Presented as a typical interview

Q: Corey, we are from the same age cohort, early 50s, and I find myself well behind the curve as regards building the sort of net worth I require for my retirement in a dozen years. How do I begin the process of developing a plan?

A: There are several important considerations:

1) First, there isn’t necessarily a perfect solution to all problems; you may only have the financial resources (income) to save and complete, say, 75% of your retirement goal. Nonetheless, 75% is way better than nothing or something less. Any deficiencies, then, must be made up by either working longer or lowering your retirement expectations.

2) Second, you must adhere to a long term holding period. We know that if we go back through 50 years of data, there are no instances where anyone holding the S&P 500 index lost money if they held their investment for 15 years. The worst outcome over this period was a little less than a 5% compounded annual return. And, you don’t have time to second guess the stock market, anyway, so buy good assets and hold onto them as long as possible. It will heighten the odds of a positive outcome.

3) Third, if you have engaged an advisor and are having your portfolio or savings actively managed, you need to give that program time to prove itself. Just as if you were to buy and hold securities over a long period of time, look upon the investment program as a long term hold. It again will heighten the odds of a positive outcome.

Q: Corey: How does deferring a retirement date affect outcomes and improve retirement success?

A: Every year you work is another year that you earn income, income you can save. And, a year worked is a year you don’t have to use retirement funds for income. So, delaying retirement as long as possible is a very powerful tool with not one, but two factors working together. If you will receive Social Security retirement benefits, your monthly check will also increase quite a lot.

Q: Corey, and if the years covering the decade or longer I will use to gather assets, if it isn’t a particularly good one for stocks, say it only gets me 75% of the way to a full retirement funding, what else can I do?

A: In addition to working longer as I have already mentioned, you should refer to an article I wrote some time ago where I stated:

“Live like no one else will for 3 years, live like no one else can for the rest of your life.”

What I am saying here is that if you cut way back on your lifestyle now and save harder, you won’t have to cut back nearly as much when you are in retirement. Get frugal, live a smaller lifestyle (you will likely prefer it anyway), save harder. Be flexible now while you have more control over matters and give yourself more options when you are older, perhaps unemployable, say if you become disabled.

Q: Corey, are there any programs designed to help those of us who are getting older, catch up?

A: Yes! If you are a sole proprietor, you can defer quite a lot of income, now $24,000 a year after a certain age as a catch up provision using retirement plans such as a solo 401(k). In addition to this, at the end of the taxable year, you can add a substantial profit sharing contribution. In doing so you are saving, say, $50,000 a year. You will accumulate a fairly large sum of assets over a decade or more. And, there are even more aggressive retirement funding alternatives to consider using defined benefit pension plans for those who might want to really sock away large amounts.

For those who are not self-employed, there are several tactics using taxable accounts to build up assets with fewer tax consequences. You can purchase high quality dividend paying stocks and or tax free municipal bonds. Here you would only pay income tax on the dividends received, no tax on the interest received form the municipal bonds. The appreciation in the stock value over time would not be taxable until you sold the stock.

Q: Corey, how should I start?

A: Fast! The magic of investing relates to holding periods. The quicker you begin, the better chance you have of succeeding. And remember, you will have setbacks from time to time. You have to motivate yourself to get up dust yourself off and continue with the investment plan. Never give up!

Corey N. Callaway

Investment Advisor Representative