For many people, money is a subject that brings stress. Stress is the last thing you probably want in retirement. It’s okay to not want to manage your money in retirement. Really, it’s completely normal to feel overwhelmed, confused, and uninterested in dealing with the complexities of retirement.
It’s not something you hear often in the media. More frequently, they’re telling you to buy this book or that program to learn how to manage your investments and finances leading up to, and during retirement. But honestly, who wants to read a boring, confusing financial book?
Managing your money in retirement is a bit like having to balance the world’s biggest checkbook. I don’t know about you, but I hate balancing my checking account, and the numbers are much more user friendly there. Much more manageable. I’m not dealing with more money than I’ve ever seen in one place. I’m not dealing with the sum total of my entire working life. The idea of a math mistake in that account is almost paralyzing.
You can “bounce” a regular check with minimal pain and complications. “Bouncing” your retirement account would be a disaster.
We don’t talk about money, politics, or religion in polite company. Even among close friends, talking about how much money to make and spend is often considered poor taste. Added to that, the world around us is flooded with a do-it-yourself ideal.
Do-it-yourself is everywhere. There are websites and television programs devoted to the trend. From home improvement to cooking to auto repair, odds are the internet offers solutions. You can find something on Pinterest or YouTube, with a video tutorial or a quick and easy “hack.” There are even videos and “hacks” for managing your investments.
It makes sense.
Chances are, if you are a baby boomer, your father or grandfather had a blue collar job. He might have fixed the kitchen sink when it broke, roofed the house. The previous generations grew up doing it themselves.
But this isn’t your dad or grandfather’s retirement. They likely had a pension, giving them a regular income similar to their working life. If you have an IRA, 401(K) or the like, you don’t. You have to figure out how to make income out of a large, lump sum.
It’s okay to not know how to go about that. And it’s understandable to not want to devote the time to learn how.
And really, do you want to place your faith, your future, in a “hack?” Dreamed up by a person you've never met. Someone who knows nothing about you, isn't invested in you, and couldn’t pick you out of a lineup if they tried.
You can outsource your financial management in retirement. Together with a financial planner you can create a financial plan, which will highlight what’s important to you. It will help showcase the lifestyle you want to live, and then an asset manager will invest to help you maintain it.
The two together make your financial advising team, and they’ll do the hard work for you. They’ll tell you the hard truths too. You need someone who will tell you if you’re spending too much. If your budget expectations are too high. Or, alternatively, if you can afford to spend more.
If you have the goal of leaving a legacy for your family, or donating to charity, they can help you decide the best way.
One of the biggest ways a financial profession can help you, is in dealing with market volatility. The fear of loss, and understand what loss really is.
“Losing money feels twice as bad as making money feels good.” Richard Thaler, a University of Chicago economic professor, explained.
Asymmetrical loss aversion—a term coined by behavioral economists—refers to people's tendency to fear loss more than they hope for gains. If you lost your phone, would it upset you any less if you could get the exact same model for free? Even if you could recapture all your data, your contacts and music and whatnot, the loss itself would still feel worse than getting a brand new phone for free.
Let’s put this in perspective. The next Colts game, let’s make a wager. If the Colts score first, I’ll pay you $175,000. But if the other team does, you pay me $100,000.
No? What if I up my bet to $200,000?
You won’t do it, will you? Even though you stand to gain twice as much, the horror of losing outweighs the fact that you have an equal chance of winning.
The confusion between the terms volatility and loss is another problem. People have a hard time distinguishing the two, they mistake the volatility of the market for loss. If the market goes down 30%, did you lose anything?
Not if you didn’t withdraw your capital. Your decline is only temporary until you do something—selling—to make it permanent. Panic and fear are normal and expected reactions to volatility, you just have to refuse to act on those feelings. A financial advisor can be of critical help, keeping you steady when the market is shifting around you.
Retirement should be a time of enjoyment. To do all those things you put off doing during your working years. Planning to stop working does not have to be a burden. Full of stress and unanswered questions. Don’t wait until it becomes overwhelming. It’s not too early to start removing the burden, and shifting it onto an experienced professionals shoulders.
A financial advisor can help your golden years be just that—golden.