What Getting Punched in the Face Taught Me About Retirement Planning

Marc Lichtenfeld By Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Retirement Planning

One after another, the punches rained down on me.

The force of each one knocked me backwards. I tried to block some of them, but it was no use… The blows kept finding their intended target: my head.

I wanted to find a spot on the floor to lie down… Just long enough to give me a few seconds to catch my breath and regroup so I could fight on.

But I refused to fall.

Even though I was a 30-something-year-old writer, sparring with the No. 1 contender in the world, I wasn’t going to give him the satisfaction of putting me on the canvas.

I had worked too hard. I’d put in too much effort for there to be a photo in a magazine of me lying on my back.

The article I had foolishly pitched to write was what it would be like for an “ordinary Joe” to get in the ring with a world-class professional boxer.

I learned a lot of lessons from this escapade… Including how important it is to keep my hands up. But perhaps the most surprising lesson was one I began applying to investing.

Taking on “The Dream” for Hard-Fought Income

If you want to be in good enough shape to take a beating from a top professional boxer and not fall down, you have to have discipline.

And if you want your retirement to be able to take the occasional beating that the market can soundly deliver, you also need discipline.

When I was training for my three round “fight” with Kassim “The Dream” Ouma – the No. 1 ranked Junior Middleweight contender in the world (he won the world championship four months later) – I trained hard in the gym. Countless rounds hitting the heavy bag, jumping rope and working on punch combinations.

There were nights I was so exhausted from my days at the gym that I went home and dreamt about how tired I was.

Although I’ll never be compared to Muhammad Ali, had I not trained so hard, I would’ve been annihilated in 30 seconds.

Admittedly, there were plenty of days when I wanted to take it easy and skip the gym.

But I never did.

And it was all those rounds of hard work that ultimately kept my legs under me.

An investor also has to put in the effort and stay disciplined if he wants his portfolio to withstand the rough patches and ultimately emerge victorious.

Three Keys to Hitting Your Retirement Goals

Here are three key steps you can take now. But you must stick to them in order to ensure that your retirement funds are there when you need them…

#1: Save – It’s obvious that you need to save money. Not everyone is a natural-born saver. Some people just love to spend. Others have obligations that eat up all of their income.

But like a boxer who must run every day before he goes to the gym to build up his endurance, an investor must build up his account by putting away as much money as he can.

If you have a 401(k) at work or an IRA, put as much money as you can in those accounts. Not only will you have more capital to invest, you’ll also save on taxes in the case of a 401(k).

Starting today, try to save even just an extra 1% in your retirement account every year.

If you can put an extra $500 per year in a retirement account for 10 years, you’ll have over $7,600 if market returns simply stay in line with their historical average. Plus, if it’s a 401(k), taking that $500 off your taxable income will save you in the neighborhood of over $1,600 in taxes over 10 years for a net benefit of $9,200.

#2: Invest the Right Way – The right way to invest for retirement is by owning Perpetual Dividend Raisers – stocks that raise their dividends every year. That way, your investment is keeping up with or beating inflation.

Bonds will actually erode your buying power in the current low-interest rate environment. An investor saving for retirement needs to boost buying power for when he no longer has income coming in from a job or business.

Investing in the right Perpetual Dividend Raisers can generate double-digit yields over the long term. And that’s if you’re in conservative blue-chip stocks.

#3: Stick With What You Have – This is where the real discipline comes in. When the market is throwing haymakers at you, it’s natural to want to sell your stocks and run back to your corner.

But if you’re in it for the long term and own the right stocks, that’s the time to make like Rocky Balboa and take everything the market is dishing out. And maybe even load up on some more cheap stocks. So, stand your ground and wait for the bear to tire himself out.

The last thing you want to do is get shaken out of a Perpetual Dividend Raiser that you’ve been holding for several years. Particularly when you’re enjoying a significantly above-average yield.

Of course, if there’s something wrong with a particular stock – where the company’s dividend has been cut or is in jeopardy – you sell and find a new one.

But as long as the company is continuing to perform and raising the dividend every year, hang on to that quality stock for the long term… No matter what the overall market is doing.

It’s the hardest thing in the world to hold or even buy when the rest of the world is selling. But market history tells us that’s where the real money is made. And investors who panic in the midst of a sell-off  are almost always worse off than if they’d held on.

Going toe-to-toe with the champ and refusing to fall was easy compared to the challenges of investing. But by maintaining a steely resolve, you’ll be the one with his hand raised in retirement.