Wisdom to Know the Difference

God, grant me the serenity to accept the things I cannot change,
Courage to change the things I can,
And wisdom to know the difference. – Reinhold Niebuhr
 
Maybe you have seen the Serenity Prayer before, maybe you have not. I grew up with it as a refrigerator magnet in our kitchen. The third line is the most important. Specific to retirement planning, understanding what is in your control and what is not will hopefully allow you to have a few more restful nights of sleep. There are many variables that may contribute to the success or failure of retirement plan. Generally they can be divided into three groups: 1) Things you can control, 2) Things you can influence and 3) Things you cannot control.
 
Sadly it is the things that are outside of our control that seem to dominate our thinking. You cannot control the stock market, government policy or the economy. All you can do is adjust and move on. If you fixate on these you will miss the things you can control. Frankly the things within your control have more influence on the success or failure of your plan. We know the stock market will go up. We also know the stock market will go down. If you have 20 years until retirement the market going down for a couple weeks really will not impact your final result much. However, one of the biggest mistakes we see clients make is reacting to market movements. If the market has been going up people may be hesitant to invest, thinking the market will back down and they could buy at a better price. The funny thing is when the market does go down, people decide not to invest because they worry it will keep going down. (I say “people” instead of “clients” for the simple reason that advisors fall victim to same emotions at times.) When it comes to things outside of our control, we can adjust our plan if needed, but we cannot let them distract us from focusing on what can control.
 
“Influencing” is about increasing the chance of good things happening or lessening the chance of bad things happening. Healthcare costs are a huge concern to all plans. We cannot know if we will get sick and have to quit working or if we will become infirmed and need nursing care. However if we follow medical advice about eating healthier, getting exercise, watching our weight, etc., then the odds of getting sick drop. No one can tell if you if the market will go up or down, but understanding what you’re invested in and their costs can help in generating a steadier return. Back in 2008 when the stock market was down about 37%, an average diversified portfolio was down in the mid 20% range. While nothing prevented the markets from going down, many savers lessened the severity of the move. By influencing, we hope adjust the impact these events have our plan, but understand we do not eliminate them from happening.
 
Now for the good news. The biggest factors in determining your retirement plan success are within your control. The most important is your savings rate. Earning 8% instead of 6% is better, but if you are only saving $100 earning that 8% instead of saving $1000 earning 6%, you will not be better off. If you want to save more, then spend less. (I said it was in your control, I did not say it would be fun or easy.) A new job that earns more money but leaves less time with your family is a personal choice, but it is in your control. Deciding when to retire (most of the time) is your choice, as well as when to collect social security. While there are pros and cons to any of these decisions, they are, for the most part, your decision to make.
 
It may be easier said than done, but focusing on how to save more for retirement is much important to the final result than worrying how a tax proposal (that may change a few times before you retire) will impact retirement lifestyle. Spend your energy on what you can control, not what you cannot.