As people approach their retirement date, they often experience a sense of anticipation. They begin to envision vacations with their family and hobbies they have long desired but did not have time for during their career. From my experience working with clients entering retirement, this excitement can quickly fade after they receive their last paycheck. Suddenly, they are faced with what I call the “Decision Collisions of Retirement.” The most common fear that surfaces is, “Do I have enough?” This uncertainty is compounded by the latest news headlines and potential changes to government programs such as Social Security and Medicare. Amidst these uncertainties, retirement is forcing them to make important financial decisions – when to take Social Security, what withdrawal rate to use for investment accounts, how to cover retirement healthcare expenses, and others.
Meanwhile, there are three forces on a collision course with these crucial retirement decisions. Without a framework to protect them from the impact, the impending collision has the potential to derail the excitement of retirement.
What are the forces that collide with these retirement decisions? I’ve identified them as Information Overload, Polarizing Financial Advice, and the individual’s Money Script. These forces do not discriminate based on a client’s net worth or financial situation. As investment advisors, our opportunity is to give our clients a decision framework that helps them avoid the uncertainty of “Decision Collisions.”
To protect the client from a collision with information overload, I help them declutter. The first step is to take a financial inventory. With the information, I create a simple, one-page Asset-Map of their financial life. Many financial software programs in the industry provide too much data, leading to information overload. Asset-Map’s simple, one-page format helps declutter their financial life, so they can see their financial picture with clarity.
To help the client begin filtering polarizing financial advice, I ask this question. “If you went to ten different investment advisors, how many opinions would you receive?” I jokingly suggest they would probably hear at least ten different opinions. I explain to the client, “My job is not to offer you another opinion but to help you identify the things that matter. The framework I use to do this is called ‘First Principles.’ It is the practice of boiling things down to their core elements in order to have a clear understanding of what matters.” First Principles help us distinguish between polarizing opinions and the things that matter.
For example, using First Principles can help us identify why retirement decisions are difficult. The underlying problem is a person’s unknown timeline. I often say, “If a client knew how long they were going to live, they would not need my expertise. They would know how much to save, how much to spend, how much life insurance to buy, and when to buy it.” Because unknown time is a core problem, it may be prudent to invest a portion of the client’s assets in products that are designed to solve time financially – life insurance and annuities.
A client may disagree with this solution because they have experienced polarizing advice from online financial gurus who have demonized these types of products. Our job is not to join the frenzy of polarizing opinions, but to align the client’s need with the products that best solve their core retirements issues, regardless of preconceived beliefs.
There’s one more decision collision to avoid. This collision is the result of financial blind spots, caused by a person’s skewed Money Script. Every financial decision a client makes is subconsciously filtered through their Money Script. This term was coined by financial psychologist Dr. Bradley Klontz. His research shows that a person’s Money Script starts developing in early childhood.[1] Additionally, an individual may also inherit generational beliefs about money. Dr. Klontz says that often, a person’s Money Script is flawed and has damaging effects. Complicating this is the fact that Money Scripts are slow to change.
At retirement, these long-held, deeply-ingrained Money Scripts are suddenly challenged. Retirement forces people to make decisions they never had to make during their careers. For example, a person creates the habit of saving money using retirement investments. This habit is partially guided by their Money Script. At retirement, this individual stops saving and starts taking money out of accounts they have funded for decades. As creatures of habit, it is difficult to make this sudden shift, and this change compounds the difficulty of retirement decisions.
We do not have to be financial psychologists to help our clients in this area. Our job is to identify the things that truly matter. These “things that matter” need to appear so clearly that a client can self-identify where a shift in their Money Script is needed.
By providing a decision framework that simplifies the complexities of retirement planning, we can help alleviate the anxiety and confusion that often accompany crucial retirement decisions. Our goal is to empower clients to navigate the “Decision Collisions” with confidence, ensuring they can truly enjoy the retirement they have worked so hard to achieve.
If you would like assistance in developing your decision framework, please contact me using the information below.
402-436-2596
josh@gestaltfinancialgroup.com
[1] Klontz, Bradley T. and Sonya L. Britt, “How Clients’ Money Scripts Predict Their Financial Behaviors” in Journal of Financial Planning, November 2012.
