The Three Retirement Mindsets That Could Have A Negative Impact On Your Retirement Plans - Replay

My name is Brian Scribonia, and on this episode of the Common Sense Financial Podcast, as the saying goes, you really do get what you pay for. If your expectation is to try to take advantage of an advisor by getting them to cut their fees, the more experienced and valued advisors aren't going to take you as a client. It is just the way it is because a good advisor has more to offer you, and because of that, you should expect to pay a little bit more for that knowledge. I'm not saying to overpay, I'm not saying to ignore the fee. But finding the right advisor can be invaluable. Foreign.

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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 Scribonian. Thanks for tuning in and let's get into today topic. I'm really looking forward to today's show because what we're going to cover are a few limiting beliefs that I think many people have about retirement and we're going to unpack them today on the show. And what we are discussing didn't come out of left field. Like many of the topics I cover on the show, the inspiration for this particular episode was an actual conversation I had with someone just a few weeks ago. So these are fresh thoughts you're going to get from me today. So we're talking about three specific retirement mindsets. Now, many of you have worked hard for years to save money or build a business and are now looking forward to kicking back, relaxing, and finally enjoying the fruits of the labor, Right? Perhaps you can relate to that. But before you run out and put in your notice at work or sign on the dotted line to Sell your business. I do think it would make sense to throw a caution flag about these mindsets just to spare you some pain. So let's set the stage for what we are about to cover. What is important to know is that there is more to the conversation around retirement than just having a permanent vacation. Over the years you have saved money growing a nest egg, building a business. There were a few mindsets that likely served you well during this time. You put in your time at work and in exchange for that time, you relied on receiving a consistent paycheck to pay your bills and live your life. And you saved money in your retirement account. That was out of sight, out of mind, believing that if the stock market was up or down, it really didn't matter because you didn't need the money till retirement. And you spent money knowing that you could simply work a little overtime or perhaps work just a little bit harder for that bonus or perhaps make another sale just to add a little extra money in your checking account to be able to spend. I mean, it was a system that relied on your ability to work and earn an income. And it was like a well oiled machine that got you to where you are today. Now, it shouldn't be a big shock to learn that retirement will be different is you are no longer working. Obviously things you have been doing must change. You weren't adding money to savings or receiving that direct deposit from your employer. And as far as your money is concerned, you can no longer ignore the ups and downs of the market because the future you have been investing for is actually here. That means you are dependent on the assets you have right now to last your lifetime. Instead of saving and accumulating money that you earned, you are now withdrawing money from your accounts. Essentially, everything's in reverse and that very well could have you feeling a bit disoriented. The unfortunate thing about this is when we feel disoriented, stressed or uneasy, we instinctively want to grab ahold of what we know for stability. Unfortunately, what you know and have always done isn't going to serve you in your current situation, which makes for an emotional transition. Because things must change since your situation has changed. You're no longer trading time for money, but are actually trading money for time. Everything's in reverse. And that is something you must understand and begin to think differently about if you want to avoid many of the problems retirees face in their golden years. Some of you can easily roll with the changes, but that can sometimes bring about their own challenges. Since the need to change isn't as apparent right away. For those who may be cool, calm and collected, there's a tendency to not want to change anything. Thinking that the math you have done in your head confirms that you should be okay for a while. More from a place of the fear of making the wrong decision than anything else. But e either way, the situation is that you are at what is known as halftime. This means that you are midway through life. You had that last 40 years looking back to save. Now you're looking forward and need to stretch those dollars out over the next 40 years to support your financial needs. So before we get into the top three mindsets that cause the most problems, you should understand that you could very well be retired as long as you have been working. Which means there's a lot to consider here. It is not just making a few tweaks within your stock portfol because it is no longer just about market performance. I wish it could be that simple, but it just isn't. Here's the main issue. A lot of people think that retirement is a destination. The thought is that once retired, everything is complete. It's. It's really what everything is that you've been working towards. The game is over when it isn't the destination at all. In fact, retirement is just a transition into a new stage of life which requires a whole new set of planning tools, a reset of the entire planning process. Yes, the planning to retirement may be complete, but the planning in retirement has just begun. Now you must figure out how to generate income to support your lifestyle for maybe the next three or four decades. That is a long time to have to support yourself. Which leads me to the mindsets I want to cover for you today on the show. The first mindset that I ran across in this conversation that I mentioned when we first started the show here is that annuities are bad. Now, first thing with this is that if you're in this crowd, I get it, you've spent a decade navigating the stock market, making your own investment decisions. And the idea of it exiting the market in exchange for a lower yielding option can seem a little bit unappealing. But here's the thing. Retirement isn't about white knuckling your portfolio every time the market goes down, fearing of running out of money. It's about having a steady stream of income you can rely on no matter what Wall street throws your way again for the next 30 to 40 years. When you're thinking about this, you have to ask yourself, do you want to worry about the market impact on your Money for the next three or four decades. Is that your vision of an ideal retirement? The golden years? If you're optimistic and aren't concerned with the market's risk that is involved there. Confidence doesn't remove the risk. The risks are real and aren't removed because an investor is optimistic about what could potentially happen. This is where an annuity could make some sense. These products remove the guesswork and are designed specifically to mitigate these risks. My dad always told me growing up that you must have the right tool for the job. Yes, you can carry around a hammer, but not everything is a nail and you won't be able to fix everything. Now, I'm not saying that all your money should be in an annuity. Far from it. But the retirees I speak with oftentimes want consistency and they crave predictability. They want to know exactly how much money they have coming in each month. And annuities are designed specifically to deliver that for you and takes the guesswork out of producing income for retirement. Now, you might say, Brian, the stock market will surely outperform an annuity over time. Maybe. But what if it doesn't? I don't have the answer and neither does anybody else. The real question is, do you want to be gambling your retirement? What if you experience a negative sequence of return early in your retirement? This means you're withdrawing money during a downturn, essentially selling your investments at a discount. And before you know it, your nest egg is dwindling rapidly, leaving you scrambling to reset your retirement lifestyle. I mean, you can cross your fingers and hope this doesn't happen, or you can take precautions to transfer some of the risk we're talking about over to the insurance company. You can't ignore it or discount the risks, but that doesn't change the fact that these are real risks that retirees face. The mindset number two is the idea of the status quo of the stock market in retirement. Some people I speak with tend to believe that a well diversified portfolio will predictably churn out enough profit to sustain them throughout retirement. It is this Dave Ramsey crowd who tend to use conjecture as a means of convincing themselves that an average rate of return is the same as a real rate of return. Dave suggests a growth mutual Fund were average 12% each year, which means you can easily remove 8% from the account every year and still have growth. What is missing from this ideology is that an average is just that, an average. But the market doesn't go up in a straight line. The effect of losses is discounted or ignored altogether in an attempt to oversimplify this math, and that's risky. To understand the math, you have to understand that if you experience a 50% loss, it isn't 50% of earnings that'll get you back to even, it's 100%. And if you're making withdrawals, that only compounds the problem. Now don't get me wrong, the stock market's a great tool for wealth creation. If you have time to allow the money to grow and aren't making withdrawals for income purposes, yes, invest in the stock market. But it's not without risks in the short term, which isn't a characteristic you want when seeking predictable income. Remember, the stock market is influenced by millions of factors, many of them completely out of your control. Geopolitical events, economic fluctuations, terrorist attacks, even global pandemic can send the market into a tailspin. While you can try to mitigate risk through diversification and send positive vibes into the universe, there's no guarantee your portfolio will perform exactly as planned. Yes, we could see a Repeat of the 1990s when the decade experienced tremendous market gains, but at the same time, we cannot forget the decade that followed, where the wheels fell off and we experienced crisis after crisis. It's just critical to understand that if you are relying on your assets for income, there's no way to predict the sequence of returns. I'm sorry, but optimism is just not enough. Mindset number three is fee anchoring. What is a fee anchor? It's really an amount someone has in their mind for what they should pay for financial related advice. It's often a made up percentage or a number that is formed based on a Google search or maybe a discussion with other financial advisors. Now I'm not advocating for outrageous fees here by any means, but I think sometimes a little guidance can go a long way to help people see a bigger picture. Because focusing solely on the lowest cost option or anchoring your number to a set amount is really not the best option to such a complex subject. When I'm hiring someone to do something important for me, I think about it this way. If you need heart surgery, would you search Google for the cheapest surgeon in your area? Would you. Would you interview three or four surgeons and ask what their fees are for the surgery and then decide on who to use based on who is the cheapest option? Of course not. I don't even do that when I'm searching for someone to cut my grass. I would think the same would be true for planning the next 30 or 40 years of your retirement. I mean this is a big deal and searching for an advisor who is closest to matching your fee mindset is not a meaningful approach to finding your ideal advisor. I mentioned earlier that this show was the result of a real conversation and this was it. I had someone come to me looking to make a switch from their existing advisor because they felt that they weren't getting the advice or support they needed. After an exhaustive conversation about her needs and the more comprehensive approach my firm takes, she pushed back on a 25 basis point difference. The other firm was charging 25 basis points less than what I charge my clients and she thought it made sense to contrast my fee to to what she was already paying, even though my services were far more comprehensive. It really was quite confusing to me how when she was presented with the opportunity to get the services she was seeking, she felt the fee she had anchored in her mind was appropriate. Maybe she was just trying to get me to negotiate my fee, but suffice it to say that I didn't cut my fees and we didn't accept her as a new client. And here's what I would say about this when considering a fee, or on a product or for an advisor, it's important to understand that it is less about the fee and is more about what you're getting in return. A fee is only an issue when there's a vacuum of value. What advisors offer and charge can vary greatly depending on what they do for the client. An advisor that offers services beyond simply picking investments is more valued and often charges more, which makes understanding what your needs are and matching that need with an advisor who can deliver it so critical. As the saying goes, you really do get what you pay for. If your expectation is to try to take advantage of an advisor by getting them to cut their fees, the more experienced and valued advisors aren't going to take you as a client. It is just the way it is because a good advisor has more to offer you and because of that, you should expect to pay a little bit more for that knowledge. I'm not saying to overpay, I'm not saying to ignore the fee. But finding the right advisor can be invaluable, especially when it comes to navigating complex financial products like annuities or private markets and strategies like selling a business or deploying complex tax strategy. I mean, this is more than just picking ETFs to wrap this up. Fees are important and you should understand them, but I encourage you to not use it as your primary consideration for making a decision. Having a solution to a problem you are facing or creating a more tax efficient plan for your money, for instance, could be worth far more than any fee. So use some discernment in this area and make sure the fee matches the level of service you're receiving. Any fee is too much if there's no value, no service, no feedback. The same is true if you're receiving many services that are making your financial picture stronger. Of course, there's much more to discuss on this topic, but I'm going to leave it there for today. I really am grateful that you've tuned in today. I'm Brian Scribonia and this is 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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