Seeing Retirement In A New Light: Financial Advisors' Daily Digest

by: SA Gil Weinreich


Dirk Cotton offers ideas inspired by chess on how to succeed in retirement’s endgame.

Eric @ Servo: You can beat the market! Look at DFA.

Bruce Miller helps readers avoid higher Medicare premiums.

Retirement is like a game of chess in which your chances of success in the endgame are determined by how you play your middle game and opening game. So says retirement planning expert Dirk Cotton in a new article on SA. I applaud those who reason by analogy because the exercise helps you see your subject in a fresh light, which can be clarifying. For example, at the end of an article, in which he adduces many parallels between chess and retirement, Cotton makes an important distinction.

"Luck plays a very limited role in chess, but a much greater role in retirement," he writes, citing factors such as health and longevity, which significantly impact retirement finances and over which people generally have no control.

I'd like to note one crucial further distinction between chess and retirement. A chess player is competing with a clearly identified opponent on the other side of the board. Investors don't have, or don't think they have, an opponent. But said opponent can be seen by looking squarely in the mirror. As in every area of life, that's where your most tenacious opponent can be found. And in that regard, chess can be a useful metaphor.

For example, the best chess players are careful to wrap their strategy behind a phalanx of protection. If they want to move their pawn slowly to the end of the board to retrieve a queen, for example, they make sure that a bishop or rook is safeguarding their pawn's progress. So too, if an investor is moving along the risky path toward retirement, he needs to make sure he can withstand the slings and arrows of outrageous fortune - a layoff, or a market crash, for example. For that one needs liquid reserves to live off while waiting to recover employment or equity values.

Similarly, a wealthy couple covetous of a vacation home should not crack open an IRA account before the age of 59 ½ to pursue their dream, thereby losing the account's tax protection, paying a large tax bill and adding an IRS penalty on top. That's a bad move.

You can read Cotton's article by clicking here. And for chess aficionados out there, or investors looking for a fresh prism through which to view their investment and financial planning strategy, I can commend to your attention a book called "Rich as a King" written by a former grandmaster Susan Polgar and investment advisor Douglas Goldstein. A nice feature of the book is that it actually addresses not just investing but financial planning strategies to build wealth, avoid debt and manage risk.

Let us know your thoughts, and strategies, in our comments section. Here are today's advisor-related links:

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