It’s a scenario Scott Brooks encounters far too often. The CEO of Financial & Tax Architects Inc. (“FTA”), Brooks meets many hard-working families who grind it out every day at dissatisfying jobs or are in constant fear of a layoff. “So many people don’t realize they may already be much closer to retirement than they think,” he says. “If you are over 50 and have over $500,000 saved you might be effectively retired and not even realize it.”
Brooks has been an investment adviser since 1987. FTA fee-based, SEC registered investment adviser that manages in excess of $100M in assets.
Known as “The Retirement Professor,” Brooks teaches a three-hour, intensive, hands-on class at different colleges and universities located throughout the St. Louis metro area*. Our editors spoke with Brooks about effective retirement planning.
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Question: What are the most common mistakes people make when planning their retirement?
Brooks:
A lot of investors think they have a retirement plan, when, in fact, nothing is in writing, so there’s no clear path to follow…no way to see if they are moving nearer their goals.
In addition, they put too much focus on the size of their nest egg. They chase bigger and bigger returns when they should be positioning themselves to have all the income needed for the rest of their lives guaranteed and completely isolated from market booms and busts.
Question: Doesn’t a large investment portfolio mean you’ll have enough to live on?
Brooks:
Most people have their assets tied to the market - equities, bonds, money markets, etc. They may have periods of profits, followed by losses. A reliable income is one that is not directly tied to the volatile market.
When it comes to retirement financial planning, I have a very simply philosophy, “losses hurt you more than gains help you.TM”
Question: How do losses hurt you more than gains help?
Brooks:
In two ways. The timing of a loss might come so close to retirement or in the early years of retirement and the investor simply doesn’t have time to recoup the loss.
Regardless of their timeline, investors who suffer loss, perhaps 10% in a quarter, must gain 11% just to get back where they were a quarter ago. It’s simple mathematics. To put it another way, a 25% gain can be completely wiped out by a 20% loss. That’s why any efficient retirement plan must emphasize mitigation and control of risks. It must also coordinate tax planning, estate planning, healthcare and more.
Question: So, should investors pull out of the market?
Brooks:
By no means. With skilled guidance, money can be made in both bull and bear markets. I am saying to safeguard your income first.
My clients tell me that having a guaranteed income stream in place changes their outlook on life. They can put their other assets at play how they wish. They are free to seek meaningful jobs, pursue their passions, meet their goals for community service, legacy, philanthropy, even starting another business if they’d like. It’s a game changer.
* Includes a free, no-obligation, in-depth retirement plan.
The opinions expressed by authors are their own and may not accurately reflect those of Financial & Tax Architects, Inc.This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.Financial & Tax Architects’ Inc. is a SEC registered investment adviser.
This content was provided by Financial Service Directory. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.
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