What You Can & Cannot Control as You Plan for Retirement

Some things you have no influence over. You may have some power to affect other factors.

Are you worried about retiring? Many baby boomers are, and they have reason to be, given low interest rates, returns on equities, increasing health care costs, and the issues facing Social Security.

Now, do yourself a favor. Read that last sentence again, and ask yourself, “which of those four things can I control?”

The correct answer: none of them. That may be frightening, but it is also truthful. As you plan for retirement, you must acknowledge that certain factors are beyond your control. As much as you would like to influence or change them, you have no say over them.

So, what can you control? Primarily, three things: the way you save; the way you manage risk; and the way you will spend your savings.

The way you save may be more important than the way you invest. Every saver hears about the benefits of an early start, and those benefits can be considerable. As an example, consider these hypothetical savers:

Erica saves $5,000 per year for 20 years at an 8% return, and thanks to time, inflows, and compounding, she turns that initial $5,000 into $247,115 two decades later. Midway through this 20-year stretch, Giovanni, Erica’s co-worker, decides he will start saving too. Time is not such a good friend to him, however. If he wants to amass $247,115 (give or take a few bucks), he will have to pour in around $15,795 into his retirement account annually at that 8% yearly yield. And as for Erica … all other variables frozen, if she saves $14,000 per year, instead of $5,000 a year, at a consistent 8% yield for 20 years, her savings at the end of that two-decade period will be $691,921 rather than $247,115.1

Your risk exposure matters. In a perfect world, taking on X degree of risk would lead to Y degree of reward. If only it worked that way. Still, a portfolio that assumes reasonable levels of risk may generate better long-term returns than a highly conservative, risk-averse one.

The inescapable truth of investing is that when you forfeit risk, you also often forfeit your potential for significant gains. To be more specific, getting out of equities when the market sours puts you on the sidelines when the market rallies. Should you abandon equities in a correction or bear market, you face another kind of risk – the risk of selling low and buying high.

If you absolutely detest risk and want to minimize your risk exposure as you save and invest for retirement, then you must compensate for that lessened risk exposure by saving more, whether in cash or conservative investment vehicles. Remember that to save more, you must also spend less.

Will you plan how to spend your retirement savings? That will put you a step ahead of many retirees, who have no strategy whatsoever. You need to plan both the succession and amount of your retirement withdrawals – what annual percentage should be distributed from what accounts in what order. Four primary variables may affect your plan, and you arguably have some control over them all: your yearly withdrawal amount, your level of debt, your health, and your retirement date. You cannot control the tax code or the equities markets, but you can try to pay off debt, improve your health, spend reasonably, and work longer, if needed.

Focus on what you can control. It may keep you from losing some sleep over what you cannot.


1 – bankrate.com/finance/investing/saving-money-or-investing-more-important-over-time.aspx [12/30/15]

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by MarketingLibrary.Net Inc., for Mark Lund, Mark is known as a Wealth Advisor, The 401k Advisor, Investor Coach, The Financial Advisor, The Financial Planner and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. an independent, fee-only, Registered Investment Advisor firm providing investment and retirement planning for individuals and 401k consulting for small businesses. Stonecreek is located in Salt Lake City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, and American Fork City in Utah.