Macro Guidelines Mislead

What do you call the space where macro ideas meet micro ideas?  Does it matter if we even know the space exists?  You can address micro without knowing macro, but macro will not define you.

Consider retirement income needs.  Macro has traditionally said that employer and government plans should replace 70% of pre-retirement income.  That is of course nonsense and while it may be reasonably true as an average of the entire population, it is not useful on an individual basis.

At the micro level, the individual needs whatever is defined by their spending plan.  The planning process should begin with that and address it into the future, compensating for inflation, changing spending habits and potential emergencies.  Very difficult.  At best there will be many assumptions and hopefully the errors within will offset each other.

The next step is to recognize that there will likely be spontaneous income.  Government plans and employer pension being the common ones.  You need replace only what is over and above.

Once the spontaneous income and the spending plan is guessed, it is possible to make many more assumptions about length of life, interest, inflation, taxes and the time between now and the date of retirement. Then develop a required savings amount to generate the future spendable income.

The simplest idea is “Save a little money each month, and build a large pile.  After retirement turn the large pile back into small monthly amounts.  Don’t let the pile run out.”

Quite obviously, that plan cannot be created in the beginning and then forgotten.  Creation does not work.  Success relies on evolution.  Record your results, review the results compared to the purpose, revise as necessary.  Keep a copy of your first plan.  It will be a source of amusement when you reach retirement.

Do not get caught up in the macro ideas that are promoted by others.  They never apply to you.  Averages mean nothing at the individual level.  Each of us has different needs, fears, hopes and abilities.  We find those and address them by noticing how they all fit together.  We fit them with decisions and tools.  That is what planning is about.  Finding the fit.

The process matters.  The product does not.  Keep in mind that plans are useless, but planning is crucial.  Find your own meaning and address that.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  866-285-7772

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