encouraging others, being involved -- those should be core principles in everyone's retirement. Here's a great quote from Bob Hope on this subject: "If I could speak at one time to all senior Americans, I'd tell them to forget their age and do exactly what they feel like doing. It all comes down to attitude. Excitement is what really keeps you going."
That's it for this week's reports. Thanks for hanging with your Cash-King Fools. Have a great weekend.
Phil Weiss, Fool
If you have any questions on anything covered in tonight's report, please post them to our Cash-King Strategies Folder.
Stock Change Bid AXP +4 5/8 77.00 CHV - 9/16 85.69 CSCO +3 3/8 50.06 KO - 11/16 63.81 GPS +3 5/8 51.75 EK +2 82.06 XON - 7/8 70.75 GM + 13/16 50.88 INTC +5 3/8 83.81 MSFT +5 11/16 96.88 PFE +3 3/8 93.00 SGP +2 1/16 94.69 TROW +1 3/8 24.13
Day Month Year History C-K +3.81% -5.92% -0.62% -0.62% S&P: +2.59% -3.21% -2.16% -2.16% NASDAQ: +5.17% -11.89% -10.43% -10.43% Cash-King Stocks Rec'd # Security In At Now Change 2/3/98 24 Microsoft 78.27 96.88 23.77% 2/3/98 22 Pfizer 82.30 93.00 13.00% 5/1/98 37 Gap Inc. 51.09 51.75 1.29% 2/13/98 22 Intel 84.67 83.81 -1.02% 8/21/98 22 Schering-P 95.99 94.69 -1.35% 2/27/98 27 Coca-Cola 69.11 63.81 -7.66% 6/23/98 34.5 Cisco Syst 57.56 50.06 -13.03% 5/26/98 18 AmExpress 104.07 77.00 -26.01% 2/6/98 56 T. Rowe Pr 33.67 24.13 -28.36% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 63.15 82.06 29.95% 3/12/98 20 Exxon 64.34 70.75 9.97% 3/12/98 15 Chevron 83.34 85.69 2.81% 3/12/98 17 General Mo 72.41 50.88 -29.74% Cash-King Stocks Rec'd # Security In At Value Change 2/3/98 24 Microsoft 1878.45 2325.00 $446.55 2/3/98 22 Pfizer 1810.58 2046.00 $235.42 5/1/98 37 Gap Inc. 1890.33 1914.75 $24.42 2/13/98 22 Intel 1862.83 1843.88 -$18.95 8/21/98 22 Schering-P 2111.7 2083.13 -$28.57 2/27/98 27 Coca-Cola 1865.89 1722.94 -$142.95 6/23/98 34.5 Cisco Syst 1985.95 1727.16 -$258.79 5/26/98 18 AmExpress 1873.20 1386.00 -$487.20 2/6/98 56 T. Rowe Pr 1885.70 1351.00 -$534.70 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 1262.95 1641.25 $378.30 3/12/98 20 Exxon 1286.70 1415.00 $128.30 3/12/98 15 Chevron 1250.14 1285.31 $35.17 3/12/98 17 General Mo 1230.89 864.88 -$366.02 CASH $48.07 TOTAL $21654.35 *Please note: On 8/4/98 $2,000 cash was added to the
portfolio. $2,000 will be added every six months.
*The year for the S&P and Nasdaq is as of 02/03/98