Time to Take a Few Chips Off Your Retirement Plan Table?

After a long winning streak in Las Vegas, you might take a couple big chips off the table to slide deep in your pocket. If you don’t see them anymore, you won’t risk losing them. Conservative or aggressive, tourist or gambler, almost all can agree that kinda makes some sense.

Why is it so hard to do the same thing in a 401(k) before you retire?

Serious investors laugh at gambling analogies that diminish their carefully-planned success (and luck). Behavioral finance experts snicker at how consistently poor our instincts are at almost everything related to money (they’re right).

So why do the smartest investors and experts still have a harder time taking any chips off their investment table than degenerates gambling on a table covered in green felt?

The answer is that 401(k)s were designed to make contributions INTO and grow, not provide income OUT OF. When it is approaching time to retire, it feels like a passenger being asked to land a plane.

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Sacrifice Another Big Win To Protect Against Big Loss

Of all your important decisions ahead that will be needed to land your retirement plan safely, taking a few chips off the table can be most impactful.

If you have done a good job saving and are nearing retirement years, you must ask yourself at some point: Would I rather be a little bit richer, or know that I can never be poor?

“The best time to think about losing is when you’re winning.” -- Casey Stengel

We do not take credit for this “take a few chips off the table” brilliantly-simple discipline. But, we are sharing it because it makes more plain sense than the thousands of charts of data you will see this year, again, about whether the Stock Market is too high, or might go higher.

“By selling too soon.” -- Bernard Baruch (when asked how he got to be so rich).

A client who owns a little business supplying materials to the Energy industry in Houston gets credit for describing it this way. This client was wrestling with the question we all have at some point: How much is enough?

We calculated exactly when he would have enough income from multiple streams. Each of the five years leading up to retirement we added to future income streams from bonds, dividends, and a personal pension. He was more than willing to sacrifice a little more upside for significantly less downside.

The problem before was that he was not able to accomplish that with the menu of mutual funds inside his 401(k). We helped him -- and his employees -- make a self-directed 401(k) plan where he could do whatever he wished; NOT be limited to a traditional menu of mutual fund choices.

Our client summarized more clearly than we ever could: “It’s time to take some chips off the table.”

We reduced his total expenses dramatically by eliminating mutual funds and unnecessary expenses. So, we also took some chips back out of the mutual funds company’s pocket to go in HIS stacks.

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Are Self-Directed 401(k)s Right For You?

Making certain that at least one of your multiple streams of future income is completely secure is a requirement in our definition of what Financial Freedom means. That kind of planning will last a lot longer than any prediction.

“Vision without execution is hallucination.” -- Thomas Edison

Our client still loved his business and the idea of working longer. Getting close to having enough -- and/or wanting to work longer -- should not mean you keep taking more and more risk, even if you have the “best” retirement plans during good markets like the past decade.

Consider this example. Here was a very large company’s 401(k) that an expert report concluded was the #1 retirement plan in the country, exactly ten years ago.

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Yikes. For an employee of a larger corporation it can be more difficult to take a few chips off the table and may require planning around the 401(k). But, increasingly there are more companies allowing a portion of an employee’s 401(k) accounts to be self-directed.

Clearly, it’s worth asking your HR/Benefits ace if your plan allows self-directed 401(k)s. Wall Street and its fund companies hope you always “hang in there.” That is a biased and lazy answer, not a plan. There is absolutely a time to take at least a few of your chips off the table.

Let us know if we can help answer any of your questions. We also invite you to subscribe to our email newsletter (sign-up form below) to receive more information on tax and growth strategies and to help answer questions you may have. We are here to help you on your journey to Financial Freedom!