Retirement Answer Man

Latest Episodes:

Better Retirement Decision Making - The Retirement Choices You Have to Make Aug 05, 2020

Show notes

I’m excited to share with you this next series of episodes. Over the next 4 episodes, we will explore how to make better decisions for yourself in retirement. Today we’ll examine what a decision is and think about all the different choices you have to make in retirement. Learn how to evaluate your decision-making process and discover how to make better retirement choices on this episode of Retirement Answer Man.

Decision fatigue can wear you down

Every day we are faced with so many choices. Have you ever looked at the number of different kinds of toothpaste there are to choose from? Even that small choice is overwhelming.

If you don’t have a framework in place to help you make decisions you can easily get worn down. This type of exhaustion is called decision fatigue. The more decisions you have to make the more your willpower becomes depleted. When decision fatigue sets in people often turn to the choices they have always chosen in the past. What do you do when you become overwhelmed by choices?

There are so many decisions you face in retirement

Think about all the decisions you need to make surrounding retirement.

When are you going to retire? Will you retire fully or ease into it? What will your spending look like? How will you create a paycheck for yourself? How will you protect against inflation? How will you pay taxes? Who will you spend your time with? Where do you want to live?

The list goes on and on.

And with each of those big decisions a decision tree with massive roots and limbs sprouts with new questions. It becomes easier to simply ignore all of those retirement choices and stick with the status quo.

Is there a better way to make decisions?

The goal of this series is to help you build a framework to harness decisions. You’ll learn how to make good incremental decisions so that you don’t become overwhelmed. You’ll discover how to focus on the right decisions, the ones that really impact your life. You will develop a structure to get to the result that serves you the best. As a result, this framework will help you improve the quality of your life in retirement.

Are you ready to learn how to start making better decisions? Don’t miss this series, it could change the course of your life in retirement!

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT'S THAT MEAN?

[2:16] What is a decision?

PRACTICAL PLANNING SEGMENT

[3:55] There are so many choices to make
[9:04] Set some rules to combat decision fatigue

Q&A WITH CHAD SMITH

[16:10] What is the Financial Symmetry podcast about?
[18:12] Does it make sense to have a high yield savings account?
[27:45] How you can access webinar replays
[28:41] What about the SWAN ETFs?
[37:36] Jane did a direct transfer from a 401K to an IRA
[41:16] What’s on Financial Symmetry this month?

TODAY’S SMART SPRINT SEGMENT

[42:30] Premake one decision for yourself

Resources Mentioned In This Episode

PODCAST - Financial Symmetry with Chad Smith

BOOK - The Behavioral Investor by Dr. Dan Crosby

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center

Estate Planning in Retirement: Lessons from Handling My Parents’ Estate Jul 29, 2020

Show notes

Have you ever had to deal with closing an estate? Mark Ross happens to have the unfortunate experience of helping to close out 4 different estates in a short period of time. Since experience is the best teacher, Mark joins me today to discuss his experience with the probate process. He’ll share how he dealt with his feelings during the process, how long it took, how he managed, and what he thinks you can do to organize your own estate. Give your heirs the gift of an organized estate by learning all you can now to help ease the probate process.

Organization can be a gift to your heirs

In helping to close out 4 different estates in a short amount of time, Mark Ross learned a lot about the differing levels of organization in estate planning. Probate is a long and complicated process that can be even more challenging if you don’t have all of the pieces of the puzzle. Mark learned that when an estate is well organized the process is so much easier. He feels like that organization was a gift that helped him through the probate process.

How should you organize your own estate plan?

Mark’s main piece of advice in organizing your own estate plan is to get an attorney that is a good fit for you and your personality. He also recommends that you keep meticulous records of all conversations regarding your estate.

Since family dynamics can play a role when money is involved it is important to be clear about the flow of money.

One last piece of advice he has is to never be a coexecutor. He found that that situation could drag out the emotional journey even longer than it needs to be. An executor needs to be able to have the accountability to make difficult decisions.

How organized is your estate plan? Is it updated to reflect your current situation?

3 things you can do to gain confidence in your financial plan in retirement

If you don’t have confidence in your financial plan you won’t be happy in retirement. There are 3 things you can do to gain more confidence in your plan.

Understand how your financial plan reflects your personality. There are a couple of different ways that you can go about planning your finances in retirement. With a probability-based or investment based plan, you will have a portfolio that generates enough income to live on. The second style is the safety-first style. This means having your basic expenses covered by guaranteed income like social security or a pension. These two very different planning styles optimize for different things. Make sure the style you choose to follow reflects your personality.
Educate yourself. Many families have one who invests and the other doesn’t. Both partners need to be educated to have enough understanding to be confident in the financial plan. Hope isn’t good enough. Get a plan you are both comfortable and have confidence in.
Have an emergency fund and a “fun” fund. Sure, this is just a psychological trick but it could give you peace of mind.

How confident are you in your retirement plan?

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT’S THAT MEAN?

[2:07] What is the difference between information and knowledge?

PRACTICAL PLANNING SEGMENT

[7:41] How do you balance the obligations of the estate with your feelings?
[13:04] They have been able to learn and prepare for the estate closure over time
[14:36] How should you organize your own estate plan?
[16:54] How to deal with differing interests?

COACHES CORNER WITH BW

[20:27] If you don’t have confidence in your plan you won’t be happy in retirement
[23:01] Paying off your mortgage can mean so much to some people
[27:45] Have an emergency fund

TODAY’S SMART SPRINT SEGMENT

[33:03] Think about the past year: what were the best and worst decisions you made

Resources Mentioned In This Episode

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center

Estate Planning in Retirement: Organization and Communication Jul 22, 2020

Show notes

By now you know how important estate planning is in retirement. But what is also important is to organize and communicate your wishes to your loved ones. In this episode, you’ll learn how to organize and communicate your estate planning wishes. We’ll chat with Sarah Bunnell from Everplans who will let you know how and why organization and communication are so important. Listen in to hear her expert take on these matters. And make sure you are signed up for the 6-Shot Saturday email so that you can receive an essential document checklist. An estate plan that is not organized or communicated correctly misses the point

Let’s say that you have just finished your estate plan. Congratulations on putting that all together! Now that you have completed this first step it is imperative that you take that next step and communicate your wishes to your loved ones. Once you get your financial assets and legal records organized then you’ll want to ensure that your loved ones know about them. The probate process is very involved so the more information that you can give them now will save them time and worry during an already stressful period. Who should you communicate your estate plan to?

Once you get your estate plan set up you’ll need to think about who you want to share it with. Do you have a trusted financial advisor? A CPA? An attorney? Who will be your point person? You’ll also want to make sure that you tell more than one person in your family. What would happen then if the family member that has all the information was involved in an accident with you? If you are single you’ll also want to consider who your trusted team may be. What about organizing your digital life?

Almost everybody knows that you should have a will and a medical directive. But what about your digital estate? How will your family access your digital files? Is your digital estate a mess? In these modern times of paperless statements, your heirs may not know what kind of accounts, insurance policies, or even properties you own. Without the passwords to the myriad online accounts, they won’t be able to make the payments or changes that they need to in the event of your passing. A bit about

Everplans

Everplans is an online digital vault that we use in the Rock Retirement Club. This online organizational tool stores all the estate information you would need to have organized. Everplans allows you to share information on a piece by piece basis either now or after death to the important people in your life. You can store funeral plans, wills, trusts, financial statements, even recipes, and videos. Learn more about Everplans and organizing and communicating your estate plan on this episode of Retirement Answer Man. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT DOES THAT MEAN?

[1:50] What is an emergency plan?

PRACTICAL PLANNING SEGMENT

[4:18] Why is the organization of your financial assets and legal records so important?
[6:50] What are the essential elements of an organized estate plan?
[14:30] How important is it to organize
[19:45] A bit about Everplans

Q&A SEGMENT

[26:10] You can do qualified charitable distributions at age 70.5
[28:08] A state pension offset question
[29:38] Baby boomers retiring and taking money out of the market
[33:21] What did I end up doing for medical insurance?

TODAY’S SMART SPRINT SEGMENT

[39:20] Lessen the impact of loneliness in the pandemic by calling a loved one

Resources Mentioned In This Episode
EverPlans.com
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center

Estate Planning in Retirement: Giving to Charity Jul 15, 2020

Show notes

Many people choose to give to charity as a way to give back to their community. If you are overfunded you may decide to give to charity while you are still alive as well as part of your estate after you pass. On this episode of Retirement Answer Man, we’ll continue the estate planning series to discuss different ways that you can give charitably now and as part of your estate. Stick around to hear the Q&A session with my esteemed guest Peter Lazaroff. What is a charity?

U.S. citizens are known for being extremely charitable people. Although many people help others as individuals, a charity is an organization that uses money and human capital to make a greater impact in the world. Different charities have different motivations and missions. When choosing a charity to give to it is important to look at its mission but also to make sure that the organization is a good steward of the money it receives. What motivates you to give?

Each of us has a different motivation to give to charity. Maybe your reasons are personal, or perhaps your life was affected by a certain event. Some people practice charitable giving as a way to model good citizenship to their family. Others are overfunded and use charitable donations to help ease their tax burden. For whatever reason you choose to give to charity it is important to make sure to find organizations that match your values. Why do you choose to give to charity? How you can give to charity in life

There are several ways to give to charity now while you are still alive.

If you are over 72 you may find that your RMD is more than you need. You can solve this problem and reduce your tax burden by making a qualified charitable distribution. You can give to one organization or spread out your contribution among several charities.

You can donate appreciated assets and avoid capital gains. If you donate all or a portion of appreciated assets directly to a qualified charity you can avoid capital gains. This could help you rebalance your portfolio or reposition your assets.

Use a donor-advised fund (DAF) like your own charity. With a DAF you can donate cash or assets. It’s like a simple version of a private foundation. You can choose one or many different charities to give to. Listen in to hear how you can involve the family in your charitable giving.

Use a trust in tandem with your charitable giving. Charitable remainder trusts or charitable lead trusts are a bit more complicated and require the help of an attorney. How to give in an estate after you pass

There are basically 2 ways that you can give to charity in your estate once you pass. You can either make a bequest in your will or name the charity as a beneficiary of an asset. The most simple and direct way is by making a bequest in your will. If you chose to name a charity as a beneficiary in an IRA asset then the charity would pay no income tax on that asset. How would you prefer to give to charity? OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT DOES THAT MEAN?

[3:08] What is charity?

PRACTICAL PLANNING SEGMENT

[7:04] What motivates you to give to charity?
[9:30] How to give to charity while you are still alive
[22:44] How you can give your estate

Q&A WITH PETER LAZAROFF

[26:44] Peter describes when decided to create his own estate documents
[30:38] Will a Roth conversion send your assets over the income limit?
[33:33] How to become a financial planner later in life
[44:30] How to navigate stock risk with your company

TODAY’S SMART SPRINT SEGMENT

[52:52] Examine your charitable giving to look for planning opportunities

Resources Mentioned In This Episode
XY Planning Network
PeterLazaroff.com
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center

Estate Planning in Retirement: Giving to Family Jul 08, 2020

Show notes

Retirement is often the time when people begin to think more about estate planning. On this episode in the Estate Planning series, we’ll talk about giving. You want to be able to give to your loved ones but you also don’t want to rob them of their problems. That’s why we’ll discuss how you can give without enabling and you’ll discover how to optimize the impact of your gift. You’ll also learn how to decide whether you have enough to give. When you begin to think intentionally you’ll see that there are so many ways to give. Do you have enough to give?

It would be amazing to be able to give to your loved ones before you pass, but how will you know whether you have enough? The first hurdle in giving is being comfortable giving away your assets. What if you need that money later on? Actually that’s not so hard to figure out. Often times you’ll see that deciding how to give is less a money question than a mindest question. To be comfortable giving away assets you need to understand your level of fundedness. Are you underfunded, constrained, or overfunded? Once you understand this then you can begin to put a plan in place for giving. How can we give intentionally?

We give for many reasons. A gift is an item that you give someone without an expectation of payment in return. Giving is a way to express feelings and emotions and share those feelings with the receiver. You may not want your gift to your heirs to come in the form of a check from an attorney several months after your death. There are more intentional ways that you can give so that your family can feel the love behind that gift. Enhance don’t enable

As parents, we would love to solve all of our children’s problems for them, but then we would be robbing them of that learning opportunity. One of the best gifts we can give our kids is not robbing them of their problems. We need to find ways to help them but also allow them to figure things out for themselves. There are ways that we can give to them that enhance their lives rather than enabling them. There are many ways to give before you pass

Create memories - I think this is a fantastic way to give and to be able to enjoy that gift as a family. You could rent a house at the beach and help subsidize the family trip. Spend money to bring the family together.

Annual gifting - You can give anyone $15,000 per year without reporting it. You could help fund their Roth IRA or help buy them a house. You might be surprised when you find out how much the lifetime gift exemption is.

The gift of education - There are many ways to give for education. You can pay for college tuition directly. You could fund the grandkids 529 plan and allow the money to grow tax-free. You can also use up to $10,000 per year to fund a pre-college education if your grandkids are in private school. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT DOES THAT MEAN?

[2:20] What is a gift?

PRACTICAL PLANNING SEGMENT

[6:50] How do you give more intentionally?
[10:45] We don’t want to enable we want to enhance
[14:55] Retain optionality
[16:12] Ways to give
[27:43] What is a trust?

Q&A SEGMENT WITH TAYLOR SCHULTE

[36:59] Should we be investing in ESG funds in the “new normal”?
[44:08] A rainy day fund question
[52:18] A tax bracket question

TODAY’S SMART SPRINT SEGMENT

[60:06] How do you want your assets to be distributed?

Resources Mentioned In This Episode
Stay Wealthy podcast with Taylor Schulte
Define Financial
CuriousHistory.com
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center

Estate Planning in Retirement: The Basics Jul 01, 2020

Show notes

One important aspect of retirement that not everyone is prepared for is estate planning. People avoid estate planning for various reasons, but a properly done estate plan is more than just documents. An estate plan is a way of continuing relationships and loving those people you leave behind in ways that you may not even imagine. Today we are kicking off our monthlong series on estate planning and we are starting with the basics. Listen in to hear what kind of documents you should have in place but also why they are important. What is estate planning?

Everyone knows they should have an estate plan, but very few have or understand what estate planning really is. Estate planning is the process of anticipating and arranging the management and disposal of your financial and legal life. The good news is that if you don’t have an estate plan the government has one for you. The bad news is that it probably won’t reflect your wishes. Done correctly, estate planning can be an important gift that you leave to those you care about. Why have an estate plan?

Some people may be fine without a plan and having the state doling out their worldly possessions. The purpose of an estate plan is to close out your financial life. When you pass away you probably don’t want to leave your loved ones with a financial and legal mess. Planning your estate in advance is one way to give a gift of elegant simplicity to your family. What does an estate plan involve?

Probate - When you pass away the process by which the state goes through closing out your legal and financial life is called probate.
A will - A last will and testament is a document that designates where your assets will go, but there is quite a bit of paperwork involved so an executor is named to manage the paperwork and distribute the assets based on your wishes.
Beneficiary driven accounts - These accounts have beneficiaries chosen when you set up the account. Beneficiary driven accounts include 401K’s, 403B’s, IRA’s, etc. The benefit of having a beneficiary listed on these accounts is that they get out of probate quickly and transfer quickly and directly.
Power of attorney - Another important document to have in place is a durable power of attorney. This gives a specified person the power to make decisions for someone who is incapacitated.
Healthcare power of attorney - This document allows you to appoint someone to make healthcare decisions for you should you not be able to. If you don’t have one in place it could delay treatment. You can also specify specific situations in which you may not want life-saving actions.

How often do you review your estate plan?
There is more to estate planning than just having these things in place. I am not a professional estate planner. Think about talking to an estate planner to help you plan your estate. And remember that it is important to periodically review your will and beneficiary driven accounts. Do you have an estate plan in place? When was the last time you reviewed it?
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT DOES THAT MEAN?

[3:06] What is estate planning?

PRACTICAL PLANNING SEGMENT

[4:34] An example of why estate planning is important
[9:14] What are the basics of estate planning?

Q&A WITH TANYA NICHOLS

[21:58] Should a woman seek to work with a female financial planner?
[26:49] Should you plan leveled withdrawals in retirement?
[35:09] How to factor secure income
[45:41] Why do we use average rather than the median in market assumptions?

TODAY’S SMART SPRINT SEGMENT

[51:02] Review your estate planning documents

Resources Mentioned In This Episode
Align Financial
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center

Oh, Behave! Behavioral Finance and Retirement: Investment Management Jun 24, 2020

Show notes

Do you think your own behavior affects your retirement investment management? If you said no, you may want to think again. The most significant risk to your finances is not market volatility or inflation, it’s your own behavior. Over the past several episodes we have explored how our own cognitive biases affect our financial choices and this episode continues that journey. On this episode, you will learn what you can do to make better decisions to ultimately protect your money from its own worst enemy: yourself. What is heuristic?

A heuristic is a psychological term for a mental shortcut that allows an individual to make a decision, pass judgment, or solve a problem quickly with minimal mental effort. Our brain constantly uses so much energy that it always looks for shortcuts. Renowned behavioral finance expert, Dr. Dan Crosby, calls this bumper sticker thinking. The 4% rule is a good example of a heuristic used in retirement planning. We need to learn to work around our mental shortcuts and truly think things through. Behavioral risk is the most significant risk to your finances

In finance, there are many kinds of risks. We often worry about volatile markets or inflation. We use diversification to help us lessen the market risk but we often ignore the greatest risk to our finances. The biggest risk to your financial security in retirement is your own behavior. If you can’t control your investment behavior especially during challenging times then your retirement portfolio will suffer. Listen in to learn how to manage your cognitive biases and set yourself up for financial success in retirement. Tips for managing investment behavior

Investing is a crapshoot. That’s why we diversify, in essence, diversification is an act of humility. When you diversify you are admitting that you don’t know what will happen.
Put a premium on optionality. As life unfolds you need to have the ability to make changes to your plans.
Don’t white-knuckle it. If you can’t sleep during volatile times then you are taking too much risk.
Listen to differing points of view. Cultivate a knowledge base with diverse opinions.
Redirect your energy. Once you identify your cognitive biases, set up systems to redirect your natural tendencies.
Consistently receive feedback from others with different points of view. Be careful to cultivate diverse opinions.
Force yourself to consider the opposite case of any decision you make. Learn to see an issue more fully from both sides.
Use personal benchmarking to compare your finances to a set standard. This will allow you to look inward at what matters to you personally

How I manage behavioral risk with clients
When I work with my clients I have to help them manage their own behavioral risks. I do this by considering process, strategy, and tactics. Consider what you want your life to look like. What is important to you?
Before making any decision, slow down and ask yourself some questions. If you slow down and center yourself you can think through any decision. Think about the decision from all sides. What does success look like? What does failure look like? What are some alternatives that you can consider? Listen to this episode of Retirement Answer Man to hear how you can manage your own behavioral risks.
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT DOES THAT MEAN?

[1:20] What is heuristic?

PRACTICAL PLANNING SEGMENT

[3:45] Managing behavior is the most significant risk you have to your finances
[7:04] Be nimble as life unfolds
[12:36] Create personal benchmarks
[14:23] How I manage behavioral risk with clients as well as with myself

COACH’S CORNER WITH B.W.

[21:41] What is the Rock Retirement Club?
[22:35] Do we make rational decisions?

TODAY’S SMART SPRINT SEGMENT

[34:02] Practice your decision-making framework

Resources Mentioned In This Episode
My article on Kitces.com
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center

Oh, Behave! Behavioral Finance and Retirement: Retirement Planning Jun 17, 2020

Show notes

We all have cognitive biases that we have to account for when retirement planning. Although we can never shed ourselves of these biases we can manage them. In this episode of Retirement Answer Man, we continue to explore behavioral finance and how it affects retirement planning. Our minds like to play tricks on us and prevent us from making rational decisions. Listen to this episode to learn how to be aware of those tricks and overcome them so that you can rock retirement. What does bias mean?

Before we further explore the subject of the cognitive bias we need to have a clear understanding of the term. Bias means that we prefer one side over the other. We all have our preferences for certain things, sometimes we aren’t even aware of them. Cognitive bias is a systematic error in thinking when people are processing or interpreting information. Cognitive bias can affect our judgment. It is especially important in finance to be aware of these errors in thinking. The biggest obstacle to rocking retirement is a cognitive bias. These 7 types of cognitive bias can impact your retirement planning

There are several different types of cognitive biases that can affect our decision making and impede our judgment.

Confirmation bias is when we look for information to support our conclusions rather than looking at all the arguments in an objective way. Our minds are often overloaded with information and use confirmation bias to make decisions easier. Confirmation bias provides the mind with a quick shortcut to come to an answer that you already ‘know’ to be true.
Loss aversion explains people’s tendency to avoid loss rather than seek a gain. Psychologically the pain we feel when we lose outweighs the joy we feel when we gain.
Oversimplification tendency helps us to find simple explanations for complex matters. Retirement planning is one of those complex problems. It takes a lot of energy to think out complex solutions to complicated issues. We love those rules of thumb to help us simplify matters, but the truth is we need to seek to understand the complexity. Only then can we discover the elegant simplicity of our own unique retirement plan.
Memory bias impairs us from understanding past lessons. Instead of looking back in the long-term, we look to more recent decisions to guide our plans.
Recency bias is similar to memory bias. Recency bias is the reason most people buy high and sell low even though they ‘know better’. When the markets are up we become more optimistic about life.
Information bias brings out our tendency to continually seek out information even when it doesn’t affect the action. It becomes a way of procrastinating to delay making decisions.
Parkinson’s law of triviality means that we spend more time focusing on trivial details rather than the important issues at hand.

Good investments plus good behavioral habits will help you rock retirement
The worst part about these biases is we don’t even realize that we have them. The first step in overcoming a problem is to realize that the problem exists. None of us have this retirement thing all figured out. But if you can create good behavioral habits and pair those with good investments you will rock retirement. Be sure to tune in next week to learn how to create a framework to manage your cognitive biases and become a better critical thinker.
OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN HOT TOPIC SEGMENT

[1:52] Check out the Grandpad to stay in touch with elderly family members

WHAT DOES THAT MEAN SEGMENT

[4:35] What does bias mean?

PRACTICAL PLANNING SEGMENT

[6:40] You have so much information coming to you
[13:43] The goal of retirement planning is to find the elegant simplicity
[16:48] We become optimistic when the markets is doing well
[21:21] Good investments plus good behavioral habits can help you rock retirement

Q&A SEGMENT

[23:44] What can you expect to pay as an individual for Medicare?
[26:55] The number of publicly traded companies has declined over the past few years
[34:10] Be cautious of booking travel due to the potential of travel company bankruptcies

TODAY’S SMART SPRINT SEGMENT

[35:40] Examine a past investment decision you have made to look for one of these biases

Resources Mentioned In This Episode
Grandpad
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center

Oh, Behave! Behavioral Finance and Retirement: Life Planning Jun 10, 2020

Show notes

Life planning is one of the hardest things about retirement. Deciding when to retire can be challenging and is a decision based on more than just money. There are various types of mind tricks that we play on ourselves to talk ourselves out of making life big changes. In this episode of Retirement Answer Man, we continue the behavioral finance series by taking an in-depth look at rational decision making. Come join me to learn how you can make more rational decisions so that you can rock retirement. Our biases often get in the way of our life planning

There’s a difference between being rational and rationalizing. We, humans, tend to choose the latter. Our minds often play tricks on us. Instead of making simple choices, we tend to complicate things by letting our biases get in the way. We use different types of biases like status quo bias, anchoring bias, information bias, and sunk cost fallacy to guide our decisions.

Many times you know that change is coming, you can see it a mile away, but you still have a hard time navigating that change. Retirement is one of those changes. You have been preparing for it all of your life, but leaving the safety of what is known and what is easy can be hard to do. Don’t let yourself get lulled into the status quo. Has anchoring bias got you stuck in the same place?

Anchoring bias is another common bias seen in retirement. People often don’t know how to live a life without constraints so they simply choose to stay in place. They choose not to see the myriad possibilities that are out there. Embrace the total freedom of retirement by exploring all of your options. Listen in to hear an interesting parable to help you understand all the opportunities you have waiting for you on the other side of retirement Are you waiting for more information?

Other people are always seeking information to guide their choices. While making informed decisions is important, some keep delaying their decision to retire due to their lack of information. They think that once they have all the information they will finally be able to pull the trigger and retire. But the reality is, we will never have all the information. There is always a gap between the known and the unknown. Do you want to create memories or regrets?

The sunk cost fallacy is another way people tend to rationalize themselves out of making good decisions. At your age, you have a lot of sunk costs. Don’t let those get in the way of living your life to its fullest.

In the Rock Retirement Club, one of the first things that we discuss with new members is the 5 most common regrets from people on their death beds. Those regrets are:

I wish I had the courage to live a life true to myself.
I wish I hadn’t worked so hard.
I wish I had the courage to express my feelings.
I wish I had stayed in touch with my friends.
I wish I had allowed myself to be happier.

You don’t want to die thinking about all of those things you wish you had done. Using rational thinking and consciously stepping away from your biases can help you live your life to its fullest so that you can look back at a life full of memories rather than regrets. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN PRACTICAL PLANNING SEGMENT

[1:58] The more difficult the decision the more likely you are to choose the status quo
[9:02] Sunk cost fallacy can also influence our decisions

Q&A SEGMENT

[13:24] The transition from an employer-sponsored account to your money can be scary
[17:20] Do you still need an emergency fund in retirement?
[22:00] The difference between Medicare and Medicare Advantage
[25:05] Concerns about municipal bonds

TODAY’S SMART SPRINT SEGMENT

[31:37] Read Who Moved My Cheese? by Spencer Johnson

Resources Mentioned In This Episode
PODCAST - Retirement Starts Today with Benjamin Brandt
BOOK - Who Moved My Cheese? by Spencer Johnson
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center

Oh, Behave! Behavioral Finance and Retirement: Are You Rational? Jun 03, 2020

Show notes

This month on the Retirement Answer Man show we are diving deep into behavioral finance. Do you consider yourself a rational person? Most of us think we are rational people, but according to Frederick Nitzsche rationality is impossible. However, without rationality, we are bound to make poor financial decisions. That’s why today we’re going to explore our humanness and focus on how we can make better decisions. Listen in to learn how to make better financial decisions so that you can rock retirement. What is behavioral finance?

Behavioral finance is an area of finance that attempts to understand and explain observed investor and market behaviors. One question behavioral finance seeks to answer is why do investors sell during bear markets and buy during market peaks? Behavioral finance tries to explain how our humanness affects the markets. When we study behavioral finance we have a better understanding of those things about investing that don’t make sense. How do traditional finance and behavioral finance differ?

On the flip side, traditional finance assumes that investors are rational, optimizing market players. Modern portfolio theory is based on the premise that every investor is going to try to maximize returns and minimize losses in their portfolio. The sweet spot that every investor seeks is called the efficient frontier. So, according to traditional finance thinking, an investor would never deviate from the efficient frontier. Traditional finance assumes that an investor can filter information and assess the tradeoffs in order to maximize utility. But the reality is, self-deception and social influence have a huge impact on our decision making. What does Maslow’s Hierarchy of Needs have to do with finance?

Maslow’s Hierarchy of Needs plays a role in our decision making as well. Many of us have learned how quickly we can move down the pyramid from self-actualization to base needs during the recent turn of events in the world. Our own pessimism and optimism have so much to do with where we lie on this psychological chart. We use self-deception, irrationality, and bias to block our ability to make rational decisions. This month my goal is to help you learn to make reasoned decisions even with all of your cognitive biases. Should market volatility affect plans to rebalance?

A listener asks if she should continue her plans to rebalance her portfolio amid the recent market volatility. There are two different ways to approach rebalancing. Some choose to rebalance according to a date on the calendar. Others choose the threshold approach which means they rebalance when their portfolios begin to tip too far in one direction or the other. David Stein recommends choosing one approach and sticking with it. Listen to this episode to see what he has to say about rebalancing, taxes, and other listener questions. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN WHAT DOES THAT MEAN?

[1:11] What is behavioral finance?

PRACTICAL PLANNING SEGMENT

[2:05] Why is behavioral finance important to understand?
[8:12] Maslow’s Hierarchy of Needs

Q&A SEGMENT WITH DAVID STEIN

[16:25] David Stein thinks that loss aversion is the most prevalent bias that people have
[18:54] Should Wendy take a lump sum or payments?
[23:40] A rebalancing question
[27:22] What could John do to lower his capital gains tax?

TODAY’S SMART SPRINT SEGMENT

[32:30] Read The Behavioral Investor

Resources Mentioned In This Episode
BOOK: The Behavioral Investor by Dr. Daniel Crosby
BOOK: The Laws of Wealth by Dr. Daniel Crosby
Money for the Rest of Us podcast with David Stein
BOOK: Fix This Next by Mike Micalowicz
Rock Retirement Club
Roger’s YouTube Channel - Roger That
BOOK - Rock Retirement by Roger Whitney
Work with Roger
Roger’s Retirement Learning Center

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