The aim of retirement planning while working is to accumulate shares.
The aim of retirement planning once retired is to conserve shares!
Both working or retired, the aim is share management! The value of each share goes up and down over time. Shares are the store of wealth. Dollars are simply a measure of spending power. You can’t have dollars without having shares.
While working the aim is accumulating shares primarily through contributions of money to buy those shares. Secondarily, shares come from purchases of shares from reinvested capital gains, dividends and interest. When the markets go down during accumulation years, the same number of contribution dollars buys more shares. Shares have gone on sale!
While retired, the aim is spending shares primarily through withdrawals of money when you sell those shares to net dollars. When the markets go down during retirement years, the same number of dollars sells more shares.
Hint: when you run out of shares, you run out of money.
Incidentally, accumulating shares, does create the illusion for example in 401k’s when people compare dollar values of their 401k that they’re adding to, compared to an account, say their IRA, that they are not contributing too … and they see “more growth” in their 401k even thought their IRA may be invested in very similar markets. Why might that be?
Because they’re accumulating more shares in the account they’re contributing to! More shares will grow to a greater value (or greater loss) by the same market actions they have in all their accounts exposed to the same markets. When in the same markets, the difference in perceived returns is simply whether shares are added or withdrawn … not so much to do with one account being “better” than the other (differences would also come from different exposures to different markets too). Note that few 401k’s even report number of shares owned which makes understanding investing in them a bit difficult for the average investor.
So investing is about share management, and planning is about share management. Both investing and planning overlap at share management.
Because the markets and economy go up and down,* you can’t measure progress by the dollar value of your overall holdings. You measure progress by 1) first and foremost, the number of shares you have overall, 2) multiplied by, 3) the current value of each share. Again, no value if there are no shares. More shares = more value.
Yes, planning uses the dollar value when measuring when you can retire, and how much you can spend. However, implicit in planning success is conserving shares to last over your lifetime. This is how planning and investing overlap.
Did I mention? … when you run out of shares, you run out of money.
What’s your aim? What your target’s bullseye?
Working: enough shares to retire with. Retired: enough shares to last the rest of your life. Both experience rising and falling value of those shares.
Next time you look at your investment statements, keep an eye on the number of shares you have because the value of each share goes up and down, however the number of shares is your bullseye.
Moral of the story:
What’s the aim of both investing and planning?
It isn’t about making money … that’s when you work and earn money to pay for today’s lifestyle – your Standard of Individual Living (SOIL).
No, the aim of investing and planning is about growing wealth during both working and retirement. Wealth comes from ownership and number of shares as the measurement for wealth when that value fluctuates as it always does. You always hear about how much value billionaires lost when the market goes down. But billionaires don’t panic because they understand they still own their shares.
We’re not billionaires, but we can understand and apply the fundamental principle of wealth … as I say in my book Wealth Odyssey, you’re wealthy when you have enough to sustain your SOIL. You’re rich when you have more than that. You’re wise when you understand the difference between wealthy and rich. You’re wise when you understand when you have enough – the definition of retirement is when work is optional. “Wealth” scales hand in hand with lifestyle … by scale I mean you don’t need what someone else needs; you only need what you need … thus, you are wealthy enough when able to sustain your lifestyle once you retire.
What’s your aim? Your aim is to be wealthy enough to sustain your lifestyle’s SOIL. Beware of “The Insidious Impact of Lifestyle Creep.”
*How to stay focused on your aim of share (wealth) management? By understanding the “Ocean Wave” principle of investing.
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