(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.