Getting Retirement Right:
A Tale of Two Investors

With all the pain investors have been feeling lately, I’ve 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 it’s hardly an idyllic time of life.

Unfortunately, many 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 they’d like and leaving a legacy as they wish to.

Most of us make choices that help determine whether our retirement years are golden or gloomy. Whether you’re 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 I’d like to describe two clients I have known for some time. Perhaps their stories will stick with you longer than any lecture from me.

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. (I’ve changed the names and a few details of these clients’ identities to protect their privacy and avoid embarrassing them. Except for that, what you’re about to read is true and accurate.)

DOING 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 charming personality.

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,” he said.

His physician’s 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 didn’t,” George said. “We drove a used Honda, and I still drive a used Honda. We didn’t play being big shots; that wasn’t 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: She’s 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 couldn’t 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 can’t remember exactly how much it was, but I really remember that loss.”

SMART 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 our company.

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 who’s battling cancer.

Later this year, George is planning a relatively expensive three-month trip to Antarctica. But he won’t raid his retirement fund to pay for it. Instead, he’ll stick with the fixed amount they withdraw each year for living expenses. “We’ll just cut back a bit on what we spend on other things for awhile,” he said.

George’s formula for retirement sounds easy: Make a bundle of money, and save a good chunk of it, then don’t 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 aren’t important to them like fancy homes, cars, clothes and other “show-off” items.

They’ve 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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