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Actor Robert Young may have given sage advice to his TV family on “Father Knows Best” but not all dads have great wisdom.
With Father’s Day approaching on Sunday, we asked financial advisers what they learned – good or bad – from their parents’ generation about retirement and financial planning.
Parents and grandparents today are among the first generations required to fund the bulk of their retirement on their own, without the help of a company pension. That shift put the burden of funding the golden years on individuals rather than companies.
When it comes to financial planning, one of the most debated rules of thumb is the 4% rule. That rule suggests that $1 million in savings and investments would allow you to spend an inflation-adjusted $40,000 each year in retirement with minimal odds of outliving your money.
But some see that rule as an outdated old yarn.
Read: The 4% retirement spending rule may be too high. Could you get by on 1.9%?
“The notion that you have at-risk money creating stable income for 20 to 30 years? There’s no such thing as average returns – you can’t live on averages. That fact was pointedly made last year with the market decline,” said Morgan Hill, owner of Hill & Hill Financial LLC.
“We need to be mid-21st century creative. Not stuck in the 1900s views,” Hill said. “Look for investments that create stability. Don’t blindly follow outdated advice.”
Don’t time the market
Trying to time the market – knowing just when to jump in and out of stock market investments – can be risky and often people get burned.
“I think the old idea from a grandparent’s generation that you can time the market has proven unwise over the years,” said JR Grondeck, managing partner with the Lerner Group at Hightower Advisors. “It’s better to have a long-term plan and stick to that plan than think you can jump in and out of the market and make money each time.”
Don’t overfund a traditional 401(k). Go Roth instead.
Derek Miser, chief managing member and financial adviser with Miser Wealth Partners LLC, said it’s been drilled into people to max out their 401(k) contributions, but the youngest generations today may want to choose other paths.
“The millennials and Generation Z will find themselves in a unique position. They’ll put money into a 401(k) and take it out at a much higher tax rate than they put it in,” Miser said. “When the 401(k) was created, it was envisioned that your taxes would be lower in retirement. But given the federal debt and the debt service on that debt – the only place the government will get revenue is higher taxes. So, that makes a traditional 401(k) a pretty poor investment. There’s a whole paradigm shift that has to take place.”
“Today’s 401(k) is not your grandfather’s 401(k),” Miser said.
Miser suggests funding your 401(k) enough to get your company’s match and then fund a Roth IRA to the maximum amount. If your employer offers a Roth 401(k), take full advantage of that opportunity, he said.
Prudent savings
Of course, not all of dad’s financial advice is outdated.
Alison Slezak, a retirement planning adviser with Dan White & Associates, said she took to heart a lot of lessons learned from her parents.
“We live in such a ‘now’ society. We swipe our debit or credit cards for everything. We never have cash in our wallets,” Slezak said. “Growing up, my family was old school and my parents saved money into different envelopes for Christmas or vacation. If they didn’t have cash, they couldn’t afford it and they wouldn’t buy it.”
“Now people will put a vacation on a credit card and even home improvement retailers offer financing. You can charge anything. That’s not necessarily a good thing,” Slezak said.
“Have different accounts to save money for vacation or some other goal, whether it’s Christmas or something else. Earmark that money for that goal and don’t touch it,” Slezak said. “Always pay yourself first and don’t purchase stuff you can’t afford to buy with cash.”
“My dad also worked multiple jobs. If you’re not earning enough, get a part-time evening job or weekend job and build up your savings. It can be your slush fund or emergency fund or a vacation. Whether it’s bartending, serving or call center work or data entry – there are ways to make money at night and on the weekends,” Slezak said.
Even bad advice can help
But most of all, not all bad advice is actually bad. There are lessons to be learned from mistakes, Grondeck.
“You learn the most from a mistake or losing money. Don’t be afraid to make the mistake. Without taking a risk, you’ll never have the opportunity to make money. It’s like that Wayne Gretzky saying ‘you’ll miss 100% of the shots you don’t take,’” Grondeck said.
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