‘Big numbers’ mean little without context

Critics panned it, but there’s a line from the 1979 movie “The Main Event” that pretty much sums up our weird relationship with money. Barbra Streisand played an entrepreneur who has just learned her business manager has run off with virtually all of her financial assets.

“When you say I have no money, do you mean I have to be careful at Saks or I can’t afford toothpaste?” she asks another of her advisers.

And there you have it. There are the big numbers in our lives — the final pay stub, the 401k balance, the net worth statement, the debts owed. But the numbers mean very little without context.

Here are some ways investors can improve their retirement outcomes regardless of when the bull market ends:

You need a hero

Having a positive money role model — someone whose financial life you admire but who is pretty close to your own financial circumstances — was associated with positive feelings of financial well-being in a Morningstar study. Social comparisons in general were more important to financial well-being than age, income and even financial literacy.

And it matters to whom you are comparing yourself, the study found. Keeping up with the Joneses led to negative feelings of well-being, while making comparisons to the less fortunate created more positive feelings. That’s intuitive, but hard to change, Newcomb said.

For the healthiest comparison, think about someone whose financial life you admire and why, she said. What decisions or behaviors got them there? What is one thing you could do right now to be more like them?

Forget maximum returns

This one is tough in a long bull market, but Nobel Prize-winning economist Daniel Kahneman noted that the ultimate goal of a portfolio shouldn’t be profit maximization. Instead, the goal should be to create a portfolio with low probability that an investor will bail out of the investments at precisely the wrong time, which tends to wreak more havoc on long-term returns than just about anything else.

Using this philosophy, some money managers create two distinct portfolios for clients, representing the highest and lowest levels of risk the client can or should handle. The separation tends to give a comfort level to investors that they are getting enough exposure to high returns but with an anchor of conservative investments.

Retirees often think of this as a “bucket strategy,” keeping money that will be used for living expenses in the near term in conservative investments, with riskier strategies for money earmarked for years down the road.

Embrace your number

Fidelity recently took some grief for its chart suggesting how much people should have saved by various ages, in multiples of their income. It’s similar to what other firms have suggested and attempts to offer a pathway to the longtime suggestion for people to save about 10 times their final pay in a lump sum to be able to afford retirement.

The reality is that the average pre-retiree is on track to replace just 51 percent of income in retirement, and that’s including Social Security, said Steve Wendel, head of behavioral science at Morningstar. That’s far from the typical recommendation of at least 70 percent, but Wendel is careful to not hold that figure out as an absolute.

The key is for individuals to figure out for themselves what they’ll need, and work on any shortfalls with a multi-pronged approach.

Think about delaying retirement to age 67, scaling back on lifestyle expectations and contributing at least 6 percent of pay to retirement accounts if you’re just starting.