Managing your own retirement money can be a daunting task. Though you may be decades away from retirement, the prospect of managing your 401K, 403B, 409A, 457, IRA, RothIRA, SIMPLE, SEP, SARSEP, ESOP, or PSP can fill you with dread.
The usual and constant questions refuse to yield to answers; buy and hold or day trade, value or growth stocks, individual stocks or mutual funds or ETF’s, how much of your asset to keep in cash, buy bonds now or avoid them until later and if now what bonds? Fear of getting it wrong brings up pictures of ending up old and gay and poor.
We have each spent a lifetime in schools, schools that taught us little about everyday money management and even less if anything about wealth management. As you may recall from other columns I have written, financial success requires two pots of money: operating cash that is spent for day to day needs, and capital investments which are never spent and used to create wealth.
Once you have gained control of your operating cash and begun to build your wealth, what do you do with it?
Surveys of workers nearing retirement prove it’s not easy to manage your wealth. Millions of personal investors, both LGBT and straight, are living scared making it no surprise that the personal finance industry is thriving. Personal investors who hold trillions of dollars in assets make for reliable customers. Much of the financial management advice has turned out to be unreliable, and expensive; expensive in fees paid, additional taxes due because of untimely trades and plain old bad investment decisions that lose your capital.
There is a prevailing myth in our society that if you aren’t successful creating, managing and building your wealth, then your must be doing it wrong. All around you others are getting rich off stocks or real estate and quick to tell of their success over a beer. The real problem is actually very different. As our savings rate has cratered in the past decades the decline has been less an effect of overspending as an effect of rising costs for housing, education and medical care in coincidence with stagnant wages. These rising costs can strike LGBT even more fiendishly as our cost of housing can be higher, we tend to be better educated spending more on education, and those who live with HIV pay higher medical expenses.
What got us here wasn't the stock market crash or the housing collapse but three decades of growing income inequality. Tuition that rose three times the rate of inflation, medial care that grew at twice the rate of inflation and stagnant wages made paying the same mortgage more costly. A large percentage of personal bankruptcies are still caused by unexpected medical expenses.
Even more important is the fact that Americans have an income problem, and it is a big one because housing, healthcare, and education cost the average family 75% of their discretionary income in the past decade when that figure was just 50% thirty years ago. In other words, the average family spent 50% more in the last decade to go about their same daily business.
All of that does not relieve us of the personal responsibility to provide for our retirement. There is still the simple fact that carving ten dollars out of each days spending whether from skipping a latte and a pack of cigarettes or carrying lunch to work is all that stands between you and a comfortable retirement. When added up and compounded with historical stock returns even when you add in taxes and inflation, your savings turn out to be about $400,000 in retirement, just from ten dollars each day. The sooner you start saving and planning the easier it is when the compounding power of time is factored in.
Contributing further to the managing your own money dilemma are expensive and often poorly managed retirement plans, high cost annuities, and the myth that real estate always makes you rich. Seems that no matter where you turn someone has their hand out for your hard won retirement savings.
There is a solution, a mid ground between going it alone and abdicating your financial responsibilities to another person; a person who can not possibly care as much about your money as you do. That solution is a company such as Vanguard or Fidelity or many other high quality and more importantly low cost mutual fund companies. These companies employ financial professionals who generally work on salary not commissions. They can professionally guide you to a mix of assets that will change with time and keep you invested and balanced while costing the least in management fees.
Managing your own money can be a daunting task. No one will ever care as much about your money as you do. Take the time to learn the basics of saving and investing, stretch that knowledge to include social pressures that drive equity markets, and be wary of anyone who wants to get their hand in your pocket. With that knowledge you will gain confidence and skill and arrive at retirement with a comfortable nest egg suitably invested to return you a comfortable retirement.