Sport-Tuned Suspension

In Estate Planning, Income Planning, Investment Management, Long Term Care, Retirement Thinking, Social Security, Tax Planning, The Insider by Adam Cufr

When I was a much younger guy, I enjoyed competitive driving. I modified a car for use in the Sports Car Club of America’s sanctioned SOLO racing series. The objective was to build a car that was light, quick, and that handled very well. This led to me removing most of the interior components, adding power to the engine, and fitting it with racing suspension components. The result was a car that was very fun to drive on the track and not very fun at all to drive on the street. Naturally, my girlfriend-now-wife hated riding in it. Hated it.

When you go buy a new car today, you’ll often find that it has ‘sport-tuned suspension’. And while this is to give you the confidence that you’re buying a fun-to-drive sporty car or SUV, it’s a far cry from a race car’s suspension setup. And if you’re driving this new car to and from the grocery store or your job, sport-tuned suspension is sporty enough, unless you’re looking for a broken kidney. Car suspension, it turns out, has a spectrum ranging from one extreme to another, with most things that are pleasant to live with being somewhere in the middle.

I’m not sure if you’ve heard but there’s a bit of a pandemic going on out there. The world continues to grapple with how to handle the fact that some people contract the virus with no symptoms at all and others contract the virus and die. That’s a horrific challenge that isn’t being ‘handled’ as smoothly or quickly as any of us would like. As a result, the economy and the markets have swung wildly from bearish hopelessness to bullish optimism, all within a matter of months.

As a retirement planner, I’ve been watching all of this through a bit of an odd lens. For while I want everyone to be safe and healthy, much of my thoughts are focused on how well retirement plans hold up during these wild times. Will the plans break under extreme duress or will they prove to be resilient enough to handle the bumpy terrain? Well, it turns out that our plans are performing well, as if riding on sport-tuned suspension. The bumps in the road have been largely absorbed by the way in which we tuned the plans from the beginning.

In very simple terms, a car’s suspension is comprised of two notable parts: the shock absorber and the spring. The shock absorber handles the big jarring bumps by using hydraulic pressure to absorb the bump, while the spring settles the car by returning it back to its intended position in the smoothest manner possible, as quickly as possible. In a retirement plan, the shock is absorbed by the guaranteed income sources like social security, a pension, and annuity income. The plan is able to continue along its intended path with the aid of market-based investments like dividend-paying stocks and interest-paying bonds, the springs in our metaphor. These allow the trajectory of your plan to point upward over time in order to keep pace with or exceed rising inflation, even though they may bounce around in value over shorter time periods.

Without the shock absorber, a spring will just keep bouncing up and down, but without the spring, the shock absorber will not return to and maintain its proper position. The car needs both and your retirement plan needs both. Eliminate one or the other – or dramatically decrease one or the other – and you’ll very likely not enjoy the ride. The suspension and your plan need to be tuned in such a way to absorb the inevitable bumps in the road.
I know not everyone is a ‘car person’ like I am, but we’ve all been a passenger in a poorly running car at some point in our lives. You don’t need to know all the pieces and parts to know that something just isn’t right, or at least it’s not enjoyable. With where we are in 2020, in this pandemic, it’s very helpful to know the parts of your plan are complementary and functioning correctly. If you’re not sure, ask us. If you’re enjoying the ride in spite of the bumpy terrain, we’d love to hear that too. Just reply to this email and let me know.

It’s fine to take the road less traveled, but it’s a lot more fun when you have a sport-tuned suspension.

All the best,

Adam Cufr, RICP®