One of the residual impacts of the COVID pandemic on my life has been the re-discovery of fishing as one of my favorite activities. I grew up fishing in farm ponds and trout streams with friends. I have very fond memories of fly fishing for smallmouth bass on the Shenandoah River. In high school, I was even lucky enough to be invited by a friend on a trip to Key West, FL where we caught some barracuda (to this day, I still remember the crystal clear water and I hope to go back someday).
Unfortunately, life got in the way, and I went fishing just a handful of times between 2000 and 2020. However, when the pandemic started, I (along with everyone else) started looking for outdoor activities that were safe to do. And so one morning I went fishing. I had no idea what I was doing and didn’t catch any fish. But I reached out to a good friend and he offered some helpful tips. And that afternoon, I went fishing again. And that time I caught some fish!
What’s the point?
So what does fishing have to do with retirement planning? Well, the most important lesson I’ve learned with fishing is to fish where the fish are. Turns out that 80% of the fish are in 20% of the water. So you can spend all day fishing with the best bait or lures, but if there aren’t any fish nearby, then it’s likely you won’t catch anything. So location turns out to be one of the main drivers of results.
And there is actually a name for this phenomenon… the Pareto principle (aka the 80/20 rule or the law of the vital few). You may have heard of this idea in other arenas such as the distribution of income/wealth (i.e. 20% of people have 80% of the income/wealth) or sports (i.e. in baseball 15-20% of the players account for 80% of the wins). You even see this come up in the stock market where a small number of companies are responsible for a large portion of the total market’s returns. Mathematicians refer to these as power law distributions, but for our purposes, you can think about it like this… most of the results come from just a few variables.
The most important questions first
Let’s think about all the questions that come up with retirement planning. There are likely hundreds of them. But a vital few can make a huge difference in your odds of success. Here are the questions I think are most vital:
- What do I want to achieve in retirement?
- How much should I save/spend?
- When should I retire?
- How can I manage my investment behavior and stick to my plan?
- How should I manage taxes and inflation?
- Am I protected from sudden, catastrophic, life-changing risks?
These are the BIG questions and they should take up most of your attention.
There are also many less vital, but still important questions that come up in retirement planning:
- Which stock, bond, cryptocurrency should I buy?
- How risky should my investment portfolio be?
- When should I claim social security?
- Should I buy or rent my home?
- What’s the best credit card?
- What’s the best investment fund?
- What should I do with extra cash?
- What kind of car should I buy?
- What’s the best way to borrow money?
- Should I have 3, 6, or 12 months of emergency savings?
- Is my credit score good enough?
- Should I pay someone to do my taxes?
- Should I pay someone to manage my investments?
- What’s the best bank or investment company?
- Do I need an annuity? If so, what kind?
- Should I buy term or permanent life insurance?
Your financial advisor or planner should absolutely help you answer these questions as well. But at the end of the day, the first set of questions will produce most of your results.
Unfortunately, many financial advisors put the cart before the horse when it comes to retirement planning. Instead of addressing the most important questions first, they focus on investments or expensive insurance products because that’s how they get paid. But think about it… if you don’t save enough for retirement, retire too early, or don’t manage your behavior and emotions when the market crashes, then it really doesn’t matter what your investment portfolio looks like because you’ll have already lost the game.
When planning your retirement, be sure to nail down the big questions first. Once you’ve tackled those, you can shift focus towards optimizing and fine tuning your plan.
