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Introduction to the Retirement Challenge: Will You Sink or Swim?

Take control of your financial success without drowning in trivia or being overwhelmed by boring repetitive chores.
This chapter is from the book


Bill Gates and Warren Buffett are probably not stressing about their retirement income—but many Americans are. Study after study shows that they are not on track to support themselves in retirement and are behind their parents at the same age. Yet, most Americans spend more time researching which flat screen TV to buy than planning for retirement. Like Scarlett O'Hara in Gone with the Wind, they choose to "worry about that tomorrow."

I can guess some reasons why you might put off dealing with your retirement: it's not fun, it takes a long time, it's complicated, it's difficult, it's confusing—it's all the above! I sympathize. Really I do. But I don't believe it's any of those things. Well, OK, perhaps your version of fun is a little different from mine. But planning your retirement isn't an ordeal. It can be done quickly, elegantly, simply, and economically. Hang in there with me. I'm going to prove it to you.

My first book, The Informed Investor, delivered the Cliff Notes of an MBA investment class. I reviewed investment theory and practice as it developed over the last 50 years. I'm not going to do that again in this book, but if you feel the need for more background, I recommend The Informed Investor.

This time, I'm going to stick to practical, actionable information and strategies for retirement planning. If The Informed Investor was 90% theory and 10% action items, The Retirement Challenge: Will You Sink or Swim? is 90% specific information and action items. It gives you the tools to take control of your financial success without drowning in trivia or being overwhelmed by boring repetitive chores.

First, you meet your pension plan. You learn what it is, how to calculate benefits, how it works, what can go wrong, what to do if something goes wrong, and whether it's even attractive enough for you to participate. If it's not, you have viable alternatives and, under a 2008 U.S. Supreme Court Ruling, some recourse.

Next, wherever you are in your career, there are smart moves you want to pursue to maximize your retirement benefits. Whether you are right out of school, or already in retirement, you have lots of options to control your benefits.

How much will you need for retirement? Early in your career, it might be hard to estimate, but as you get closer, you can refine your guesstimate. You will learn how.

Finally, you learn how to invest your retirement assets economically and effectively while controlling risk to give yourself the highest probability of success in meeting your goals. Best of all, the system is easy to monitor and set up, and it works with all your investment accounts, whether inside a pension plan or your taxable accounts.

The Retirement Challenge: Will You Sink or Swim? is a reference work you can consult so when you have a retirement planning concern, you can identify it, understand it, take corrective action, and get back out on the golf course of life. For instance, if you are faced with a career change or forced early retirement, the sections in this book on changing jobs and IRA rollovers will be invaluable.

You might not need or even want to read every chapter word for word, or you might want to come back to some sections later. For instance, if you don't have a defined benefit pension plan, it won't wreck your life not to read that chapter. And if your primary concern is required minimum distributions for folks over 70½, reading the sections on early retirement tactics might not benefit you much. Feel free to pick and choose as your situation warrants.

Given the limited time most of us have and the various demands made upon our time, a system that requires minimum intervention and attention, yet still carry you to your goal, is the one that is most likely to be employed, and most likely to succeed. What's needed is an autopilot-type approach that is reasonably simple to set up and, once set up, will tend itself.

As a former airline pilot, I have a great appreciation for autopilots. By doing the grunt work of keeping the airplane in level flight headed in the right direction, autopilots free up the pilot for higher-level tasks, making aviation safer and more reliable. However, even the best autopilot needs to know where it's supposed to go and needs some degree of monitoring. Flight planning and situational awareness are still an important part of mission success. So, you can't bail out entirely, but you can limit your involvement to high-level planning and supervision.

Political correctness is not my strong suit. Everybody who knows me knows exactly how I feel about almost everything. You won't find me beating around many bushes. In particular, I believe that both the pension laws and the securities industry need major reform. They don't work as advertised to assist Americans to meet their legitimate financial goals. Advise your elected representatives that this is a critical issue that must be addressed. Let them know you are watching. In the meantime, you have to work with the current system and, if you understand it, you can pick and choose the parts that will work best for you—if you cherry-pick the system, you can make it work wonderfully.

In the spirit of full disclosure, my daytime job is providing investment advice. So, naturally I believe that competent, objective advisors add value. Not everyone shares that opinion, however. Some investors are determined to "go it alone." If you fit into this category, following the principles I present will improve your investment results. If you want to delegate to a professional, I'll lay out how to choose one that is both competent and objective.

During my occasional appearances as an expert witness in securities arbitration and litigation, and during Jason Doss's career as a plaintiff's attorney securities litigator, we get to see more than a few investment crashes. The vast majority should never have happened. Crashes happen when the investor or advisor violates important investment principles. By looking at how other people screwed up, you can reduce the chance of being the next victim. Jason Doss is one of America's brightest securities litigators. He provides a lot of our crash analysis in this book, so you can learn from other people's mistakes.

There really are sharks in the financial waters. And there are lifeguards. Unfortunately, sharks and lifeguards might look somewhat alike to the casual observer. One of the biggest mistakes investors make is trusting the wrong advisors. Jason has a lot of experience with the sharks. Although Jonah might have gotten off lucky with the whale, Jason is the first to admit it's hard to retrieve a swimmer once he's been eaten by a shark. Better to avoid them in the first place.

With millions of boomers approaching retirement, and trillions of dollars changing hands from pensions to the boomers, retirees are a target-rich environment for the financial industry. Sharks circle endlessly, looking for that juicy, easily picked-off meal. Sharks don't have morals; they just eat things that look tasty. Sharks have many distinguishing characteristics, however, and can rather easily be avoided if you know how to spot them.

If you do get bitten by a shark, all might not be lost. Although there are significant legal differences and performance expectations between fiduciary advisors and salespeople, all financial advisors are held to minimum standards of care and might be accountable for losses that occurred as a result of their lapses. Recovering losses is an uphill battle, however, so it's best to avoid the problem in the first place. As Ben Franklin so aptly put it: "An ounce of prevention is better than a pound of cure."

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