Getting Retirement Right:
A Tale of Two Investors
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by Paul Merriman
Publisher and Editor
With all the pain investors
have been feeling lately, Ive been thinking more and more
about the differences between retirement plans that lead to success
and those that lead to stress (and worse!).
Most folks look forward
to retirement, but its hardly an idyllic time of life.
retirees are forced to stare their finances in the face nearly every
day as they worry about providing the basics of life. And for the
majority of retirees, financial matters are a source of stress,
hovering in the background as a potential threat to their hopes
for living as theyd like and leaving a legacy as they wish
Most of us make choices
that help determine whether our retirement years are golden or gloomy.
Whether youre planning for retirement, about to retire or
have already retired, it will be well worth your while to think
long and hard about what separates successful retirees from those
who are doomed to struggle.
I could talk all day
about the elements that make up a good retirement plan, but instead
Id like to describe two clients I have known for some time.
Perhaps their stories will stick with you longer than any lecture
One of these clients
seems to have done just about everything right. The second has done
so many things wrong that I sometimes cringe to think what his life
must be like. (Ive changed the names and a few details of
these clients identities to protect their privacy and avoid
embarrassing them. Except for that, what youre about to read
is true and accurate.)
IT RIGHT: GEORGE
I wish you had an opportunity
to meet the first of these clients, George Caldwell, a former Army
officer and surgeon. George is one of the nicest people you could
want to know. His wife, Ruth, is an accomplished musician with a
After he left the service
as a lieutenant colonel, George went into private practice for 14
years. Every year, the first claim on his income was a $90,000 (the
maximum allowed) contribution to a tax-deferred retirement plan.
My wife and I decided to put the maximum in every year, and
whatever we had left, that was what we could live on. We saved first,
pay still left them with more than enough for the basics, but George
and Ruth made a point to live below their means. My friends
were driving Jaguars and Mercedes and whatever else was really popular
back then, but we didnt, George said. We drove
a used Honda, and I still drive a used Honda. We didnt play
being big shots; that wasnt important to us. We lived in a
house that was very modest compared to everybody we knew.
We kept our expenses
in line and we still do, even though we traveled a lot and we never
felt deprived. We always shopped around for the best deal on everything.
Ruth could afford to
have any car she wants, but guess what: Shes content to drive
an 11-year-old Ford Escort.
While he was working,
George dabbled in investments and used several market timing systems
from various advisors. At one time he had 25 to 30 mutual funds
that he timed using three advisors systems. Once on an overseas
trip, he realized he had left some of his paperwork at home and
couldnt keep up on his systems.
I neglected to
get out of a fund that was going down, down, down, and it cost me
$6,000 or $8,000, George said. I cant remember
exactly how much it was, but I really remember that loss.
PEOPLE DON'T RELY ON LUCK TO MAKE THEM WEALTHY
George later consolidated
his accounts, all of which are now governed by market timing at
George and Ruth never
fought about their investments. She has left it up to me,
although I run big decisions past her in advance because she has
a lot of good sense, George said. When we disagree about
something, we work it out until we are both satisfied.
Their frugal lifestyle
and relatively conservative investments have made it possible for
George and Ruth to live the life they want. She pursues her music,
he pursues travel and other interests. They are currently spending
a year living in Atlanta so they can be close to two of their children
and can spend a lot of time with a friend whos battling cancer.
Later this year, George
is planning a relatively expensive three-month trip to Antarctica.
But he wont raid his retirement fund to pay for it. Instead,
hell stick with the fixed amount they withdraw each year for
living expenses. Well just cut back a bit on what we
spend on other things for awhile, he said.
for retirement sounds easy: Make a bundle of money, and save a good
chunk of it, then dont spend much. But along the way he and
Ruth have chosen carefully what is important to them (travel, visiting
their children, being able to pursue their separate and shared interests)
and have avoided spending much money on things that arent
important to them like fancy homes, cars, clothes and other show-off
Theyve taken a
long-term outlook, set realistic investment expectations and have
managed to avoid the disagreements and power struggles that derail
many couples financial plans.
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