by Damien Hoffman
Last week I received my USAA monthly magazine sent to account holders. The main topic was whether people believe they will ever get to retire.
I took this hot question to Troy Buder, the Founder & President of Tri Pillar Investments, LLC — a boutique Registered Investment Advisory firm which specializes in working with members of the Medical and Academic communities including Duke University, Wake Forest, UNC Chapel Hill, NC State, Emory and UCLA.
Damien Hoffman: Troy, a lot of people lost a lot of money in the recent few market busts. The cost of energy, food, and medical care is inflating. What are you telling clients who fear they may never retire?
Troy Buder: First we must look at three factors that encompass anybody’s retirement lifestyle: time, contributions, and rate of return. Time is how much time they are going to work.
Here is an example of the importance of time. We work with physicians who make a lot of money, but many of them specialize and don’t get out of school until they’re 38 or 39 years old. So, they’ve deprived themselves for a long time. Then, all of a sudden, they’re making some good money. However, they’re making $300,000 but spending $350,000. At age 50, they wake up and say, “Oh, my gosh. I haven’t even planned for my retirement. I have only 15 years to go.” Thus, time is something to consider much earlier.
Second, we look at contributions. How much is the person or family contributing? What kind of plans are they using? Are they locking themselves into a myopic 401K or something of that nature, or have they been wise enough to use defined benefit plan, an executive benefit plan, or have they circumvented the 415(G) laws which mandate how much you can actually put in the pretax retirement under a define contribution plan?
The third area is what we do for them which is to help them get a rate of return that is commensurate with their goals and objectives. So, if the time is down and the contributions are down, we have to be very aggressive with the client’s portfolio. If there’s plenty of time and plenty of contributions then we can shoot for more mid-level numbers in their portfolio’s growth.
Damien: What do you say to people in their early 60s who were successful as a professional, put away a decent amount for retirement, yet lost a significant percentage of their assets?
Troy Buder: They don’t have a whole lot of choices. If they’re going to try to make up that lost 40%, they have to become much more aggressive with the current assets in their portfolio. They must decide if their original retirement age of 65 is now being pushed out to age 70. Or, they need to have to find a way to contribute more pre-tax income to that retirement.
The fourth option is to radically change their lifestyle — maybe sell one of the additional properties or down-size their home. They must make sure their expenses are not going to outweigh their income.
Damien: Which are the most popular of those decisions?
Troy Buder: Fortunately, we prepare our clients very well. So we’ve been able to protect against dramatic situations. But, in general, people would certainly first extend their time frame as to when they thought they would retire.
Second most popular is increasing contributions. People say, “I only have six years to go. I better make some sacrifices now.”
Damien: So, retirement will still exist, but the path may require some tweaking.
Damien: Well, Troy, I think you’ve given hope to a lot of people who have given up on the idea of retiring. I look forward to our next chat about other great tips for people who want to protect their retirement.
Troy: Thanks, Damien. I look forward to it.