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The Importance of Having a Plan - Getting There
The number one financial planning concern most Americans have is whether they will be able to retire in a comfortable lifestyle with enough assets to sustain themselves indefinitely. Sustainable retirement, or true financial independence, is that point in time when work becomes optional. Many people never reach true financial independence, which is often the result of not having a sound retirement plan.
Let’ face it – retirement planning has major constraints and challenges. There are an infinite amount of things we would all wish to do; we don’t know how long we’re going to need our money to last; and it’s hard to predict costs for anything 30 years into the future. To live comfortably into retirement, the first thing that needs to happen is accumulation of assets.
We help clients in the wealth building phase by working with them to craft a financial plan that leads them down the path to retirement. Our wealth management services help them get there by providing custom portfolios that are geared towards long-term capital growth.
The Importance of Having a Plan – Avoiding Pitfalls
Obtaining and sustaining financial independence is no small feat – the process requires dedication and planning to ensure success and avoid large setbacks. An example sheds some light on why it is so important to have the right plan in place.
In the late 1990’s, investors became accustomed to extraordinarily high equity returns which led many to believe that investing was easy and virtually riskless. But, as the bull market ended in 2000, the reality of not having a proper plan or investment strategy was laid bare. For those retirees or near-retirees who had not prepared or allocated their portfolios correctly, the equity market’s ensuing drop caused many to lose large chunks of their investment wealth. Many people, in fact, were forced to return to work to supplement their incomes and rebuild savings.
Smart financial planning incorporates risk tolerances as well return objectives to develop the right mix of assets. This helps to avoid unnecessary pitfalls that can mean major setbacks.
The Importance of Having a Plan – Meeting Income Needs
Planning for retirement and building a portfolio that meets your goals can becomes problematic because things change.
In the early 1980’s when interest rates were at all time highs, an investor could generate plenty of income from an all bond portfolio. Today, that is just not the case.
For example, consider someone who retired with $1,000,000 of assets in 1980 and then invested this money for income. Assuming 25-year maturities and a 14% annual yield, this would have provided a pre-tax income stream of $140,000 per year to the investor. (It is likely, however, that many high coupon, long-dated bonds would have had call features, exposing the investor to reinvestment risk. As rates declined over the next two and a half decades, the portfolio yield would likely have dropped as proceeds from called issues were re-deployed into lower rate instruments.)
In the current interest rate environment, this same investor would be considerably more challenged to build a portfolio and plan to satisfy income needs. With interest rates at about 5%, that same $1,000,000 of assets invested all in high quality bonds would produce only $50,000.
The risks of making big investing mistakes are too large to not have a sound, dynamic investing strategy that balances income today and the need for capital growth in the future.
Guiding Clients into Retirement
Retirement is an exciting, well-deserved goal. But, for many, it can be one of the most emotional and difficult decisions they will ever make.
This can be especially true for business owners and entrepreneurs, who are selling their businesses and leaving the very entities that define them and their life’s work. The ego often gets in the way of retirement, as executives and business owners are so wrapped up in their work that they are afraid to stop for fear they will become bored or that they will have no other purpose in life.
And regardless of whether one accumulates wealth through self-employment or by working for a company as a dedicated employee, it can be very difficult to stop working and leave behind the security of an income stream.
We understand that retirement planning is more than numbers and spreadsheets. It is a very emotional and exciting time for many people. Our attentive service and long experience with retirement planning and retirement investing enables us to serve as our clients’ most trusted guide. We have helped many clients comfortably make the switch to a happy, fulfilling retirement.
Guiding Clients in Retirement
As time passes, circumstances often change. Needs and desires change, families grow, or loved ones may be lost, as examples – we work closely with our clients to ensure that the appropriate adjustments are made with regard to their financial situation to accommodate the fluidity of life. Our financial and retirement plans are not static – they are flexible so that, as things change or the investing climate alters course, our clients remain on track.
Having a proper, well-thought out, flexible retirement plan allows one to enjoy life. It can make the difference between being able to do things we love, such as going on family vacations, taking cruises or trips or just enjoying the golden years – and just being concerned with living day to day. It is a fact that many retirees are afraid to spend any money on themselves for fear they will deplete their assets prematurely. But it often does not have to be this way. Smart planning can make the difference.
At Horan Capital Management, our retirement plan process helps clients focus clearly on how they want to live their lives. Our financial advisors work closely with clients to develop a strategy that reflects their goals.
Our clients greatly appreciate this approach and the solutions we offer them. Let us help you have a successful, rewarding retirement - just as we have done for others.
Call us today to learn how we can help you – 800-592-7534.
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