Success is different for everyone, but generally speaking there are common goals: a successful business or career, college for our children, and, of course, not outliving our assets in retirement. As entrepreneurs and business leaders, we quickly found that as profits came in and as income rose, the “taxman” showed up -- "ouch!" -- as well as the local financial guy -- equally "ouch!”
We soon realized the “typical” strategies offered to help protect and grow wealth were not helping and, in many cases, were sabotaging success.
Between the drains that take place from taxation, benefit costs for employees, and the use of outdated Wall Street models, we’ve found that even though wealth was coming in the door, it was also going out at a quick pace. Today, the same is true for most Americans. We often find that those who are desperately trying to grow their wealth do not have a strategy that is helping them accomplish their goal.
An individual may be putting monies away into their 401(k) and IRAs trying to develop a retirement for themselves, but because of the drains of taxation and the drains of fees and losses in Wall Street, they realize their end goals are not being met. The right strategies must be used to grow and protect your wealth.
Necessary Steps in Aligning Your Strategies with Your Success:
First, you must identify the wealth drains within your financial picture. What are fees and losses over time actually costing you? Are your retirement structures (401(k), IRAs, etc.) the best options for you? What would a large correction at the wrong time cost you?
Second, you must ask the hard questions: “Are my strategies in line with my success goals? Am I holding onto outdated financial technology just because everyone is doing it? Is there a better way to accomplish my goals?”
Third, you must be willing to make a change. In this market, with the conditions we are faced with, holding onto strategies that have failed to reach your goals is more costly than ever. Change is a must if you want to reach your goals. As we all know, insanity is simply doing the same thing over and over and expecting a different outcome.
There are three life stages as it relates to financial planning: “the accumulation phase,” “the retirement hazard zone” (0-12 years before retirement) and “the income phase” (living on your assets). During the accumulation phase, people put monies away year after year after year, buying stocks, bonds and mutual funds. If the market goes down, these stocks, bonds and mutual funds are on sale. It actually helps you in the end through dollar-cost averaging that the market went down.
But if that same loss, say 40% correction (we hate this word, by the way) happens five years before you retire, you’re going to end in a very different retirement if the market does not have time to rebound.
This is why we call the second phase of life stage planning the “retirement hazard zone.” If the strategy stays the same for this life stage as it was for the accumulation phase, hazardous retirement conditions are certain. You must align your strategies to your stage of life to get the outcome you are wanting.
The third phase is “income.” If you’re still using an accumulation strategy when you get into the income phase and a major correction takes place, you will find what used to work for you with the dollar-cost averaging will actually hurt your retirement substantially through reverse dollar-cost averaging. This is when you find yourself selling the investments you had purchased earlier when they were low to continue your income needs, causing your retirement accounts to quickly drain.
Although success is different for everyone, the goal is to have a successful retirement journey.