Retirement is never urgent until...

If you're like many people, your retirement savings have not been
growing consistently over the years. We're not referring to the wild
fluctuations in the stock market, but rather the fluctuations in our
short-term needs. Every once in a while, it just seems like a good
idea to yank ALL those retirement savings out and pay for something.

You might need to pay for a down payment. You might need to pay off
some credit card debt that's nagging at you. You might want to 'bugger
off to Europe' as Rick did some years ago. You know it's not a good
idea financially, but you do it anyway. Retirement savings are not
designed to bail us out when we need this kind of short-term cash
infusion but if it's there…

As financial advisors, we have our ideals. Ideally, you should put
retirement funds away and 'leave it there'. Ideally you should never
touch it at all, even when you retire! Why? Because it is the
'earnings' from the nest egg that you should be using, never the
principal. As we heard one person suggest recently, your principal is
like your 'goose', and you never kill the goose, because then you're
eliminating all those future 'golden eggs' (interest/earnings) it will
lay.

As financial advisors, one way we try to prevent people from yanking
out their retirement savings is by ensuring there are other
'short-term' funds available for emergencies. These are meant to act
as a buffer zone against the yankers. It helps, but it doesn't always
work.

One problem is that a distant retirement will never be more urgent
than the current cash demands you have. It's impossible. How can
long-term demands be more urgent than a current crisis? So what stops
you from yanking out those retirement funds? Their convictions? Simple
arithmetic? A more viable alternative?

When a client is bent on yanking out their retirement savings to pay
off, for example, some credit card debt, telling them how much they're
going to lose in retirement income in 25 years time doesn't seem to
work. Even telling them how much the tax bill is going to be next year
can pale in comparison to the relief the person is seeking from the
anxiety over their current debt crisis.

So, the question is how can we provide 'relief' and still keep the
retirement funds intact? Look at a debt consolidation loan? Review the
person's cash flow and create a debt repayment program? Maybe this
will work for a minority of people. In the real world, when people are
looking for relief, however, they are looking for relief NOW!!! The
easiest way is to yank to retirement funds and be done with it.

So, in the moment, when you are in a cash crunch and seemingly have no
other place to go, you will yank your retirement savings. Unless you
have anticipated the problem and 'pre-decided' that under no
circumstances will you access your retirement savings. In this way,
you will do a pre-emptive strike on bad financial moves. Further, you
will be cognizant of putting yourself into situations where you might
risk those long term savings.

The alternative is to invest long-term, make progress, encounter a
short-term cash crunch, yank out your retirement funds, survive the
problem, invest long-term again, make progress, encounter yet another
short-term cash crunch, yank out your retirement funds to get relief…

If you're locked into an investment cycle like this, your retirement
savings have not been growing consistently over the years, and it's
not just the market.