May we begin with the admission that saving, investing, and planning for retirement is difficult? An overwhelming number of people stop planning for their senior years due to increasing weariness from peering through the fog of investment assumptions, account choices, and conflicting advisor recommendations!

The result has been an increasing number who plan to never retire. Most continue to enjoy what they do, so why not focus on continuing to do that rather than retire? We shelve rather than pursue our dreams and passions, because they progressively appear unrealistic.

In the early 1990’s the investment industry introduced target-date funds as a simplification of the process. Mutual fund families offered a simple choice for financial planning. Choose your retirement date, and the fund family accordingly makes asset allocation decisions for you. As you grow older, the investment allocations steadily move toward fixed income and cash rather than equities.

With nearly $2 trillion invested in target date funds (according to Sway Research), account values have recently been torpedoed by the Coronavirus Bear Market. Retirement plans are being altered. People whose plans were based upon selling shares each month to provide income face the choice of reducing income soon or potentially running out of money later.

In our opinion, the question with which we begin our future financial planning is insufficient. Over the years, people have sought to answer one question, “How much will I need to have in my account in order to retire?” Again, our desire for a simple answer led us to construct an uncomplicated, inadequate question. Most financial advisors prefer asking, “What do you want to do when it comes time to retire/repurpose/change gears?”

The reason for this open ended question is sound. We need to identify what the cost will be for the things we want to do. Once the cost is identified, we can begin to ascertain how much income may be provided from the various sources we have (or we can build). From there we can choose to prioritize the decisions to make our expenses balance with our income.

We believe an exchange of our mental image for financial planning is beneficial. Rather than building around an image of a pile of cash, we propose envisioning a reservoir being fed by several tributaries with a dam controlling the flow downstream. Fort Loudon Lake/Tellico Lake near Knoxville, Tennessee is just such an image. This reservoir is fed by two major rivers, the French Broad River and the Holston River. The secondary tributaries are the Little River and the Little Tennessee River. There are also smaller, tertiary tributaries contributing to the depth and flow rate through the lake.

Building a financial future fed by several sources of income is easier both to envision and to execute. Identifying two to three sources that will provide reliable monthly cash flow in the future is the foundation upon which we may build. These financial tributaries should not subject to market swings (e.g. Social Security, pension(s), fixed rate deposits, a proper annuity, income from continued employment).  Significant tributaries flowing into to our financial reservoir are accounts like 401(k)s, 403(b)s, and IRAs. These accounts are all subject to Required Minimum Distributions (RMD) and subject to forced liquidation/sale during down markets. Should the originally mentioned income sources be lifetime in nature and not subject to market swings, pressure upon assets subject to RMD is diminished. If possible we can add tertiary financial tributaries such as real estate investments, brokerage accounts, etc. These should also be evaluated upon the cash flow they provide, understanding that real estate income and dividends are not guaranteed and may fluctuate.

Ultimately we must prioritize the expenses supporting the pursuit of our dreams, hopes, and plans. Just as a dam controls the outflow from the reservoir to the level of water flowing in, we should match our expenses to the cash flow our various financial tributaries provide. This is Stewardship For Your Future!