“I think we’re going to the moon because it’s in the nature of the human being to face challenges. It’s by the nature of his deep inner soul... we’re required to do these things just as salmon swim upstream.” – Neil Armstrong
A few weeks ago we were sitting around the table and my older kids started to grill me about why we have certain religious practices that others don’t have. “No one else does these things so why do we have to” was the general attack. I explained that certain customs we have have been passed down through multiple generations and we should keep the chain alive and other practices are to be found easily in the Shulchan Aruch (Code of Jewish Law) and it’s not my problem that not everyone knows the law. Not sure those answers were good enough to defeat the cry of “why can’t we just be like everyone else!”
This week was another stellar week for Israeli hi-tech. Numerous articles reported on huge investments into Israeli start-ups. Somehow those headlines plus the conversation with my kids reminded me of a navigation game in Old Jaffa that we participated in a few years ago. As part of the navigation challenge we were asked questions about Israel. One of the questions was “True or false: Israel is the world’s largest hi-tech center?” My kids wrote true and when I asked them why, they said because they always hear about Start-up Nation, and all the cool things going on with Israeli ingenuity so Israel must lead the world. When their cellphones showed a big red “X” they were shocked. I asked them if they had ever heard of Silicon Valley?
Too often, people just accept certain mantras as truth, without ever questioning the logic behind them. Rabbi Jonathan Sacks, of blessed memory, in a piece titled “The Courage Not to Conform” wrote: “Leaders lead. That does not mean to say that they do not follow. But what they follow is different from what most people follow. They don’t conform for the sake of conforming. They don’t do what others do merely because others are doing it. They follow an inner voice, a call. They have a vision, not of what is, but of what might be. They think outside the box. They march to a different tune. Never was this more dramatically signaled than in the first words of God to Abraham, the words that set Jewish history in motion: ‘Leave your land, your birthplace and your father’s house and go to the land that I will show you.’ (Gen. 12:1)”
Why?
Because people do conform. They adopt the standards and absorb the culture of the time and place in which they live – “your land.” At a deeper level, they are influenced by friends and neighbors – “your birthplace.” More deeply still they are shaped by their parents, and the family in which they grew up – “your father’s house.”
The financial media pushes its own version of conformity. Namely, needing 80% of preretirement income in order to retire and drawing down 4% of your portfolio annually.
How much income does one need in retirement? Do a Google search and you will get answers ranging from 75-80% of your preretirement income. This is caused by lower tax rates, no more money being fed into retirement accounts, and no more mortgage. Unfortunately for many retirees, especially those retired in Israel, this number has little basis in reality. Rarely do any of these articles mention the need to plan based on your specific situation. They always put forth a cookie-cutter solution, which isn’t relevant for many. When a couple retires they will often find that their expenses are different. It is therefore important to sit down and make a realistic revised plan based on these changes. I am a bit more cautious with my clients as I apply a basic equation: Leisure = money spent.
After retiring, people find themselves with more free time, and they may want to use it to travel (in a non-COVID world), eat out or for other leisure activities. Then there is the other issue. We all know that “making it” in Israel isn’t so easy. Many retirees that I sit with have an immediate goal of helping out their children as well. That help can take the shape of direct financial support or “Grandparents Tuesday” (the day that Saba and Savta pick up their beloved grandchildren and buy them ice cream, falafel, etc.)!
Once you have a handle on your income needs, you should go ahead and create an income stream. Forget about the 4% drawdown rule. In many instances you can create a portfolio that will be able to generate the income you need without having to draw down principal. Depending on your risk profile and dividend paying stocks, high income bonds can generate much higher levels of income than you will generate with US government bonds or certificates of deposits. Why draw down principal if you don’t have to?
It’s YOUR retirement. Forget about how others plan. Sit down with an adviser and start figuring out your very own goals and needs, and create an investment plan that’s specific to your situation.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing. www.gpsinvestor.com; aaron@lighthousecapital.co.il