(Reprinted from the September 2016 edition of the Bath Country Journal and Richfield Times.)
Savoring a vintage wine is one of life’s great pleasures. However, often overlooked in the joy of consumption is the carefully calibrated journey from grape to glass. Similar levels of care are critical to achieving good results for your retirement and investment plans.
A plethora of variables can determine whether a wine is great, good, mediocre, or undrinkable. These include the quality of the grapes, soil, position of the vineyard, weather, irrigation, and timing of the harvest.
Moreover, picking the grapes is not the end of it. The harvest must be sorted, the grapes crushed and pressed, then fermented, clarified, aged, and bottled. At any stage of the process, a lack of attention to detail can spoil the outcome.
As in winemaking, managing your retirement plan requires attention to detail—developing and prioritizing your goals, modeling costs that correlate to these goals, building effective and diversified portfolios to support your lifestyle goals, and overlaying a sound tax management strategy to pay no more than your fair share.
Though you may have purchased some of the best grapes from one of the finest vineyards, ingredients are necessary but not sufficient to result in a great wine. Understanding your batch of fruit and carefully managing the process takes time, skill, and proper equipment.
In retirement planning, quality investments are also necessary but not sufficient. You or your advisor must have the wisdom to understand market conditions and knowledge of how to select and best combine sound investments into a portfolio that is designed to support one’s lifestyle needs. This ability coupled with the discipline to adhere to the plan is all required for a successful, coordinated retirement strategy.
Just as winemakers do not have any say over the weather, you cannot control the investment markets. And while not every harvest will produce an excellent vintage, a more than drinkable wine may yet result with the optimism to look forward to next year. Similarly, in retirement planning you can still maximize our chance of success to have a workable plan regardless of whether we retire into a bull or bear market.
For winemakers, taking extreme care in picking the grapes at a time that delivers the desired balance of acidity and sweetness may be required. In retirement planning, you will need to be able to precisely design your investment portfolio to meet your expected liabilities – the cost to achieve your goals. Then knowing when and how to best harvest some of the longer-term assets (stocks) and reallocating them into shorter-term assets (bonds and cash) will be an ongoing part of the process.
Winemaking is as much an art as a science. While fermentation comes naturally, the winemaker must still guide the process, using a variety of techniques to ensure the wine is as close as possible in style and flavor to what she is seeking to achieve.
Similarly, in retirement, aging certainly comes natural to us all whether we like it or not. Yet, being self-aware of how our health, relationships, and goals may be changing and how this affects our financial life planning is an important conversation to have with yourself, your spouse, and your advisor. Doing so will allow you to better guide the process and apply appropriate techniques as necessary.
Dealing with uncertainty is part of the job of both the winemaker and you or your advisor as retirement planner. Therefore, you must build into your plan and processes a level of resilience, so you have sufficient flexibility to work around unforeseen events. In today’s low-interest-rate and high-valuation market environment, this resilience is more important than ever and more challenging than ever to attain.
The benefits of discipline and attention to detail are easy to overlook. Knowledge and wisdom count for a lot, of course. Nevertheless, without effective implementation and care in monitoring the process over time can mean even the best grapes in the world go to waste and best-laid retirement plans fail.
Kevin Kroskey, CFP®, MBA is President of True Wealth Design, an independent investment advisory and financial planning firm that assists individuals and families with their overall wealth management, including retirement planning, tax planning and investment management needs.