Don't want your clients to retire penniless? Prepare them for the future by investing in the present

D. Jed Wunderli, branch manager, Meridias Capital

As published in Scotsman Guide's Residential Edition, September 2005.

In our society of instant gratification, most people put more energy and effort into keeping up with the Joneses than into planning their finances and preparing for retirement. The Joneses, however, might not be playing the right game.

Consumers spur growth of the American economy, but by doing so, they are deferring wealth creation. Even if people have pensions or contribute to a 401(k) or Individual Retirement Account (IRA), risk is deferred by not investing beyond them.

Deferring risk might be the most costly way to prepare for the future. By not expanding opportunities to create wealth, clients essentially are saying that their current strategies will provide enough assets for the future based on an expected return on investment. If that investment is in stocks or mutual funds, then clients hope that the stock market will have a certain return until they retire.

Many clients are too comfortable with their current investment strategy or afraid of learning about other investments. This complacency or inattention to an investment portfolio is akin to an ostrich burying its head in the sand. The lucky clients who have realized minimal or even break-even returns over the past five years in the stock market have still lost ground to those who have sought better returns through other investments such as real estate. Some may also have an “ostrich attitude” about health issues and the ability to work productively at a job that will pay enough.

People cruising along comfortably with their investments in 401(k)s and IRAs are deferring risk because they pin their hopes on investments that probably cannot fund their retirement. Most do not understand the full impact that inflation will have on their investments over time. They also do not realize the true cost of retirement. Unfortunately, most Americans’ retirements will be grossly underfunded.

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