Retirement Lifestyle Planning

Retirement lifestyle planning looks beyond numbers. Beyond money there is the question of how to spend and invest a more precious resource – time.

The normal approach to retirement planning is to start with the amount of savings. Then ask for an idea of how much income those savings will produce. Conversely a retirement lifestyle plan starts with describing what you need, want, and wish for. Then ask for an idea of how likely it is those savings can get you there.

Some people need help coming up with their wishes. It might not have occurred to them before to ask what will bring meaning and fulfillment to them in that chapter of life. For some this is a more difficult decision than figuring out an investment plan or tax strategy.

If you come up short on your goals, the plan recommends what can be done instead. If you come up with excess, the plan asks what you might have left out.

People who engage in the retirement lifestyle planning process understand that there is only so much that money can do. The rest is up to you.

Bad Behavior, Bad Person, or Inner Beauty?

At what point do we judge a whole person based on one part of their behavior? When I wrote a couple of months ago about my airport anxiety, several readers shared similar fears of missing their airplanes. The common behavior tends to be to get to the airport extra-early. Nothing wrong with that. What I did not share, though, was my recent bad behavior when I encountered an airport snag. I didn't yell or throw a temper tantrum. I surreptitiously, almost unconsciously, ever so politely and tactfully, simply went around the line, straight to the front. Although I was quiet about it, there was no doubt to those who were with me....they thought I had lost my mind. It was exceedingly rude. But does my bad behavior make me a bad person? How often do we encounter someone whose behavior we don't like, and judge the behavior as representative of their whole person? Sometimes other professionals tell me about clients they keep, but don't like. In some cases, the client behaves in some repetitive way that is bothersome to the professional. Perhaps they ask too many questions. Or complain about fees. How could they get the client to stop?, they wonder aloud. I try to remind myself of a concept I first read in a business book which I don't recall the name of in the early 2000s. In it, the author was riding the crowded subway in New York City. A man did something rude which offended the other passengers. It turned out his wife was in the emergency room. He was stressed, and he couldn't get to the hospital quick enough. The author's demeanor took on a different tone once he uncovered this fact. When I encounter unlikeable behavior, I remember there is often an emotional component lying directly underneath. Many financial professionals don't believe emotions are any of our business, or that they are ill-equipped to handle them, or that they just don't have the time. To me, though, avoiding a conversation about emotions is like sitting in the back row of the bus while the emotional one drives. Simply noticing someone's behavior out loud, but in a nurturing and caring way, can bring the emotion - the real reason for the behavior - to the surface. My experience is that this revelation is often a source of great relief, to both parties. Therapy skills are rarely required - only empathy and understanding. And the better news is, with good listening skills, it doesn't take that long. In fact, getting the emotions out on the table can save many circular hours repeating the same behavior over the same subject, wondering what we can do to get the person to stop or to change. Separating the behavior from the person turns many annoying people (to me) into gems. Understanding where someone is coming from, and giving them the benefit of the doubt, has paid far more relationship dividends than brushing them off as intolerable. Remember the saying, "Beauty…

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Death by a Thousand Indecisions

"Then indecision brings its own delays, And days are lost lamenting over lost days. Are you in earnest? Seize this very minute; What you can do, or dream you can do, begin it; Boldness has genius, power and magic in it." Johann Wolfgang von Goethe, Faust Are you "in earnest"? When it comes to decisionmaking, sometimes we can use a ready-fire-aim approach, and sometimes we can take our sweet time. I can decide from a restaurant menu pretty quickly, but lately it seems I stew unendingly over where to put the smallest things in my new office. Neuropsychologists like Dr. Moira Somers tell us that decisionmaking is one of the biggest drains on our mental energy. The reason that transition times are so stressful and exhausting - a move, a death, retirement, a divorce - is the thousands of seemingly small, plus a few momentous, decisions confronting us at those times. To compound the problem further, every indecision is also a decision. In fact, a pattern of indecisions can take physical form, and stress us out every time we see it. What does not-deciding look like? A pile of unfiled papers on my file cabinet. Empty boxes stacked in my garage. The "miscellaneous drawer" in my old kitchen. The "junk room" I helped to clear at a friend's house last weekend. Or, in the case of a few people I have met recently, a panoply of investment and bank accounts scattered across several financial institutions. With a finite amount of mental energy at hand, who can blame any of us for having a to-be-decided pile/stack/assortment of some shape and size hanging over us all the time? What to do about it? It's probably best for me not to make complete elimination of indecisions my end goal, but rather to automate them, delegate them, calendar them, or, failing those three, get help with them. Asking for help with decisions which I am perfectly, rationally capable of making is not something I would have entertained in the past. Recently, however, I had significant success with hiring a friend to help me organize my office. At the same time, I had my estate planning documents and business succession plan updated with a local attorney. With my friend's insight, coordination, and diligence, I now have an uber-organized office AND an updated "emergency box." It turns out that hiring help made my decisions go much faster. (Perhaps this is what Goethe meant by the boldness in beginning it.) And there is a spiraling effect - the fewer decisions I have left to make, the more I know my contingency plan is covered, the more time I feel I have to do what I do best - create, advise, and contemplate issues that help others. This is far better than a daily slog through the indecision-infused mud. At this point, I feel ready to give back what I got. Someone close to me was recently suddenly widowed, and lost her mother, within a three month period.…

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What’s Your Closet Velocity?

On a visit to Ghana, a west African country, in 2004, I noticed how many people wore second hand Western clothes. While others donned beautiful traditional fabrics and garments of their country, it was equally common to see t-shirts, Gap khakis and Levi’s that looked like cast-off Goodwill donations for sale at the market. My hosts told me these were referred to as obruni waawu, which, literally translated, means, “dead white people’s clothes.” “Why dead?” I wondered. Before long, an answer dawned on me. Maybe to Ghanians, many of whom don’t have closets, the only reason you would give up your perfectly good clothes would be because you are dead. To them, clothes are something you use until they are no longer useable. This led me to the idea of how often we, especially Americans, buy new clothes. In planning for cash flow needs, I always ask for a range of annual spending on clothes - an "acceptable" amount, and an " ideal" amount. I have received answers for both ends ranging from $2,000 to $50,000. What I have not asked is, how often are they throwing out old clothes? If we throw out old ones when we buy new ones, I would say we have a high “closet velocity.” Correspondingly, the amount of clothes we have on hand at any point in time might be called our “clothing supply.” I am borrowing these terms recklessly from economics concepts of money velocity (the rate at which money changes hands in an economy), and money supply (the amount in circulation at any time). If you have a low clothing supply and low closet velocity, you are like a Ghanian wearing your small number of clothes until they have holes or stains or are unuseable. If you have a high clothing supply and high closet velocity, you started with lots of clothes, are buying lots of new clothes, but are also giving or throwing away “old,” or more likely, never-worn ones. You may be the Imelda Marcos of clothes. If you have a low clothing supply and high closet velocity, you have a small, actively-traded closet. New clothes are entering constantly, but getting worn, and old clothes are going out. You have a high clothing budget, and you always look good. If you have a high clothing supply and low closet velocity, you have a large closet of seldom-worn items, with plenty to choose from, but that might be a bit dated. In her work with Money Habitudes(TM), Dr. Syble Solomon identified six primary attitudes toward money. One of those six is "status." Anyone with an American puritanical upbringing might see this as a nasty word. Status is something we crave but are supposed to pretend not to. Rather than take such a negative extreme view, Solomon recognizes that money, through status purchases like clothing, can help us make a good impression. It is not prudent to spend lavishly on clothes we will never wear, or to spend more than we can…

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Budgeting Lessons from an 18-Year-Old?

Recently we had the good fortune to travel overseas with our 18-year-old niece.  (See more at travel blog https://www.hollydonaldsonfinancialplanner.comsholidays.wordpress.com).  Aside from being totally cool hanging out with her middle-aged aunt and uncle, I was impressed by her budgeting skills.  The budget, however, was not her spending money, but her text messages. Her mother gave her an allowance of 200 texts for a two-week trip. One morning over breakfast, she volunteered how she was doing on her budget - 100 texts remaining. We were halfway through the trip.  By the last day, at the departing airport, I asked how she was doing, and she reported she had 10 texts left. It seems lately I get more questions about staying disciplined with spending and saving, even from those who have “enough.” Everyone seems to worry from time to time that they might not be spending prudently.  If you know even a little about teenagers and texting, you can appreciate how much discipline she exhibited to stay on track.   Perhaps there is some wisdom in her accomplishment we all can use. I believe there were three main components to her texting success: 1) Tracking.  At any time, it was easy for her to check her text budget on her phone.  For many people, tracking is the only missing component to successfully staying disciplined with spending.  It is my belief that credit card companies know this, and that is why you cannot easily obtain spending-by-category information instantaneously on most credit cards.  Fortunately, there are mint.com and smartypig.com, two places devoted to tracking spending. 2) Accountability. After the trip, my niece would be accountable to her mother.  At 18, that might be sufficient, but for many working adults and pre-retirees, accountability to Mom ended with financial independence from her. Nevertheless, by making her goal public to us at breakfast that morning, she made herself accountable to someone she cared about.  If you want to get serious about sticking to a spending plan, who in your life can you enlist to keep you accountable?  Ideally this would be someone who will not be judgmental but whose opinion you care about, and will ask you out loud how you are doing on a regular basis.  An important aspect of the accountability was also that we all knew it was only for another week.  The accountability agreement should last a finite period of time - having it indefinitely isn’t advisable, nor fair, to either one of you. 3) Rewards and Consequences.  The benefit my niece received from her breakfast announcement was an instant reward - praise and recognition.  Of course we noted her success gleefully with atta-girls and good-hearted amusement. As we get older and have more responsibilities, though, rewards for doing a good job with spending, especially, are tricky.  The last thing you want to do is blow the budget with your reward for not spending. What were my niece’s consequences if she went over her text budget?  If you only knew her mother (my sister)! …

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The Painting Gene

I did not get a painting gene.  By painting, I do not mean the artistic kind, requiring creative talent and the ability to synthesize the world as you see it into a one-of-a-kind colorful expression.  I don't have talent even close to that. No, I mean the kind of painting you use on a wall in your home.  One color, applied with a roller and brush. How can I manage to make a simple task so hard?  I discovered the answer this week.  My financial gene usurped my painting gene.  This means I am genetically incapable of putting enough paint on the apparatus, whichever it is.  Unconsciously and automatically, I want to use as little paint as possible so I do not have to buy more. Experienced paint-people know this is a disaster waiting to happen.  When you do not use enough paint, your wall becomes a collage of streaks and stripes of varying shades and shapes, instead of an uneventful homogenous surface. To fix it you practically have to call in a professional. Thank goodness I was not painting a wall.  I was only priming our subfloor to prepare for carpet.  My husband of 25 years knows better than to put a roller in my hand to paint anything other than something that will be covered up shortly.  He got the painting gene. So we both know (after some trial and error) where I am at my weakest.  But that does not mean my financial gene does not serve me well in other venues.  The trick has been figuring out when to let it do its thing, and when it needs a leash. With all of our money habits and attitudes, in fact, there are times when they contribute to our success, and times when they hinder us.  Before we recognize that difference, we risk painting a financial collage like my subfloor -  varying streaks, stripes, shapes, and shades.  Instead, rather, a financial picture could be an uneventful backdrop to simply living a life. Sometimes it is hard work to discover and admit when we are getting in our own way, but my husband and I have learned that once you map your "talent" genes, you require fewer professionals to fix the mess you made.  It costs less overall, and you stay married longer.

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Are old money messages piloting your kayak?

One of my findings from some recent workshop participants was that many of us grow up with the same "money messages." Money messages can be either implied or direct. They can range from "Money doesn't grow on trees," to "You can't take it with you!" I find during workshops that if I cover the walls with these money messages, as participants read them, the messages often elicit memories of specific people in their early lives. Often these people are authority figures like a parent, minister, or teacher. Therefore, messages get conveyed to us at a very early age. It is important to recognize how ingrained our money messages are, because they often go unquestioned. When we turn our money decisions over to long held money beliefs, we allow our choices to go on autopilot. We may think we have sufficiently analyzed a decision, when in fact we have done so only after unconsciously putting the facts through our belief filter. While this helps us become more efficient at decisionmaking, it can sometimes lead to decisions we regret. One of my own examples hangs in my garage. It's a kayak. One of my money messages is, "You don't always get what you pay for." My autopilot reaction to this message is to buy the cheapest thing that I think will get the job done. When I went to buy my kayak, I wasn't setting out to race. Further, I was going to use it in Florida, land of lazy alligators and sultry, swamp-fed rivers. So I bought the cheapest model, what my serious (like, Olympics-team-serious) kayaker friend calls, "a floating bathtub." One recent Saturday morning, on an unusually low Suwannee River, my floating bathtub and I were presented with, of all things, rapids. Clumsily navigating the limestone rocks and water, I attempted to skirt an oncoming wave. With no keel to follow my paddle's direction, instead I watched the wave devour my bow and jump in my lap like a spoiled dog. Thank goodness the sun was out. Maybe if I had anted up for a kayak with a real keel, I might have enjoyed a drier outing. Now I appreciate what a little more money might have bought. The better we know ourselves and our money messages, the more likely we are to make better informed, more balanced, and rational decisions when it comes to spending, saving, investing, and sharing money. Walking away from the workshop, several participants said they felt a lot more prepared to face their financial futures. What money messages might you be operating with? And what can you do about it next time? Post your comments here to share or email me privately. I look forward to hearing from you.

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Leaning Down the Fall Line

Altering our natural behavior can be difficult but rewarding.  In some cases, it can be vital.  I am reminded of this every time I go snow skiing.  When I stand at the top and look down the slope, my natural reaction is panic - to recoil and lean backward.  Fearful, riding with my skis out front and my poles behind my shoulders, I go uncontrollably faster.  I focus on the next few yards, unaware of my larger surroundings.  I lose the ability to turn.  As my leg muscles fight the inevitable, they contract sharply and painfully.  Within a few minutes, I am winded. However, if I succeed in overcoming the natural tendency to hug the hill backwards, life gets infinitely better. Instead, when I center myself over the downhill ski, leaning down the "fall line," the skis take over, and do what they were designed to do.  Making a turn is a simple thought, not a fight.  I float on the snow.  I smile.  It is fun. But it's not natural. The freedom that comes from overcoming emotions can be a major accomplishment, a tremendous stress reliever, and sometimes a life saver.  World-class athletes learn to overcome their doubts and trust their coaches. Pilots learn to wear blinders in the clouds and trust their instruments.   By the time we are adults, however, we have been burned so many times that we hesitate. And what does this have to do with finance?  Whether it is spending, saving, investing, or sharing, we often have an emotional natural tendency - fear, greed, anxiety or excitement - that makes life unnecessarily harder.   Some save like Scrooge and erode relationships as a result.  Others of us panic and sell when we open the 401K statement.  Some excitedly share generously, but with emotional expectations or resentments attached.  Still others stay anchored to a house or a business value that may never come back. Approaching money from a centered position, emotion-free, can be as difficult as facing the fall line.   The good news is that, with time and practice, we can reach the point where we actually smile about it.

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Our Dual Selves in Financial Decisionmaking

Neuroscience finds there are two players in every decision we make: 1) Our patient self (in our cortex); and 2) Our immediate gratification self (in our limbic system). At a Financial Planning Association conference in May, Professor Russell James of Texas Tech University presented his findings from MRI images of people asked to make decisions.  In financial decisions, the cortex shows no difference in reward over different timeframes.  In contrast, the limbic system shows higher reaction to immediate reward, even when it is for less money now, rather than more money later.  This leads to a problem called hyperbolic discounting. Would you rather have a) $100 now or b) $101 in a week? How about a) $100 in 52 weeks, or b) $101 in 53 weeks? In an oft-quoted study on hyperbolic discounting, more participants chose b) in the first question than in the second question, even though the return is the same – 1% over a one-week period, or approximately 52% on an annualized basis. Here’s a Weight Watchers example. Given an unhealthy snack choice now or in one week, 70% chose the unhealthy snack now; 26% chose the unhealthy snack in a week. The fact that our limbic system overrides our rational thinking is not surprising. But how can we change? Professor James has developed “pre-commitment strategies” that alter our future environment and/or our time preference. When it comes to our future environment, time and effort spent appreciating future pleasures can evoke enough emotion to satisfy our limbic brain. To entice retirement savings, a financial planner might ask a client to envision a day in the next chapter of their life in great detail – immediate surroundings, who they are with, what they are doing, what they smell, what they feel (i.e. sand between their toes, or hugging a grandchild). Capturing that image as a financial goal can be more powerful for some clients than simply being obliged to save for a nebulous future. In a 1998 survey of participants over 50, it was found that the longer the time horizon they were concerned about, the more wealth they had after eight years. This study shows that the "propensity to plan" - the more time you spend visualizing the future state - the more wealth you build.

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Read more about the article Investing Vehicles: Getting You Where You Want To Go
Are you in the right investing vehicles for your destination?

Investing Vehicles: Getting You Where You Want To Go

With the stockmarket falling, it's normal for investors to wonder what kind of investing vehicles to choose right now. Stocks, bonds, even real estate, seem poised to crater as soon as we decide to buy. It's probably the most common question a financial planner receives in times like this - "Where should I put my money?" The media is filled with quick-fix advice on this all-important question. Research has shown that the best long-term predictor of investing success is the percentage we have in stocks vs. bonds. Further down the list in importance is the specific stocks and bonds (or mutual funds) selected.  But, financial products, or investing vehicles, are what sell pop-up ads and keep eyeballs glued to our screens. So, it’s no wonder that this is a common question. The Question Before The Question However, precisely because it is so important, it’s not a question that can normally be answered in an hour, or even two. There is a reason that financial products are called “vehicles.”  They get you where you want to go.  Consider - if you get behind the wheel of a real vehicle, turn on the ignition, put it in drive, and step on the gas without a destination in mind, what happens? You might have some fun and adventure, but not a lot to show for the trip before you have to fill up again. Wild Destinations When investors are asked where they would like the vehicle to go, financial planners often hear something like the following: Rich-Land (News flash: most of us are there already.) Growth-With-No-Risk Land 100%-Guaranteed-Income Land Cake-and-Eat-It-Too Land Whatever-the-Most-My-Portfolio-Can-Make-Me Land These kinds of wild places only exist in Financial-Fantasy-Land. They are too vague for any kind of meaningful map. Having one of these as your sole destination is a recipe for exhaustion and frustration. No vehicle will get you there, no matter what you might hear or read. Fun and Fulfilling Destinations In comparison, what are some examples of fun and fulfilling destinations? Try these: Have $X per year to support my basic living needs beginning in 20__ Replace my car with one like it every 5 years until I can’t drive anymore Spend 3 weeks every year in Scotland beginning in 20__ Put my kids through private school Provide sufficient support for the kids to attend a liberal arts college at age 18 if they want to Buy a mountain house by 20__ Host my children and grandchildren on a cruise every summer beginning in 20__ Build my own boat by 20__ Hold a 50th anniversary party for my parents Open a beachside bistro by 20__ Go to graduate school full-time in 20__ Spend 20 hours per week volunteering at the shelter beginning in 20__ These are real-life goals from real-life people with real achievability. Some of the destinations they knew off the top of their heads. Others took some time to dream, discuss, and discover. In some cases, that discovery was hard work. But once we knew the destination,…

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