You’ve just stepped into retirement. Everything you’ve worked and saved for begins tomorrow morning. What are you going to be doing? What does the first year of your ideal retirement look like?
Before I get onto the “Two Doors”, over the 27 years I’ve been talking about this with clients I have learned that the acceptance of uncertainty and the development of resilience are the things which will govern whether you and I succeed as investors in the achievement of a comfortable retirement and remaining comfortably retired.
Please note, that this has nothing to do with economics, markets or anything else left brain. This is a human nature issue. By which I mean that as important as the planning, the asset allocation and the portfolio structure is, the success of all of this in Retirement Income Planning is overwhelmingly a human nature issue from a financial standpoint. It is perfectly possible to have a beautifully crafted portfolio delivering above inflation returns, and the investor underperform their own investments due to human nature’s proclivity to react to the raw sewage that passes for most financial ‘journalism’.
I don’t think that we talk enough about that, and I don’t think that even if we do talk about it, we take it as seriously as we ought to take it. We may all sit there and nod and say, “Yes, retirement is a human nature problem, and now let’s get back to what really matters which is what is the optimal sustainable withdrawal protocol!” This, I suggest – as gently as possible – is to not only miss the point; it is to actively choose to miss the point, and so I’d like to start the discussion with the following statement:
Retirement has only two possible financial outcomes.
Who told us this was a complex subject? Yet, it gets simpler. These two outcomes are mutually exclusive. It is an issue which is perfectly binary. There is no mix and match, no “one from column A and one from column B”. I am going to get, you are going to get and every one of our clients who doesn’t die before he or she retires is going to get ALL of one or ALL of the other outcome.
You will either go through “Door Number One” or “Door Number Two”.
Door Number One.
“Door Number One,” says on it in GIGANTIC Gothic lettering, “DOOR NUMBER ONE!” Just so you don’t make a mistake and go through the wrong door.
And then when it has your complete attention, under that, it says, “Through This Door In Retirement, The Money Outlives The People”.
And through that door, dear reader, in retirement lies all financial happiness. The first things – the first things – on the other side of the door are the two most important things in retirement. The two most important things in retirement lie just on the other side of Door Number One.
And these two things get more important to retirees every day. They’re not linear. They get more important to retirees every day as age takes their physical capacities away. And the two most important things in retirement are for all time, Dignity and Independence. It’s worth repeating: Dignity and Independence.
Think about the people that you know, who are really getting old. And think about how life is taking away their physical capacities. Against their will. Ever tried to tell your 86-year-old mother in law that she can’t drive anymore? Don’t do it. I’m telling you from experience – let her crash the car! You will hold on tighter and tighter and tighter to your dignity and independence.
What does it mean to be outlived by your income? The two main things it means are the maintenance of your dignity and independence. When you are convinced, and your wife or husband or partner is convinced, that you have a plan and that the plan will probably not allow you to outlive your money, a tremendous amount of stress will probably go out of your lives. Assuming you want it to.
We at GL Integrity are the bearers of the key to Door Number One. Let’s make sure there’s no misunderstanding about that.
Then behind dignity and independence, come dreams. Dignity and independence; dreams, legacy. Legacy. Don’t let my wife and I have passed through this life and not leave something behind for our children; for our grandchildren; for the institutions that we love … even if we didn’t have children and grandchildren would there not be in our lives institutions, churches, hospitals, schools? Legacy. The plaque on the hospital wall?
All on the other side of Door Number One. All predicated on one of the two possible financial outcomes. To repeat it: “Through This Door In Retirement, The Money Outlives The People”.
Door Number Two.
I’m guessing we don’t have to spend a lot of time on Door Number Two?
You already know what it says. Not just the “DOOR NUMBER TWO!” thing. It says, “Through This Door In Retirement, The People Outlive The Money”.
And there is the death of Legacy. And there is the death of dreams. And in the end, there is the death of Dignity and Independence. And the people are still alive.
Now here’s what I want you to understand. And I don’t just want you to know this intellectually. I want you to understand this in your soul. The difference between people going through Door Number One and Door Number Two has absolutely nothing to do with anything except the presence of a robust, written, formal retirement accumulation and distribution plan.
And where are you going to get that? From an empathetic financial planner, or no one. Are Robots going to do that? Technology is vital, but are Robots going to stop you blowing up your plan in the face of clickbait catastrophist financial ‘journalism’?
Surely, this in all its implications is the way to think about investing? About financial planning? About retirement income planning?
At GL Integrity, as financial planners and behaviourists, we are first and foremost (if there is an antidote) the antidote to the effect human nature has on successful investing. It is human nature and its proclivity to do the wrong things for the wrong reasons and at the wrong times in relation to investing, that is the key to Door Number Two.
I’m going to say it again. Not because I didn’t think you heard it the first time; and not because I think you’ve not got this written down. But because I like saying it:
The key to Door Number One – the only way to get generations of people NOT to go through Door Number Two but to go through Door Number One – is the presence in their lives of an actively reviewed, robust, formal, written retirement accumulation and distribution plan.
What do you most hope will happen financially for the balance of your lives? And what do you fear might happen?
If you would you like to have a natter over a cup of coffee, it would be a privilege to give you some time, on the house.
“I gave my all for the things I valued. Think about what you want to look back and say.”
– Dr Carol S. Dweck
Certified Financial Planner™ professional
Chartered Wealth Manager™
Investors should remember that the value of investments, and the income from them, can go down as well as up. This update has been produced for information purposes only and isn’t intended to constitute financial advice; investments referred to may not be suitable for everyone.