Why is saving for retirement so hard? For many of us, it’s much more appealing to spend today than to save for tomorrow. It’s human nature – we live in the present. Often the choices we make aren’t necessarily in our best interest in the long run (examples include smoking, indulging in a poor diet or giving in to spending for immediate gratification versus saving for retirement.) Why?
...When an old acquaintance saw the name of my business, Stoffer Wealth Advisors, he said, “As soon as I have some wealth to manage I’ll give you a call.” Clearly he was thinking of wealth only in its most narrow definition: an abundance of material possessions or money.
When we believe more is the answer, it can impact us in unforeseen ways. Humans just want more. We want more happiness…more money, more success, more time, more vacations, more life. Aspiration does seem to be a healthy thing. As humans, we seem to value growth and progress. However, money represents many different things to different people. When it comes to money, needing more, wanting more and having more can be complicated. The danger in the pursuit of money is that you risk falling into a rabbit hole - where you find yourself navigating a seemingly endless confusion of paths and choices, and where it is so easy to lose your way.
In the new movie “All the Money in the World”, Mark Wahlberg’s character, Fletcher Chase, asks J. Paul Getty how much it would take to make him feel secure. The answer…“More!” It was an odd statement from ostensibly one of the richest men in the world at that time. Based on a true story, Getty’s grandson has been kidnapped (one he’s particularly fond of) and the ransom demand is $17 million. Getty won’t or can’t bring himself to part with the money even though we’re certain that he has it.
Recently when the subject of financial planning came up, a woman said to me, “I really should do that.” I was staring at my computer one afternoon, thinking about the pervasive effect of the phrase “I should . . .” on our daily lives. It almost doesn’t matter what follows those words, “I should . . .” – lose weight, do my taxes, get the car fixed – whatever it is, the phrase which masquerades as motivation so often has the opposite effect – of inducing procrastination. It can make us feel as though someone else is trying to impose his or her will on us.
If you wanted to leave some money to your children, how would you split it between them? You could come up with numbers based upon their likely need for help. Or you could simply divide it equally…after all you love them all, well…equally. Equal distribution is probably the most common way of dividing assets. Yet, what about the situation where one of the kids is very successful financially and has no need for your money? What message does an unequal gift send? Conversely, if you were one of the children on the receiving end…what if mom and dad left all (or even most) of the money and investments to your sibling because you ‘don't need it?’ You might feel ‘less loved’, or slighted in some way, left with a nagging feeling that perhaps they really did love them a bit more than you.
People tend to embrace this statement. It sounds true: surely only shallow, materialistic people would insist that money could buy happiness. To utter the thought aloud is almost like a declaration that we aren’t materialistic (and hopefully not shallow!) Scientists have long been perplexed about how to measure such a thing as happiness. Studies that examine relationships between money and happiness raise the idea that although money may not directly bring us happiness, it has the potential to. Believing that money can’t buy happiness is a bold and sweeping generalization that weakens under scrutiny. The authors of the book, Your Money or Your Life present a “fulfillment curve.” As the curve in the diagram shows, money spent to meet basic needs brings the most precipitous rise in satisfaction.
Retirement success means something different to each of us. Some people see themselves working in retirement because that's what they've always done. Others are afraid to stop working for fear of running out of money. Some people just want to feel secure when they stop working and know they'll have sufficient money to live. Since retirement isn't really a destination, but a process, try our 3 P's to help create your vision of a successful retirement.
A while back Michael Finke, Professor of Retirement Planning at Texas Tech University hosted a webinar about financial planning in the context of longevity and aging. None of us likes to think about the deterioration of our physical and mental abilities. Yet how we navigate these changes, and equally importantly, how we plan for them, will have significant effects on our future happiness. Life expectancy has increased for a number of decades and the trend continues. Finke concludes that definite connections exist between income, health, social activity and longevity and happiness. Generally, those people with higher income tend to enjoy better health and are more socially engaged. These factors contribute to greater longevity and increased satisfaction in retirement. The webinar raised a number of interesting questions in regard to retirement. I’d like to discuss the following two issues: first, whether to remain in your home as you age, and second, how declining cognitive abilities affect the management of your finances.
Think of all the times you felt pleasure as the result of buying something. When I started interviewing for my first job in the investment business I bought the most expensive suit I could afford. I felt like a million bucks every time I wore that suit! Of course that led to a penchant for expensive suits but that is another issue. Money does not just buy things but also experiences. How many beautiful memories come to mind because you gave yourself permission to spend money on a new experience or adventure. I can think of so many trips we took as a family or even in younger days before having children. Those were clearly happy times. Weren’t they?
We use money every day. We spend on things, experiences, etc. Maybe you are planning the next big adventure in your life…or figuring out how to save the money to remodel the bathroom. Behind these activities there is a presumption that money used in these ways will make us happy. Do money and happiness even belong together in the same sentence? In some of my workshops participants fill out a survey asking them to agree or disagree with statements on money beliefs. One of the statements is “money makes me happy.” I never kept a specific tally but I always looked at whether they checked yes or no on that question. My recollection is a fairly even split between those who agreed with the statement and those who didn’t. I wonder if some checked “no” because we’re not supposed to find happiness in such a thing as money
The idea of paying off the mortgage – usually our largest single debt - has an iconic and seemingly straightforward appeal. But is it really the best financial strategy? The analysis of the relative benefits of paying off a mortgage versus saving for retirement can be complicated. To answer the question it is important to consider your individual situation. Are you close to retirement age, or many years away? Do you have significant retirement savings or not? What tax bracket are you in and how much benefit do you receive from the mortgage interest deduction? Will the returns on your retirement investments exceed what you are paying for the mortgage? I will provide some guidelines to help you think through your particular situation. If you are already feeling dizzy contemplating the range of factors affecting such a decision, you are not alone. Professional guidance may be needed.