Tom Sedoric and Casey Snyder
How can owning a horse contribute to financial failure at retirement? It’s a question that we pondered after reading “Why Clients Fail at Retirement” by Evan Simonff in 2015 and one we still think about today when reflecting on the complexities of a client/advisor relationship.
The thoughtful article provided a list of the various reasons people struggle in retirement. Interestingly, these reasons often have little to do with the diligence and financial planning that goes into creating a prudent and diverse nest egg. In fact, the causes of failure in retirement often have little or no connection to one’s investments–but instead are derived from the fact that we, as human beings, are imperfect.
“Financial advisors can spend decades working with clients to craft a retirement plan that, on the surface, appears bulletproof from the standpoint of investments, retirement income, and asset-liability management, only to see it fall apart in short order,” Simonoff wrote. “Reality is that advisors don’t control financial markets, or clients’ savings and spending habits, much less the interpersonal dynamics of individuals’ lives. So all advisors can do is help make clients aware of the numerous pitfalls they face when their life faces the radical transformation to a post-work era.”
This sentiment is one we’ve seen come to fruition more than once.
Failure is unavoidable if you don’t have a solid plan
As we’ve said before, some of the biggest variables that could affect how to save for retirement are outside of your control. Things can only go well for so long before change is bound to happen and why a lifetime of smart financial habits can make all the difference. If you’re not planning for the worst while expecting the best, you may find yourself in trouble.
This is a hard and frequent fact of life for clients and their advisors, and like the proverbial mad uncle in the attic, it is usually a difficult issue to discuss. After all, no client wants to admit that the traits which led to a successful career could be the same traits that undermine their financial security in retirement. On top of that, no advisor wants to tell a client they may be flunking retirement. But alas, failure occurs even among the best and the brightest.
In fact, in many cases, the best and the brightest are the most susceptible because they believe themselves to be bullet-proof from life changes and new financial constraints. This is why we believe a good advisor should be a generalist and a humanist in both their outlook and their clients’ relations.
Understanding human behavior and markets are critical fundamentals that have defined our collective careers. If our main focus was on the mathematics of investment performance and not on history and psychology, we wouldn’t have helped our clients find the success they have.
For the past five decades or so, the economics profession has been stripped of its human dimension by turning into a forum for advanced mathematics–despite the fact that people don’t live precisely according to any algorithm devised by a mathematical whiz kid. There are many so-called “land mines” that undermine retirement security: divorce, dependent adult children (aka “Kippers,” or Kids in Parents’ Pockets Eroding Retirement Savings), second homes, healthcare, and even elder fraud.
And of course, there are expensive hobbies such as a horse farm, an expensive sailboat, or an airplane that all seem wonderful to have. However, they’re really no more than expense-draining streams from what is typically a finite nest egg.
Then there’s the hypothetical client that decides to abandon retirement and use their nest egg to finance a startup business.
Warren Buffett once said that “the chains of habit are too light to be felt until they are too heavy to be broken.” The bottom line in all these factors is that a client’s psychological wealth perspective may be at odds with their actual resources.
The Sedoric Group is your strategic partner
There is no easy way to talk about the fine line between retirement success and failure, but our clients should expect us to be candid with our advice and wise in our assessments. We are also proactive and encourage our clients to envision and experience the financial side of their future by planning and living within a budget a year or two prior to their actual retirement.
It is important to remember that retirement is no day spa from reality. The same psychological factors that allow an individual to be successful in creating financial security during their working years can continue to provide the necessary and valuable tools for a fulfilling and successful retirement.
The primary objective is to help them modify their thinking about what they want from retirement and how they can best achieve it. If you’re ready to start figuring out how to save for retirement in a smarter way, drop us a line, and let’s get the conversation started. You can also download our free guide on how to not fail in retirement here.
This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. The views expressed are those of Tom Sedoric – Partner, Executive Managing Director and Wealth Manager and D. Casey Snyder, CFP® - Partner, Senior Vice President and Wealth Manager, and are not necessarily those of Raymond James.