Saturday, October 09, 2010

“Pressure” Point

Last week, I got an early morning call from my daughter. This, of course, is not an everyday occurrence, and since she had driven MY car to work that morning, it didn’t bode well as a start to the day for either of us.

Turns out, she had noticed an unusual warning light as she pulled into her workplace—and she had even taken the time to determine its meaning. The good news is, the light indicated nothing more serious than low pressure in one (or more) of the tires. Now, my vehicle routinely prompts me for certain scheduled maintenance visits—many of which I ignore/postpone since they seem mostly designed to keep me spending money at the dealer. Unfortunately, the last time this particular light came on, it was a somewhat belated acknowledgement that one of my tires was flat. Consequently, on this particular occasion, I immediately jumped to the conclusion that we were dealing with a flat tire.

By the time I got to the car (fortunately, it was sitting in a parking lot on a brilliant sunny morning and not along some busy highway in the rain), it was clear that my initial assumption was incorrect. Not only were none of the tires flat, they didn’t even look “low.” Nonetheless, I cautiously drove to the nearest gas station (at a speed commensurate with a fear that the tire would slip off the rim at any minute) and checked the tires. Working with a more precise measuring device than mere visualization, it seemed that one of the tires was “low.” Not critically low, mind you (in my estimation, anyway), but apparently low enough that the manufacturer thought it should be called to someone’s attention.

Initially, I was aggravated—after all, the owner’s manual didn’t specify at what level that indicator kicked on, and while the physical disruption to my day was minimal, the emotional toll was considerably higher. Ultimately, however, I felt pretty good about the whole thing—glad that it hadn’t turned out to be as bad as I had feared, glad that my daughter hadn’t been stranded in the middle of nowhere with a flat tire, and, yes, glad that I hadn’t been driving to work when that light came on. Personally, I think the manufacturer set the warning a little high—but then, I reminded myself, it was designed to alert you while there was still time to remedy the situation. And, while my morning had been somewhat disrupted, I kept thinking about the situation that warning averted (I tried not to think about the “discussions” I had with my kids just three weeks earlier about the importance of regularly checking the air pressure in their car’s tires).

These days, there are many measures of what we’ll need to enjoy a financially secure retirement. The problem, IMHO, is that the more precise those measures, the more obscure they are to the participants we expect to respond to them. You can quibble (and some do) about the need to garner savings sufficient to replace 70% or 80% of pre-retirement income. You can argue (and a growing number do) that Social Security shouldn’t be factored in, that retiree medical costs are too often given short shrift in projections, that inflation will reemerge with a vengeance (though I think most projection tools already provide a generous apportionment on that front), or that the inexorable application of regular, annual salary increases to those projections no longer comports with business realities.

You can argue, as some have (and do), that these projections are all wildly distorted as some kind of scare-mongering tactic by the money management industry to coerce the investing public into over-saving. Heck, you can even rationalize an aversion to undertaking these types of projections on the simple basis that there are far too many variables to consider to produce an accurate result.

Indeed, when it comes to retirement planning, IMHO, too many dismiss those warning signs of inadequate savings as idiot lights: an arbitrary setting by a product manufacturer that they can dismiss and/or defer until a time when it is more convenient for them to deal with it.

However, when it comes to trying to actually live in retirement on the funds we have been able to accumulate for that purpose, it seems to me that it’s better to err on the side of caution; to see the warning sign as an opportunity to do something small when it’s relatively easy—instead of being forced to do something hard when it’s not.

—Nevin E. Adams, JD

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