I read a great article recently that was attributed to Jim Rohn, where he stated, “The problem with waiting until tomorrow—to do anything—is that when it finally arrives, it’s called today.” Waiting until tomorrow, or any form of procrastination, carries with it an unknown side effect: the more you practice it, the better you get.
I would suspect that most of us can relate to this on some level. In fact, right now, we are in the midst of tax season; and I imagine that quite a few people keep telling themselves that they need to get their tax information together…but they’ll do it tomorrow. One of the main reasons we avoid things like preparing our taxes…and on a broader scale, financial planning, is that we are wired to avoid the things we believe will cause us pain or stress. Pain avoidance is built into our psyche, and it is why it can be so hard to get things moving in our financial lives.
Unfortunately, the more that time passes by without action, the more that opportunities to make plans and prepare for the future fade away before the red alerts start sounding. Sadly, our industry hasn’t done a very good job of informing people of some of the potential dangers that can await during one’s retirement years. Instead, the financial services industry has largely been focused on wealth accumulation conversations, building more and more investment products, and spending billions of dollars in an effort to convince consumers that if they just pick BRAND XYZ Wealth Managementto manage their assets, all will be well.
There is a sea change upon us. Portfolio management is a wonderful thing—but in my opinion, it’s not going to save you from all of the risks you may face in retirement. Your retirement years can be amazing…they can be everything you want them to be. However, they won’t be anything like the working years of your life from a financial standpoint. The risks and challenges are different—and they require a different approach. The best cure for potential ailments of tomorrow is to begin working on prevention today. People headed into their retirement years need to have a written, comprehensive financial planning strategy…one that can help them navigate the road ahead.
Just as a sampling, here’s a brief list of some of the risks people in their retirement years face:
Longevity Risk— Risk of living too long (outliving your money)
Inflation Risk—Risk of inflation eating away purchasing power; uncertainty over future real value
Excessive Withdrawal Risk— Taking out too much money to sustain your lifestyle through full retirement
Long-Term Care Risk— Risk of needing long-term care services or the inability to care for yourself
Frailty Risk— Tasks become more difficult due to age (finances, home upkeep)
Health Expense Risk— Risk that healthcare costs increase and erode savings in retirement
Sequence of Return Risk— Risk that market volatility in early retirement years permanently impair the portfolio from recovering
Market Risk— Risk of investments not performing as expected or needed
Interest Rate Risk– Risk that investment’s absolute value is hindered by change in interest rates
Legislative Risk— Risk that policy changes, law changes, or regulatory changes may impact retirement security
Timing Risk— Unexpected life events or events out of our control
Loss of Spouse Risk— Risk of losing a spouse and having inadequate resources after the death of the first spouse
Liquidity Risk— Risk that an investment purchased has no readily available market to buy or sell quickly in order to mitigate a loss (may also result in Valuation Risk where investment loses value due to lack of liquidity)
Forced Retirement Risk— Having to retire earlier than one expected due to health, layoffs, job relocation, etc.
Unexpected Financial Responsibility Risk— Risk that you might have to take care of a loved one unexpectedly
Elder Abuse Risk— The risk of be harmed financially because of frailty or age
Re-employment Risk—Risk of not being able to re-enter the workforce or not finding adequate opportunity for work that equates with your skills and experience
It may not seem like it, but this is only a brief list. The fact that so many different variables may be present when planning for retirement can cause some of us to simply freeze up…victims of analysis paralysis. Or, in more simpler terms—we simply decide to do nothing because we are so afraid of choosing to do something that may turn out to be wrong.
I’m here to tell you— “It’s ok.”
These feelings are normal… and that’s why our team stresses how important is to focus on the process of financial planning. True financial planning doesn’t take place in a moment and then you’re done. It’s more like creating a flight plan. You begin with the destination or outcome you have in mind, you plan and make the necessary preparations, and then you launch. Just like an overseas intercontinental flight— you should have a documented plan—one that can act as a guide for any upcoming decisions or course corrections that need to be made as life happens. And trust me— life does happen. Having a course planned in advance will not only give you peace of mind about what lies ahead, it will also serve as a guide when faced with future financial decisions.
In my years of experience, I often run into a few types of people who don’t have a plan for their financial future:
1) People who need or want financial help. These people will say something like “oh, you’re a financial planner…I definitely need to talk to you.” I imagine these people go on to have amazing lives…because I rarely (ever) see them again.
2) People who need help NOW. These folks are in the middle of reacting to something that life has thrown at them. It could be that a parent has passed away and they are trying to settle an estate…it could be they’ve just lost a job…etc. Sometimes the solutions are easy, and sometimes the damage has been done. There are many different life events that can disrupt our financial equilibrium— how awesome would it be to be able to respond to these events instead of being emotionally charged and reacting to them?
3) People who have it all figured out. We all know these people…many of them good folks. But, they aren’t taking any advice or counsel from anyone. Their tombstone will read: “I did it my way.”
It’s not uncommon for these people to eventually become like those people in #2 above.
Naturally, we also meet many wonderful people who realize that they truly need the help of a professional when it comes to financial matters because they didn’t spend the last 40 years of their lives studying up on the intricacies of retirement planning. And, guess what? That is perfectly ok. No financial professional should expect their clients or future clients to walk into the office and be experts—nor should clients desire to become experts. The role of an advisor is to first be the expert—and then offer wisdom and counsel on how the clients can best achieve their goals.
Some of the best conversations we have had with clients in our practice have had very little to do with financial concepts like net present value or investment correlation, and our aim, as we tell our clients, is to get the planning right. We can make adjustments as we need down the road. The process should be valued above all—and we want clients to understand that it doesn’t matter where you begin…it’s just that you do actually begin! Tomorrow can be a wonderful goal—a destination— or it can be a ticking clock of inevitability. Let’s not keep pushing off until tomorrow the planning we can do today.
*Special thanks to Don Graves and his team at HECM Advisors Group for providing a concise list of the retirement risks mentioned above. The list was pulled from a whitepaper that Don and his team published. Info was also compiled from The American College RICP® curriculum.