Retirement Done The Right Way

This story is adapted from Income Bliss, by Bob Gardner.

Steady at the Helm

Dennis came to see me after attending one of my seminars in 2006. In hindsight, I don’t know why he even bothered. After all, he had already almost made up his mind to go with one of the big wealth management shops. Who could blame him? It’s not every day you get 10 percent returns.

Back in those days, promising someone a 10 percent return was not uncommon. The big shops did it all the time, and some of them still do. In Dennis’s case, that amounted to $400,000 per year on $4 million — nothing to sniff at.

There’s only one problem with 10 percent returns: they don’t happen. At least not on an annualized basis.

Dennis was sixty-six years old at the time, still working. He came to see me and said, “Bob, I’ve got $4 million, but I need to start thinking about income for retirement.”

I told him that anyone who promises 10 percent returns knows something I don’t. And after being in this business for more than three decades, there is not much I do not know when it comes to planning for retirement.

I explained that a more cautious approach, one that still provides income and liquidity for life, was the best model to follow. That fell on deaf ears. I told him that at his age, he was taking on too much market risk, playing with fire — he did not share my assessment.

We shook hands, and Dennis took his money to the big shop of 10 percent returns. Fast-forward to 2010. The phone rings. It’s Dennis.

“Bob, this is Dennis. Do you remember me?”

“Oh, boy,” I said. “Yes, I do. Why are you calling?”

“Well, I have to tell you what happened,” he said. “I stayed in the market. I lost and kept losing. I sold on the lowest day of the year in March 2009.”

“I am sorry to hear that,” I said.

“Long story short,” he said, “my $4 million became $1.6 million.”

We all know what the Great Recession did to the markets. Dennis, unfortunately, learned the hard way.

“My hair was falling out. My wife wouldn’t speak to me. I couldn’t sleep at night. And to make matters worse, I have not been back in the market.”

Because he had taken too much risk early on, Dennis missed the rest of 2009, which finished 20 percent up. He had been financially paralyzed while other investors recouped some of their losses.

“I tried to do some of the things you showed me at your seminar,” he said. “I’ve read books on retirement and investing, but I just can’t figure it out.”

I had a feeling Dennis was trying to ask me something.

“I cannot run out of money. I have to make it last. If I bring you my $1.6 million, can you help?”

Client Relationships

Over the years, I have learned how important client relationships are. Sometimes, I am not the right fit for a client. Maybe it’s my forthcoming personality or the way I recommend managing money. Other times, a client might not be the right fit for me. He or she does not want to listen to my recommendations, or needs total control, or enjoys taking on too much risk. Whatever the reason, it’s imperative that clients and I see eye to eye. I was pretty sure Dennis and I did not, but I was trying to grow my business. Against my better judgment, I said yes.

“Here’s the deal,” I said. “If you are serious about working together, and meet with me next week, I will put together a retirement plan for you. I will do the research, the hard work, and present you with a plan that will provide you with income for life. But you must pledge to implement my suggestions and stay the course. Are you okay with that?”

“Yes,” he said.

“And Dennis, if I do this for you, and then you try to take the plan and do it yourself or bring it to another advisor, well, Dennis, then I will be furious. You and I will not be friends. Are you okay with that?”

“Yep,” he said.

I did not think he would come to the meeting. But lo and behold, I was wrong. It turns out that Dennis was acquainted with a pair of my clients, a husband and wife. They were golfing together one day, and Dennis asked them about their advisor. When they told Dennis that Bob Gardner managed their money, Dennis was surprised.

“We like Bob because he keeps our money safe,” they told him. And with that referral, I had a new client.

This is not an “I told you so” story, but rather a way to illustrate the importance of professional guidance. Dennis has been with me for more than five years now. He is a solid client. But if he had become a client in 2006, we would not need to push the envelope to meet his income needs today. Every client has his needs, and ultimately, it’s his money, so he can do with it what he wants. But Dennis lost a considerable amount in the market, and now at seventy-two, he is still working.

High-risk investments are alluring and can deliver outstanding returns, but it only takes one good bear market to decimate all the money you have grown. If you are near retirement, that type of risk is simply too much. I tell people that investing is like running a marathon. If you run twenty-six miles but do not prepare for the last 385 yards, you might as well stay in bed. What’s more, if you have been a diligent money saver and have reasonable lifestyle expectations, you do not need to earn vast sums of money to live wonderfully. All you have to do is manage risk and avoid severe losses. You do that by adhering to a plan that measures growth and safety in equal measure; it is called the “Income Bliss” model.

“How can I make sure I will have enough money to last the rest of my life and beyond?”

Most people do not ask this question, and if they do, they do not calculate an honest answer. Why? Because it’s too sobering. It’s too real. It reflects a primal fear that surfaces no matter if you live from paycheck to paycheck or have millions in the bank. It’s a question that highlights the need for careful planning.

Make no mistake about it, retirement is a new phase of life and the rules have changed. The focus is no longer on accumulating money, but on protecting it. Retirees are in peril if they fail to adjust to this new reality. I try to get the message to people as early as possible. If you haven’t saved money for the forty years of your working life, no investment advisor, including me, can pull a rabbit out of the hat and make everything all right. Bad planning by you does not constitute an emergency on my part. Diligent planning allows you to make money slowly, and slowly making money is the only way that is predictable and avoids risk.

We can minimize risk, but every financial decision still has an associated opportunity cost. In Dennis’s case, he paid an enormous opportunity cost by losing money in the market, and because he did not take advantage of the market’s eventual rebound. Most people, however, have not even heard about opportunity cost, let alone thought about it.

Put simply, opportunity cost states that every time you use a dollar, for whatever reason, you give up the chance to use that dollar somewhere else. Opportunity cost is a concept I will frequently visit in mybook. It is a key to financial success and should be central to every decision.

If you take everything you know about the financial advice industry, whether it’s information from stockbrokers, financial planners, insurance people, or even Jim Cramer, the thread that stitches all of it together is hype. Everything in this industry is built on hype. If one big shop can get you 10 percent returns, some other big shop can get you 12 percent, another one can get you 14 percent, and so on.

Here is an example: twenty-five years ago, when I didn’t have two nickels to rub together, a stockbroker called me. He called me because my name was on a list that said I’d purchased or was interested in buying stocks. Here’s how the conversation went:

“Hello, Bob. How are you today? If I could show you a way to make 10 percent, 12 percent, 14 percent in the next three months, how much money could you devote to this investment today?”

“Well, I don’t think any,” I said.

“Well, how much do you have to invest?” he asked.

“Zero,” I said.

The next sound I heard was the dial tone. This guy was not interested in trying to help me find money to invest. He was merely saying, “Invest with us. We have a better mousetrap. Whatever the other guys said they could get, we can get more.”

Unfortunately, this is the crux on which our entire industry is predicated. Nobody can get these high returns with any certainty, but promising them to new investors is the easiest and fastest thing a stockbroker can do to try to get his next commission check. Part of the biggest problem in the industry, from an advisor’s point of view, is the need to sell something every day. To sell something, you have to free up capital, and that’s not always to the benefit of the client. Opportunity cost comes into play in this scenario, and I always make decisions based on the best way to deploy a dollar, not because we need to free up capital.

We will not promise 10 percent returns next year, because our goal is to provide you with income for life. Everything we do is based on math and is provable. If you are reading this looking for the highest return possible, I suggest you close the book and turn out the light. Investment advice is not this book’s purpose, since proper investment advice depends on an individual’s circumstances, needs, and goals.

To learn more about how to handle your money the right way, you can find Income Bliss on Amazon.

BOB GARDNER, CLU, ChFC, RFC, has been a practicing financial advisor for more than three decades. As president of WSG Advisors, Bob focuses his expertise on comprehensive wealth management for retirees and pre-retirees. With a strong background in financial services and insurance, Bob has knowledge of how money works and, more importantly, how to make it work for his clients. Since his college days, he has continually worked to further his professional education and business acumen.

Committed to helping retirees and pre-retirees live their ideal lives, Bob has conducted more than 320 seminars and workshops since 1997, as well as more than 4,000 consulting interviews with individuals in or nearing retirement. A native South Carolinian, Bob and his family have been residents of Hilton Head Island since 2004.