At Mullooly Asset Management, Inc., we meet and speak with clients every day who are trying to answer the question: “Will I have enough?”
Whether we’re discussing the stock market, estate planning, cash flows, or asset allocation, our conversations are always focused on the bigger picture. “Will I have enough to retire?“, is THE question we help answer for our clients. This is often the basis of our relationship with them, and they entrust their family’s well-being in retirement to our family of advisors.
Being a family firm of Jersey Shore locals, we also have a deep understanding of the unique challenges our location presents to retirees. As of 2017, USA Today rated the cost of living in New Jersey the 5th highest in the country. People looking to spend their retired years here in New Jersey have their work cut out for them, as groceries, housing, utilities, and healthcare all cost more than national averages in state.
So how can we begin to determine if somebody has enough set aside for retirement in New Jersey?
Nearly all of our client conversations begin with cash flow. We need to get a good reading on how much money normally comes in and goes out every month. It’s impossible to project if you’ll have enough to retire in New Jersey, if we don’t know how much your current lifestyle in New Jersey costs. Getting a grip on your monthly numbers is vital to our financial planning process at Mullooly Asset Management.
We care so deeply about your monthly numbers because the basic retirement accumulation equation contains three main variables: savings rate, time, and investment returns.
Your savings rate is the only variable in that equation we have complete control over. This will be the biggest determinant of whether you will have enough money to retire one day. Your savings rate is something we look at when examining cash flows. We want to make sure it’s as high as it can possibly be. A high savings rate also indicates an ability to live on less than you currently earn because whatever you’re saving for tomorrow isn’t being spent today.
Your cash flows help to give us a reading on what you need to maintain your current lifestyle in New Jersey, as well as how much money is being put away to support your future retirement.
Next, we need a reading on what your current investments look like. We want to know your asset allocation (how much you have in stocks/bonds/cash/real estate and everything else), as well as your asset location (what types of accounts you hold these investments in). Will your investments provide the growth necessary to fund a retirement — that may last as long as 30 years? People are regularly living into their nineties now, and running out of money later in life should not be a part of their plan.
While investments will provide the growth in your retirement income equation, the returns of the stock market tend to be “lumpy”. By “lumpy”, we mean that, while somebody’s investments may average a return of 7% a year over 30 years, the year-to-year performance will be anything but 7%. Retirement income plans need to be created with these “lumpy” returns in mind. It would be great to earn 7% a year like clockwork, never touch your portfolio’s principal, and live off the interest, but that is incredibly unlikely. More likely, there will be up and down years in terms of investment performance. However, a patient investor with a sensible and diverse portfolio, created in service of a comprehensive financial plan, will more than likely be fine.
Additionally, investment returns should not be counted on to bail out a low savings rate. Too often people under-save for retirement, and then try to hit home runs with their investments to make up for it. Swinging for the fences might sound great, in theory, but the possibility of striking out and not having enough to retire comfortably is not worth the risk. Having the right asset allocation is a critical part of planning for retirement, but more focus should be given to saving money than selecting investments. The impact of a higher savings rate is far greater than the impact of a perfect investment portfolio. Stressing about every 5% swing in stock market performance because you’re banking on it big time is no way to live your life. We strive to help create retirement plans that do not self-destruct due to the inevitable bad year or two in the stock market.
The final piece to the basic retirement equation is time. As an old Chinese proverb once said, “The best time to plant a tree was 20 years ago. The second best time is now.” The sooner you can get on track for retirement, the better. This is why our firm works with families and individuals in Monmouth County, New Jersey (and elsewhere!) across all spectrums of life. Whether you’re just getting started in your career, beginning a family, approaching retirement, or already retired, there are things you can be doing to maximize your approach.
Retirement in New Jersey can be an expensive proposition, but it’s not impossible!
Summers at the Jersey Shore, as well as proximity to New York City and Philadelphia alike, give the Garden State plenty of allure. Mullooly Asset Management, Inc. would love the opportunity to collaborate with you and plan your future retirement in NJ. Please get in touch for an appointment with our team of advisors soon. There is no cost or obligation.