Retirement Requires a Shift in Mindset - Replay

My name is Brian Scribonia and on this episode of the Common Sense Financial Podcast, time is your most precious resource and how you use it is up to you. You can spend it worrying, researching and doing things you don't really want to be doing, or you can delegate and strategize to gain quality and quantity of time back. Insurance is just a form of delegation since you're transferring the risk onto the insurance company. And by transferring this risk, you not only eliminate the underlying risk, but it also removes the inherent worry you have about the risk.

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Opportunities are still there. The attempt at passing down wealth from generation to generation. Consider the outcome, not just popular opinion.

And the whole teaching there is about preparedness and being ready.

There's a difference between what's real and what's true. You're listening to the Common Sense Financial Podcast. I'm your host, Brian Scribonia. Thanks for tuning in and let's get into today's topic. When it comes to investing in retirement planning, it can be quite the conundrum. Trying to invest for the long term while simultaneously trying to solve for income and retirement. And when you're saving for retirement, your focus is on growth. But once you retire, the focus needs to shift to income, which is a tough adjustment to make for many people. When it comes to retirement planning, one should take priority over the other, considering that it is possible to retire without growth, but it is entirely impossible to succeed without income. This is a challenge for many people preparing for retirement who have a propensity to remain in a familiar territory that's focused on growth. Investing for long term Growth is what most investors understand. It's familiar, and it's what they have been doing for years inside of their retirement accounts. But retirement's different because it requires a shift from growth to income, and that is new territory for most people. A shift in mindset is needed. Because when employed, you're trading time for money, but in retirement, you're trading money for time, which is an entirely different process unless you have a lifestyle that is funded entirely by Social Security or a pension. When evaluating your retirement needs, you will likely find that there is an income gap. To fill that gap, you'll find it necessary to develop a new income source to replace the loss of employment income. This transition is where some investors struggle, because so often people want to have this major life change in retirement, but they want to do it without making a shift in how they view their assets. It's like a person getting married, but not wanting to give up the single life. It most likely isn't going to work. When you invest long term, it means you do not need to withdraw money from your assets for a long time. However, if your need for retirement income is upon you, your timeline has moved from the future to the present, which translates to needing to find a different approach. I find that once people understand that a mindset shift must occur before any significant progress can be made, the process becomes a lot easier and everything begins to fall into place. And as with anything, it's difficult to find a solution to a problem you don't understand. At its core, retirement planning is a discovery process to learn whether you have an income gap. It just simply boils down to finding a single number that you need to solve for. And once that's discovered, everything is about replacing that income. Without this number, everything else is a guessing game that seldom results in having a viable long term plan that you have confidence in. You can shortcut this step and perform some mental math with round estimates and assumptions, but this only compounds the problem downstream, making things a lot more difficult. Taking the time to calculate precisely what is needed can help make it easier for everything else to fall into place. It then becomes a process of generating the income needed to fill the gap, while protecting its source from a long list of potential problems. In theory, retirement can seem to be a simple concept, but when you begin to unpack what retirement planning entails, it can quickly become a game of mental gymnastics. It is more than picking a few investments, and if you're not careful, you may find yourself trying to solve new problems with old ways of thinking using heuristics. But this often creates an illusion of control. In the game of craps, it is said that players will throw the dice harder when they want a higher number and softer when they want a lower number. This is similar to thinking you can do more research to pick the right investment and somehow control the outcome, but it is all context dependent. An investment's past performance is subject to many factors such as economic and regulatory conditions, and cannot be relied upon for predicting future results. So the takeaway is that an investment doesn't address the risks you face in retirement. And the sooner you figure out that investing is simply a spoke and a very large wheel, the sooner you can begin to formulate a true retirement roadmap. Of course, the details of a retirement plan are situation dependent and can vary greatly from one person to another, which is why there isn't necessarily just a plug and play method method. But there are common components to most situations, and the first of which is finding your number that you're solving for, then protecting the source of that income. When it comes to retirement income, there are many things lingering that can put your retirement at risk. Such things as sequence of return risk, market risk, interest rate risk, inflation risk, mortality risk, legislative risk, litigation risk, longevity risk, health risk. These are just all examples of what you need to formulate a plan to protect against. The idea of protecting something means that you insulate it, you hide it, you're guarding it all to prevent it from being harmed. For instance, sequence of return risk is an inherent risk of investing in the stock market and can be detrimental to the viability of an income strategy. It is either a headwind or a tailwind, depending on economic conditions, which is unpredictable and uncontrollable. So when it comes to risk, you basically have three choices. You can simply close your eyes and take the risk head on. You can avoid the risk altogether, or you can transfer the risk to an insurance company. The idea of transferring risk away from you and placing it on the insurance company is appealing. People insure a lot of things they own, such as homes, cars and businesses, but their largest asset is their income, and that's seldom thought of as something to insure. So when it comes to retirement planning, there are forms of insurance, such as a specially designed life insurance policy or an income focused annuity that can absorb risks that are specific to a retiree. Now, there's a lot to unpack here, but I think it's important to address the elephant in the room regarding insurance. Many people have negative thoughts about insurance, and it is understandable considering insurance companies do a terrible job with their messaging. However, even with poor messaging, the numbers just can't be ignored. There was $343 billion invested in annuities and 165 billion in life insurance premiums in 2022 alone, according to an insurance information institute. So the Numbers support the desire many retirees have about transferring risk to insurance company in the world of psychology, there's something called confirmation bias which refers to the tendency of individuals to interpret or favor or recall information in a way that confirms or supports their existing beliefs or preconceptions. It's a cognitive bias that can influence how people gather, process and interpret information. And when people have a particular belief or hypothesis, confirmation bias can lead them to seek out information that supports their viewpoint while ignoring or downplaying evidence that contradicts it. And this bias can affect various aspects of life including retirement planning and just the decision making process. Overall, confirmation bias can hinder critical thinking and objectivity because it's can prevent individuals for considering alternative perspectives or engaging with information that challenges their existing beliefs. I share all that to say that people who struggle to understand what mindset is needed for retirement can find themselves endlessly searching for information and interviewing advisors hoping to get confirmation of their beliefs that they can retire without having to change how they manage their investments. I have two functional medicine doctors whom I hired and I pay them to tell me what I need to be doing to stay healthy. I speak with them multiple times throughout the year to get updates, labs, preventative prescriptions, health advice, diet, exercise, all the medical stuff and they ask questions. They check on my progress, they make recommendations and tell me when I need to adjust things to better myself. I can do some research and go buy more supplements, but having them bring to me what I need to know saves me time and energy. They have the experience and knowledge that enables them to pinpoint problems and immediately guide my direction. No amount of effort on my part could yield the same results. For me, it's about time, effort and results. Each one of us has 24 hours in a day and unless you have cracked the code on making money, having a great marriage, having a close relationship with your kids, being physically fit, being spiritually mature, having friends and taking care of yourself, something in your life is likely suffering. Time is a zero sum game, which means to have more time for one thing, you have to have less time for another. And when you spend time doing things you could hire someone else to do, you're robbing time for really more important things. What I have experienced is that the more successful a person becomes, the more valuable their time becomes. To preserve those valuable hours, it becomes increasingly more important to surround yourself with professionals to whom you can delegate responsibilities to free up time. There are many hacks that could be done to make things in your life better, but when it comes to time there's only Delegation. Time is your most precious resource and how you use it is up to you. You can spend it worrying, researching and doing things you don't really want to be doing, or you can delegate and strategize to gain quality and quantity of time back. Insurance is just a form of delegation since you're transferring the risk onto the insurance company. And by transferring this risk you not only eliminate the underlying risk, but it also removes the inherent worry you have about the risk. This has a multiplying effect because you have mitigated some risk while increasing the quality of your time. Retirement planning can be an endless trail of discovery and can take years to learn what you're doing and will be successful, or if it's going to be a complete failure, at which time it's too late. It's often best to of course, find a financial advisor who can guide you through this process and who understands the retirement planning process. Because again, thinking you can solve these problems by simply buying an investment or pinching a few dollars by not purchasing insurance can put your retirement at risk. Delegating the research and leveraging the experience to a financial professional can help you leverage your time and increase your confidence. There are strategies you can use that can help protect your wealth, create your unique income strategy, and maximize your assets, and you can discover how to do this and learn five questions you can ask yourself so you're safely set up for retirement by visiting my website, Brian Scribonia.com that concludes today's podcast. I'm Brian Scribonia. Thank you for listening to the Common Sense Financial Podcast. Thanks for listening to today's show. If you liked what you heard, be sure to subscribe on YouTube and Spotify so that you can receive notifications when we release new episodes. I'm Brian Scribonia and this is the Common Sense Financial Podcast.

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