The Most Important Financial Decision You'll Ever Make

Everything about your financial life seems so much harder these days, doesn’t it? I’m sure you’ve wondered why it is so difficult to save money and retire comfortably. We’ve come to treat retirement as a given in our society;  a sacrosanct stage of life. But let’s not forget that retirement is a relatively new concept. The idea has really served only a generation or two— most of us, our parents and grandparents. Before their time, folks generally worked until they couldn’t. Until they died.

Do you remember your history? When was Social Security invented? It was created under Franklin Delano Roosevelt during the Great Depression, when there was no social safety net for old and sick people. And “old” was a different concept back then. The average life expectancy in the United States was 62 years. That’s all! And Social Security retirement benefits were supposed to kick in at age 65, so not everybody was expected to collect, or at least not for very long. In fact, Roosevelt himself didn’t live long enough to cash in on his benefits (not that he would have needed them). He died at the age of 63.

The Social Security Act eased the suffering of millions of Americans during a time of crisis, but it was never intended to become a replacement for retirement savings—just a supplement to cover the most basic needs. And the system wasn’t designed for the world we live in today.

Here’s the new reality: There’s a 50% chance that, among married couples, at least one spouse will live to the age of 92 and a 25% chance that one will live to 97. Wow! We are closing in on a life expectancy of age 100 pretty damn quick.

And with longer lives, we expect longer—much longer—years for our retirement. Fifty years ago, the average retirement was 12 years. Someone retiring today at age 65 is expected to live to 85 or longer. That’s 20-plus years of retirement. And that’s the average. Many will live longer and have 30 years of retirement! It is not realistic to finance a 30-year retirement with 30 years of work.

How long do you  expect to live? All the breakthroughs we’re seeing in medical technology might add years to your life—decades, even. From stem cell technology, to 3-D printing of organs, to cellular regeneration, technologies are exploding onto the scene. It’s a blessing, but are you ready? Many of us are not.

A recent survey conducted by Mass Mutual asked baby boomers to name their number one fear.

What do you think it was? Death? Terrorism? Pestilence? No, the number one fear of baby boomers was outliving their savings. (Death, by the way, checked in a distant second.) 

The baby boomers have a right to be scared, and so do millennials. According to an Ernst and Young study, 75% of Americans can expect to see their assets disappear before they die. And the Social Security safety net—if it survives into the next generation—won’t provide a reasonable standard of living on its own. The current average benefit is $1,294 per month. How far do you think that will stretch if you live in New York, Los Angeles, Chicago, or Miami? Or how long will the equivalent system work in your country if you live in London, Sydney, Rome, Tokyo, Hong Kong, or New Delhi? No matter where you live, if you don’t have another source of income, you could end up the best-dressed greeter at Walmart.

It’s obvious that we’ll need to stretch our retirement income longer than ever before—smack in the middle of a volatile economy.

Let me fill you in on the biggest secret of financial freedom: you probably won’t earn your way to it. For the vast majority, even those making great money, saving enough to become financially secure is nearly impossible.

Isn’t it funny how the more we make, the more we seem to spend? In thousands of conversations on the topic, most people say their plans involve hitting a financial home run: selling a business, winning the lottery, getting a huge raise or promotion or a surprise inheritance. But let’s be honest: hope is not a strategy. There are simply way too many variables outside our control for many of these scenarios to fall perfectly in place. We must tap into the power that Albert Einstein called the eighth wonder of the world: compound interest.

To be clear, I’m not talking about saving. In today’s world, with inflation through the roof and returns on savings accounts the lowest they’ve ever been, a traditional savings plan is not going to do anything for you. I’m referring to investing, making your money work for you. Actively, in the market, not passively, sitting in an account.

It’s time to make the most important investment  decision of your life: Where do you put

your money and in what proportions? 

Asset allocation  is what every Nobel Prize winner, every hedge fund manager, every top institutional investor, bar none, told me was the key to successful investing—yet virtually 99% of Americans know little or nothing about it. Why? Maybe it seems too complicated? 

I believe that it doesn’t have to be complicated, if you just break it down into a series of questions. So, in order to make the summit of financial freedom (and stay there), here are the questions you must answer:

• What investments are available to you, and which will be right for your goals?
• What mix of investments will you include in your account(s), and how will they be managed throughout the year?
• What strategy will you use to legally minimize taxes (the largest single “expense” in your lifetime)?
• How will you eliminate excessive fees or unnecessary commissions and, by doing so, greatly increase your future nest egg?
• How will you navigate, and even take advantage of, market corrections and crashes?
• How can you pick an advisor who is legally required to meet the highest standards of care with your money? (spoiler alert:most aren’t)?

With these questions in hand, you can start to tackle your financial goals and set yourself up to earn more money than you’d ever have a chance to make in a lifetime of labor.