The Retirement Pyramid

This appeared in Kitces.com, a renowned financial blog.  It is called the Retirement Pyramid.  It looks like it was drawn by a grade schooler but there is real wisdom in it.  Here it is and let’s have a discussion about it:

 

Top

It is hard to read and the top got cut off, so here is what the top of the pyramid says:

Avoid at All Costs!  No!:

  • Market Timing
  • Financial Salespeople
  • Permanently Losing Capital
  • Mingling Politics with Investing

It’s difficult to avoid financial salespeople, and so I would say you should avoid Bad financial salespeople.  As a Financial Planner, I believe most people in any economic circumstance can benefit from the services of a good Financial Planner, and we don’t work for free.  That said, don’t take major flyers with your money, which is how you can permanently lose capital.  As heartily as you hold your political beliefs, over time, markets can perform about the same regardless of who sits in the White House.

Next

The second level of the Retirement Pyramid says the following:

Moderation At Best!:  Current Events and Account Monitoring:

  • Checking your account balance frequently
  • Watching financial media
  • Worrying about your finances

In short, Chill Out!  Take a long-term perspective and everything will be ok.  This is good advice to live by.  Maybe having a cocktail once and a while will help with this.  Financial media can be helpful to traders, but, in retirement, you should not be a trader.  Being a trader can make you tear your hair out, and, as a retiree, you may not have much hair left.

Middle

Below the middle line, the tenor changes from negative to positive.  Of the following, it says to Use Freely:

  • Save! Save! Save!  Increase your Savings Rate
  • Compound Interest
  • Dollar Cost Averaging
  • Avoid unnecessary taxes and expenses
  • Diversify your assets and income

You should always avoid paying taxes unless you break the law.  Work with a financial planner to develop and implement a financial plan that diversifies your assets and income sources and avoids taxes all at the same time.  For instance, dividends are tax-advantaged – invest in a diversified basket of steady dividend-paying companies and you will check a number of these boxes.  Dollar cost averaging means don’t put all of your chips on the table at once.  Put your chips in over time.  You like the company but the timing may or may not be right, so you put a little in now and a little more in over time.  It is a good way to build a solid portfolio.

Bottom

Indulge!  Invest in Yourself $$$!:

  • Read
  • Learn
  • Experience
  • Listen
  • Acquire skills to increase your income
  • Work to control your emotions
  • Focus on long-term vs. expiring knowledge
  • Establish healthy eating and exercise habits

These are the path to leading a good, healthy, happy productive life in retirement.  Work on personal skills and development rather than worrying about your finances.  You won’t enjoy your retirement unless you are healthy enough to do the things you want to do.  You don’t need to go back to college in retirement and become an electrical engineer in order to acquire skills to increase your income.  For example, do you like pets?  Maybe you can start a pet-sitting business in your home.  Watch pets when you can or want to, and go on vacation when you want, and get paid for it.  Taking care of pets is a good skill that is much in demand.

IMO

This Retirement Pyramid is part financial advice and part a guide to healthy living.  It is a great way to think about how you want to plan for your retirement.  Start today!