Feds are understandably apprehensive about the impact this current market instability may have on their retirement accounts. After the last major economic decline we all witnessed in 2007-2008, who can blame them? But what can they do now that won’t cause more harm than good?
Many federal employees may be unintentionally paralyzing their own retirement plans either through no action or ill-advised action. There are 3 distinct forms of Analysis Paralysis that can damage retirement strategies:
- Form 1 – Holding ones’ breath (riding it out), hoping and waiting for retirement accounts (including TSP) to show new life. I call this “Ostridge Paralysis.” Bury your head and hope for the best.
- Form 2 – Ducking in and out of investments based on today’s latest news. Nearly always missing market peaks and suffering the brunt of market declines. Trying to time (but missing) market movements. I call this “Timing Paralysis.” This is like closing the barn door after the cows have already escaped.
- Form 3 – Make investment changes based on broad statements read, or heard on the radio. I call this “Puppet Paralysis.” Broad based statements are not meant as individual advice and should not be taking the place of one-on-one recommendations given by a Federal Retirement Specialist. There is no such thing as a one-size-fits-all approach. Every Fed should have, and deserves, personalized inspection and guidance concerning their Federal retirement.
Suggested “Analysis Paralysis” solution
Regardless of market cycles, for most of us, the “trick” to intelligent, long term investing is to find ways to overcome and even avoid dealing with any form of Analysis Paralysis.
One straightforward solution would be to construct two distinct retirement mechanisms. 1) Create a sound investment concept. 2) Develop a comprehensive retirement plan.
This may, understandably, sound like jargon. But, the explanations below will hopefully simplify these critical concepts.
A sound investment concept
The fact that this concept can be so simple may cause many to doubt its effectiveness. This concept merely requires finding what my industry calls a person’s “Risk Tolerance.” How much can someone lose in their investments before they panic vs. how much in gains does that same person realistically desire? A comparison is then done of investor to investments (including one’s TSP) to determine if the two make for a good partnership. In other words, it is discovering what you want/need, then discerning the likelihood that your current investments may have of potentially producing those requirements.
There are many on-line tools that can help with determining the risk tolerance you should have and the amount of risk/potential return your investments offer. Many of these services are provided free of charge. I have a risk assessment tool I offer as part of a free (no obligation) two-step process to determine individual risk tolerance.
Note: After taking the quick personal assessment, you will need to work with my office in order to compare your investment needs to your TSP (and other retirement accounts) for an appropriate fit. Both steps are free.
A comprehensive retirement plan
Retirement Planning is a much more complicated concept since it has many different variables to acknowledge and address, i.e. expenses, income needs, retirement goals, SSA benefits, pension planning, distribution planning, wealth transfer, retirement travel, etc.
A well-made plan serves as a roadmap to guide federal workers from where they are to where they want to be in retirement. I urge Feds NOT to try to handle this aspect on their own, nor should they use a general (non-specialized) advisor. Instead, they should locate an experienced (10 years or more) Qualified Financial Advisor (FFA).
Example
Dennis is a Fed with over 30 years of service who is looking to retire within the next 5 years. Dennis and his wife Denise both suffered from Analysis Paralysis, albeit different forms.
Their retirement savings had suffered drastic losses of late. When we met, their savings totaled $800,000. However, it had been over $880,000 just one month earlier and over $1,000,000 the preceding year.
Dennis was suffering from Ostridge Paralysis. Prior to our meeting, he was in the “riding it out” mentality. He wanted to just wait until his accounts “came back” before he would make any modifications. We discussed that the potential of losing value wasn’t the only risk he was facing. He had created a financial posture that may also cause him to suffer from “time risk” – the longer his assets sat in a stagnant or declining state would prolong the amount of time it would take for his accounts to rebound, thereby stunting the compounding potential his assets could possibly enjoy over the long term.
Denise suffered from Puppet Paralysis. She had a couple of radio and TV personalities that she would listen to, then she would adjust her portion of their assets to correlate with the presumed direction that the personalities had suggested. Denise’s approach was twice as damning to their nest egg as Dennis’s approach. She couldn’t understand how following the advice of a radio “professional” hadn’t helped her overcome this turbulent market environment.
I explained that I know of no one that can consistently and accurately predict what the markets will do in the future. That doesn’t mean there aren’t a fair share of prognosticators available, all with their own spin on what is going to happen. I also shared that I felt following general advice to develop a specific retirement/investment plan was not a wise course of action.
Dennis and Denise had effectively paralyzed their retirement accounts with different forms of Analysis Paralysis.
Anxiety took over, and they feared this amount of damage would interfere with either their desired retirement date or their desired retirement lifestyle. So, they contacted my office to request a free/no obligation Federal Retirement Readiness Review (FRRR).
We worked together to create a sound investment concept and a comprehensive retirement plan. Their accounts are no longer in Analysis Paralysis, and their new approach has developed a fully comprehensive retirement plan and an investment methodology that is straightforward, transparent and largely based on their personal needs and goals. Dennis and Denise should be able to retire when and how they wanted.
It is very conceivable for Feds to prepare for volatile markets if they are able to overcome their own personal paralysis, AND if they are willing to take control now and become prepared, so no matter what the markets do, their personal plan is in place.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risks, including the loss of principal. No strategy assures success or protects against loss.
Securities offered through LPL Financial, member FINRA/SIPC.