You’ve spent years in the workforce and have bulked up your retirement and savings accounts—good work! Your financial planner confirms that you have enough to fund your post career lifestyle so you pick your date. This is a momentous transition in many, many ways. Today we’re going to talk about just one area that likely wouldn’t occur to you—your attitude to money.
Time is on my side
Our attitudes to money evolve as we move through life. Often life events, whether a brush with serious illness or career-induced stress, teach us that money isn’t the key to happiness. But we spend decades in the money earning mode. There is plenty of time for an asset growth mindset to develop and be constantly reinforced.
During our earning years, we focus on both growing our income and, hopefully, saving for later. We have lots of lead time to reach our financial goals, if we maintain good money habits (saving early and often, living within our means). During this growth phase, we can handle a fair amount of risk (varies by individual, of course) because we have the time to earn our way out of downturns. An expensive car repair, an unexpected medical bill, student loans, the birth of a child, the loss of investment value in a down stock market…these are all things that we can weather over time. The market will come back, we’ll continue to earn money, probably even more money than we make right now, and the bills will be paid. I don’t recommend it, but I spent my younger years living as if my income were going to double the next year…and I got away with it! Our attitude towards risk is heavily influenced by our focus on growth.
New era, new attitude
Your transition from working for money to living on your accumulated assets can happen overnight...but the money scripts you’ve followed for years won’t simply adjust! In fact, without conscious effort, your attitudes may not change at all. But they need to, if the level of risk you’ve been taking no longer fits your life circumstances. During our earning years, we focus on growing our asset base over time. However, a typical retirement goal is to have a reliable fixed income that will keep up with inflation over time. Our objective is no longer growth but protecting our income source. This is a completely different game and requires a money mind shift.
When you have spent a lifetime accepting, maybe even seeking risk, in order to grow your net worth, it feels normal. Ratcheting down the risk in order to protect what you’ve earned can feel scary after years of earning good returns by taking risk. If you’ve stayed invested in stocks for decades, your investments have likely multiplied many times. We like seeing that! We don't want to miss out! How will you react when your financial planner suggests that, now that you’re ready to retire and draw down your assets, you need to move more of your money out of stocks and in to more conservative bonds…earning lower returns? It can be a hard change to embrace!
This is an instance where I know from personal experience that knowledge isn’t enough. As a financial planner, I help clients match their investment mix with their goals, taking in to account the amount of risk they are willing and able to take. I have a thorough understanding of the underlying principles—as the time you’ll be drawing on your investments gets closer, you gradually shift into less risky investments. But for years, I just didn’t do it with my own investments. Knowing does not equal doing! Only as I prepared to have my own financial planner review my situation did I strong-arm myself into lowering the risk (as if she wouldn’t notice that I had just made the investment change!) to better match my stage of life. Being aware of the need to change is good, having an accountability partner is better!
Whether you’re on the brink of retirement or another exciting life transition, we can help you navigate the change! Give me a call at (336) 701-2612.
Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. Fair Winds Financial Advice may offer investment advisory services in the State of North Carolina and in other jurisdictions where exempted.