Financial Advice For A 60-Year-Old, About To Retire

A journalist once asked me what advice I'd give a 60-year old, about to retire. To be honest, I might as well have been asked to list the causes of the Civil War. From the perspective of a trained financial planner and the Chief Investment Officer of a private wealth management firm, the question is, well… difficult. The journalist was writing for a major financial paper and looking for sound investment advice for folks who have been buy and hold investors their entire investing lives, and who now faced the dawning realization that buying and holding is actually a high risk strategy in expensive markets.

As you might have guessed, I flunked the journalist test. My answer wandered all over the place, and I didn't make it into the article. However, I've been thinking about it a lot since then.

Here's what I should have said:

Dear Hopeful Retiree,

Don't spend too much. Americans are used to a certain lifestyle which is apparent in the size of our homes, the amount of traveling we do, our taste in home electronics, our… everything. Spend the money to work with a legitimate financial planner (a Certified Financial Planner, CFP®) to find out what lifestyle you can afford, and then learn to live within your means.

Next, actively manage your portfolio. You can't afford to buy and hold if the financial markets are going to deliver less than average returns for the next five to ten years. No one can accurately predict the future, but smart people are worried about the amount of global debt, and you had better plan for a low return world early in your retirement. Low returns won't last for the rest of your life, but the portfolio returns you earn early in retirement are disproportionately important to you, so be prepared. Active management can add two or three percent (or more) per year to your returns over time, if executed well, and that could be critical to your success.

If you've invested your own money for years, you have to dedicate the time and treasure to becoming a different kind of investment expert. You can't be a successful active manager of your money by skimming the morning paper and watching CNBC when you get home from work. If you can't reasonably see yourself doing the work, then hire someone to do it for you. Find a professional wealth manager that specializes in building globally diversified, actively managed portfolios. You may have always been a do-it-yourself type when it came to investing, but beware. The market is no longer likely to provide a tailwind to your investment mistakes, and you have to know what you're doing in the tough environment ahead.

Good luck.

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