Mike Zwecher On Retirees Fearing Commitment

 

There will be factors specific to the individual such as the likelihood of unknowable changes in future needs, unknowable changes in the world, and the ability to prepare (rather than just plan) for the unknowable.

 

What about committing to a plan? For retirement, building resiliency into a plan may be more important than creating the most efficient plan. There isn’t always a conflict between the two, but let’s talk about it.

 

The distinction between efficiency and resiliency is important when there will only be a single play of the game, or as I described it in my previous post, one whack at the cat.

 

Systems designed to be efficient are often trading off resiliency by maximizing the effectiveness of the system for a particular environment. If the operating environment changes, then that which was previously efficient, may be, in a different environment, defunct.

 

In the run up to 2008, the operating model of funding for financial firms was very efficient, until it stopped working and short-term funding dried up. On the other hand, some systems are designed to be resilient rather than efficient. Think of the department of defense or other government endeavors.

 

In the military, a ‘just in time’ process for acquiring and delivering logistical support would be efficient, as would eliminating ideas like ‘every marine a rifleman’. But because the operating environment for the defense department can change rapidly and in an unforgiving fashion, resiliency is treasured.  

 

Not to waffle too much, but there are occasions where enhancing efficiency can enhance resiliency, such as when processes are simplified or bottlenecks are removed. However, I’m trying to make a point, so let’s not quibble about the grey area. Also, before moving back to retirement, I’ll just wander towards a politically charged minefield for a moment. In a perfectly competitive environment, each firm will be efficient, though not particularly resilient. With low barriers to entry, well defined property rights, and without interlocking dependencies between firms then the system as a whole will be resilient even though no particular entity is resilient. Failure of any of those conditions opens the debate about what remedies are required. The omnipresent arguments about bank regulation tromp through this ground on a regular basis. But, wanting to keep all of my fingers and toes, I’ll leave it there.

 

Meandering back towards a discussion about retirement, while there were a handful of people who saw it coming, most people were blindsided by the events of 2007/2008. Many plans went out the window, but it was worse for those committed to a particular plan if that plan didn’t include surviving a dizzying economic plunge.

 

Personal circumstances may change unpredictably. If circumstances do change, the plan may need to be wholly reconfigured. For example, with sufficient medical insurance the death of a spouse is usually leaves the surviving spouse with somewhat lower expenses and, sadly, a half-life of about 2 years – easy to plan for. But some will rebound to start whole new endeavors or marry their 26 year-old personal trainer, in which case the expenses will rise and a wholly new plan will be needed. For someone who finds out that their life horizon is suddenly longer or shorter than previously envisioned a fixed plan may be suboptimal.

 

Often there is a cost to seeking resiliency. Keeping assets in the form of beans, bullets and gold may be resilient but hardly efficient.  Keeping 5% of assets in cash, as a standard portfolio is constructed, may be efficient but hardly resilient.

 

Full scale planning is about the efficient deployment of assets to meet liabilities. By itself, planning is sometimes useful for providing a matching of needs to resources. Good planning also looks for places where flexibility can be retained, where plans may come apart and logical points where plans may need to be changed. The wisdom of committing to a particular plan, whether by being fully annuitized or allowing everything to ride on the market, may be wise or foolish depending on the likelihood of your needs changing in an unpredictable way and the ability of your lifestyle to withstand the blow.

 

Few people actually go through the rigors of constructing a plan. Are they unwise or is it a rational response to their perception that the environment (personal or market) will change so that any plan would be likely to go out the window? If the reason is the former, then it is a proper role to try to educate people on the value of plans. If the planning is avoided because it is perceived as being of low value, the role is to lay out an appropriate set of sustaining lifestyle through alternative scenarios. As professionals we need to try to tease out whether the client needs a plan or needs a strategic advisor. It is my firm belief, that there are resilient and reasonably efficient ways to prepare for and live during retirement. Interestingly, a plan that could/did survive was the mantra of the Retirement Income Industry Association – ‘build a floor and expose to upside’. Many efficient and resilient plans are fully elaborated in my book and the RMA curriculum. In this venue we’ll get to them over time.

 

Michael Zwecher, Ph.D., is the author of Retirement Portfolios: Theory, Construction and Management (Wiley Finance), and a co-author with Francois Gadenne of the curriculum book for the Retirement Management Analyst (SM) designation.

This Website Is For Financial Professionals Only


A Strategically Focused CE Curriculum

With classes approved for over a decade by the CFP Board, IWI, and NASBA, Advisors4Advisors CE classes are an optimal knowledge stream for CFP®, CIMA®, CPA, CPA/PFS®, CFA®, and other practitioners. It's not a grab bag of speakers willing to sponsor CE content. Nor is it a one-man CE course. It's a group of subject matter experts with amazing communication skills and a history of thought leadership that, together, give advisors a well-rounded knowledge system for running a professional practice ethically and intelligently.

CE Since October 2008

A4A CE classes for financial professionals began in October 2008, the week Lehman Bros. collapsed. Initially billed as “The Financial Crisis Webinar Series,” A4A connects advisors with authoritative sources on investing, tax, and financial planning, chosen by A4A Editor Andrew Gluck, a veteran financial reporter. A4A members get a stream of CE classes for an advisor who: 

  • holds a CFP®, CIMA®, CPA, CPA/PFS, CFA or other designation requiring CE annually 
  • values monthly CE classes by Fritz Meyer, Craig Israelsen, Bob Keebler, Frank Murtha, or Andrew Gluck
  • diversifies a core of client portfolios in low-expense funds
  • invests based on MPT and economic fundamentals
  • advises on tax and financial planning as well as investing
  • needs financial counseling skills
  • wants the Certified Financial Counselor™ designation 
  • is building a brand as a thought leader locally or in a niche
  • wants the facts when bad news breaks
  • wants CE aligned with a content marketing system
  • wants 24/7 access to CE on-demand
  • insists on objective evidenced-based tax and investment planning analysis
MEMBER REVIEWS 
William Desormeau, Jr.  
It is not possible for me to overstate the cumulative value that Craig, Bob and Fritz have added for over 10 years to my investment advisory practice, as well as for personal and family financial planning. A4A gets my highest recommendation
Lynn Najman, CFP®
I’ve subscribed to A4A since its inception, and always find it intellectually stimulating and on point. It’s one of the few CE solutions out there that doesn’t waste my time by pushing product or talking down to me.

PeteDeacon-CPA-CFP

Pete Deacon, CPA, CFP®
A4A has had a profound effect on my business. Since 2009, I’ve relied on the consistent messaging and updates to run my business successfully. Being able to present the information from Bob, Fritz, and Craig's ongoing CE webinars has been a significant benefit.

fredericMayersen-phd-cfp

Fredric Mayerson, MBA, PhD, CFP®
I've been a financial professional and professor of finance for 35 years and find Fritz Meyer and Robert Keebler to be among the most engaging, incredibly knowledgeable, and experienced presenters I’ve encountered. They deliver an extraordinary amount of information in an extremely interesting way — sequentially and developmentally, utilizing pedagogical tools and techniques that few possess.  A4A to is the most consistently excellent CE program available.  
Ron Roge, MS, CFP®
I’ve been attending A4A many years because the CE classes are outstanding, and my time is valuable. Though I have over 35 years of experience, I’m always learning something new on A4A. I attend fewer conferences now because the CE is generally not advanced. If you want to learn from the best, in a faster, easier, and less expensive way, I highly recommend A4A.

John R. Day, CPA/PFS®

I’ve been a member since 2011 and never miss the monthly webinars with Fritz Meyer. I appreciate Fritz’s independent views on the economy and markets and Bob Keebler keeps me updated on excellent tax planning ideas. A4A is a great value!

NormanPolitzinerCFP

Norman Politziner, CFP

I wouldn't miss a Fritz Meyer webinar unless my pants were on fire. I've relied on Andrew Gluck's knowledge systems --client communications and CE -- for two decades. It's simply the best solution for tax, financial, investment, and risk-management professionals.®   

Dan Hawley, CFP® 

A4A, for over a decade, has been a great resource for useful and accurate information and CE. A4A and Advisor Products are bargains for an advisory practice. 

KevinBrosious-CFP-CPA-PFS

Kevin Brosious, MBA, CFP®, CPA/PFS®

I get CPA CE credit and CFP credit for the webinars.  But not only that, the A4A content is terrific