Mac’s Blog

WSJ 12/19-20/2009 took a look at how to “save” the retirement of several individuals written by Kelly Greene.  Actually, the article was not really about saving but how to develop enough assets to meet the individual’s plans for retirement.  As with most information like this in the Wall Street Journal or other financial publications, this information concerns only asset development and structure of an investment at risk.  In my opinion, this advice is critically flawed when it does not first consider a solid asset foundation.

As a retirement specialist, the first objective with any client is to insure retirement is structured on a solid foundation.  But skipping all the really important basic stuff and delving into asset development, why does the financial press totally concentrate on investments of risk?  In this article concern is asset investment for individual or couples of varying ages from 50 to 61 with total disregard for insuring basic needs. 

I believe retired and pre-retired should have assets at risk in equity investments but first build a base to work from.  If I am not retired, my first concern is my employment or my business and the income from these endeavors which allow me to fund my plans for retirement.  At this age, this is my base but after retirement my base is my nest egg.  As long as I am employed, I have some security that my minimum requirements for income will be met and I can work with some of the money above my minimum requirement to fund my future retirement.  When I am retired and not employed, my base is my nest egg meeting my minimum requirements for income.  My concern is first and always is securing basic assets to meet future minimum needs.  

 From 1987 through 2007 we had inflation for the general public of 3% but for seniors it increased to around 3.3%, in 2008 it was higher and 2009 around -.04% or disinflation.  Inflation plus tax is an insipient force significantly affecting retirement planning as life expectancy grows.  But should the basic nest egg be at risk?  The financial press trout’s the so called average return on investment of the market be it stocks and bonds or mutual funds or other investments, but what is the real average for the average investor over the past 20 to 30 years?  How many investors would now accept a guaranteed compounded return of 3 to 6% or higher, with no loss in principal and free of tax until money is removed from the investment? This investment type is not sexy and not often mentioned in the financial press because it does not generate commission or fees investments at risk generate.  But placing you nest egg in assets generating tax deferred savings that stay with or exceed inflation is the base you require to allow the latitude to invest other assets at risk without the risk of being reduced to penury if you take a beating.

When we invest and invest at risk, regardless of how you look at it we are gambling and with any gamble there is the element of loss.  The higher the potential reward the higher the risk.  Professional gamblers know you don’t gamble with what you cannot afford to lose.

 Guaranteeing your nest egg and then gambling with table stakes reduces stress and actually allows you to more effectively manage your money.

 Hubert W. McMinn Jr.

To better understand how to develop a profitable base with your nest egg contact Hubert McMinn by email at hmcminn@plannedassets.com or visit www.plannedassets.com.