Here's How to Survive D.C. Dysfunction

By Lewis J. Walker

NEW YORK ( AdviceIQ) -- What can you do if you can't trust our national leaders to make good forward-looking decisions and keep the government running properly? Do everything in your power to achieve financial independence.

The feckless politicians playing the game of "kicking the can down the road" say to themselves: Why make tough decisions today when you can procrastinate, obfuscate, torpedo your opponents and hope that the problem will go away -- and that later someone else will make the decision? That's what Washington did in the deal it struck Oct. 16, which postpones the problem until next year, when we may have to live through the mess again.

For the nation that supports the world's reserve currency, operating without a budget and avoiding age wave implications relative to entitlement spending is a dangerous game that affects your future well-being.

The buying power of the dollar that you will spend tomorrow, the interest rates you get on certificates of deposit and bonds, the value of your stocks and the dividends corporations pay and the money you can count on from taxpayer-funded benefits -- all these hinge on prudent government policies. The immediate future does not appear confidence-affirming.

The Atlanta Journal-Constitution interviewed two corporate chief executives on the recent government shutdown. Their comments prompt sober reflection. Marty Flanagan, head of investment giant Invesco ( IVZ), emphasizes the need for pro-growth business policies that encourage hiring, capital investments and strategic mergers and acquisitions that would boost employment, growth and equity returns. Hope springs eternal.

Flanagan noted that Invesco got retail clients' calls during the government shutdown asking to convert accounts to cash. He emphasized that the number of calls was not great, but even a small number was "not healthy." People "need to have the confidence to invest for the long term." Key word: confidence.

Marty Richenhagen is CEO of AGCO ( AGCO), the world's third-largest farm equipment manufacturer. With factories in North and South America, Europe and Asia, Richenhagen has trouble explaining U.S. budget and debt policies to business and political leaders around the globe. Sadly, he noted, U.S. citizens "seem to be less proud to be Americans than they have been, maybe, 10 years ago. They're uncertain. They struggle. Many people I know have financial issues. Life is not as easy in America as it has been."

Flanagan says that people need to plan for retirement but when confidence lags, people hoard cash. They don't invest. They buy less. That does not create growth or jobs.

Dr. Wade Pfau, professor of retirement income at the American College, says people need to rethink savings and retirement withdrawal rates given this era of low interest rates.

My opinion? Government-inspired uncertainty does not call for a turtle strategy, withdrawing into a shell, but one of taking your own future into your hands and not depending on government largess, which has to shrink.

Pfau indicates research shows a "safe withdrawal rate" from savings in retirement varies from 2.8% to 3.2%, even though 4% still is widely used as a target. That means that for every $28,000 per year ($2,333 per month) to $32,000 per year ($2,667 per month) withdrawn from your capital, you need $1 million in principal.

You cannot accumulate such an amount hiding in significant cash positions. Obviously, prudent safe money reserves are called for to cover near-term living expenses, emergency needs and a cushion in case volatile assets, such as equities, suffer.

That is part of a prudent investment policy. And if you cannot have confidence in our government to do the prudent thing, you must have confidence in yourself -- or you are toast. Now more than ever, financial independence is a do-it-yourself project.

The focus on the government shutdown obscured the real issue: the need to cut deficits and borrowing and to tackle entitlement reform in the face of a rapidly aging population. The government is funded through Jan. 15, and the debt ceiling deadline moved to Feb. 7. As far as investment strategies go, ignore the post-December noise and remain disciplined. We will not default on our debts. But given the 2014 elections, which will make politics even more intense, we may kick the can down the road again.

Heads up Gen X and Gen Y: The increasingly debt-heavy can is a high lob that is going to land in your court.

-- By Lewis J. Walker, CFP, president of Walker Capital Management and Walker Capital Advisory Services in Norcross, Ga., a registered investment adviser in securities and certain advisory services offered through the Strategic Financial Alliance. Walker is a registered representative of SFA, which is otherwise unaffiliated with Walker Capital. 770-441-2603. .

AdviceIQ is a network of financial advisors that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisors have no regulatory infractions.

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AdviceIQ is a network of financial advisors that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisors have no regulatory infractions.