Latest / The Happiness in Retirement® Hour / Three Emotional Triggers That Can Ruin Your Retirement Happiness
Transcript
- SPEAKER_00: Welcome to the Happiness in Retirement podcast, where we help you turn your retirement dreams into reality. Each week, we'll dive into smart financial strategies, lifestyle tips, and expert insights to help you build a fulfilling and secure retirement. Whether you're planning ahead or already enjoying retirement, this is your go-to place for inspiration and practical advice. So sit back, relax, and let's make your golden years the best years. Del Sette Capital Management, LLC. Del Sette is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Del Sette and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at www.happinessinretirement.com. The information provided is for educational and informational purposes only and does not constitute investment advice, and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your financial professional, attorney, or tax advisor. SPEAKER_01: Hello, and welcome to this episode of... The Happiness in Retirement Program podcast. I'm Bill Del Sette, host of this podcast and creator of the Happiness in Retirement Program. Thank you for joining me today. If you like the podcast, please tell your friends and family members to subscribe. And if you have any questions, feel free to reach out. Bill at happinessinretirement, all one word, dot com. Because the road to and in retirement should be an adventure, not a survival strategy. Let's get right into it. When markets fall, do you get triggered in any way? Retirement magnifies emotion and emotion drives behavior. If you mix emotion and investing can drive not so good results. So you don't just need financial guardrails. We talked about financial guardrails on this podcast before. You also need emotional guardrails. This is because retirement feels a lot riskier than when you are accumulating wealth. During your working years, money is flowing in, and in retirement, money is flowing out. Even if the math works, withdrawals feel different than deposits, and a market drop feels really Personal. And if you think about it, this makes sense. When you are in the accumulation phase, saving for retirement, you can view market declines as opportunities. Your dollar costs averaging into the market, which does not guarantee against a loss, but this idea of as the market declines in value and you're contributing to it, say in a biweekly basis in your 401k, then maybe you're buying more shares at a lower price every time the market drops. Now, again, this doesn't guarantee anything, but at least historically it's been a good idea to do that. And so. If the time that you need the money is way off into the future, then you're probably not that concerned about market declines. When you're taking money out of your portfolio, it's an entirely different game and you have to totally change your money mindset. As I said, market drops feel personal, even if it's temporary, even if it's expected, and even if it's model. Because emotionally, retirement feels like descent. You are descending the amount And when you're descending, it feels vulnerable. So what are the three triggers, emotional triggers, that you need to be aware of and manage in retirement? Well, the first one, we just talked about it, is market volatility. Markets drop, headlines scream, and fear rises. So the interesting thing about the modern world today, and this is really bad news for those of you who mix emotion and investing is that first, we are hardwired for fear. And if you think about it, this makes sense. Back in the caveman days, you had to be on high alert. because one wrong move and your life would end very fast. So we are hardwired for fear. And there's a saying that fear equals two times greed. And this comes from behavioral finance, which is an emerging field of study when it comes to markets and investing. Fear equals two times greed. And that basically means people are twice as fearful of losing money as they are happy about making it, okay? So number one, we're hardwired for fear. Bad news when it comes to investing. Second piece of bad news, we have technology now that allows us to connect to our portfolios in the markets on a minute-by-minute, second-by-second basis if we want to. And that's really bad news because if we do that, we are probably going to get emotionally triggered, we're going to worry more and we could potentially make really bad decisions with our money. And when you add to that, the third issue that we're dealing with in the modern times is that marketers know that fear drives decision making. And so I'm sure you've heard the term clickbait or this idea of so-called doom scrolling. We live in a society where marketers take advantage of the fact that we are hardwired for fear. And all of the marketing and advertising is fear-based or a lot of it, especially when it comes to the market. All you have to do is log into Google Finance or Yahoo Finance or the CNBC website, wherever you want to go. and you will find the fear of the day and you will find headlines that absolutely are designed as click bait for you to click through, take some action. So, we have this fear equals two times greed equation. People are twice as fearful of losing money as they are happy about making it. We have this always switched on modern society. And we have marketers who are playing to our emotions and creating clickbait based on fear. Okay. So years and years ago, when I got my start in this business, the internet wasn't even a thing yet. We used to place our trades via phone or even fax, if you can believe that. But people didn't get their investment news, uh, generally on a daily basis at all. In fact, once a week you would pick up the Sunday paper. And you would go in the back of the paper and you look up the ticker symbols and see how your mutual funds were doing or your stocks or what have you. And so it was a lot easier to, to, um, stay away from. the headlines, okay, or the fear-based headlines, if you will. Well, not anymore. We're always switched on. And believe me, when it comes to investing, that is not a good thing. So let me explain. At least historically, and past history is no indicator of anything in the future, but at least historically, every market decline has been temporary. Now, they may have lasted for a year or two or three or even longer, but they did eventually, the markets did eventually recover. So, if you did nothing except wait it out, then you would have been okay, assuming that you were drawing a reasonable amount from your portfolio and maybe making adjustments as you go. So, temporary decline. When you sell when the market's low and you panic because of the headlines, because you're checking your portfolio balances, and because the marketers are you know, causing you to click through on very scary articles, then you're taking what may be a temporary decline and you're turning it into a permanent loss. Whereas if you just had waited, you probably would have been okay. Now again, there's no guarantees in anything, okay? We don't know. The market could continue to go lower. We don't know. There's no guarantee with any approach or strategy, but we definitely don't want to be selling low. If we can help that and there are different things you can do to avoid that and Since we're talking about emotions, let's talk about the things you can do from an emotional standpoint to avoid that outcome. Number one, stop checking your investments all the time. You're really horrible idea, unless you have nerves of steel. the market, the stock market on any given day has a 50% chance or thereabouts of being down. So if you check on a daily basis, flip a coin, you may all of a sudden feel very anxious or you might get a little shot of dopamine if it's going up. But, you know, the odds are 50-50. So just stop checking your portfolio however you do that. Whatever you need to do to stop checking your portfolio, check it when you check in with your advisor. Check on it, I don't know, if you have to, once a month. In a perfect world, for me, I'm thinking six months, every six months. would be ideal, or maybe even that is too much, once a year. Now I know that's not practical, okay, and that's not realistic, but just stop paying attention to the ups and downs of the market. So pre-commit to these rules. Number one, no allocation changes during corrections. Don't make changes to your portfolio when it's low. Schedule a cooling off period. If the market is in decline and you're worried, just walk away. Cool off for a while. Schedule a review with your advisor. Structure protects peace. And if you are working with a financial advisor, have a conversation about the tools and techniques he or she is helping you with to avoid making a big mistake or to make sure that you will not outlive your portfolio. Okay? Structure protects peace. Okay, so trigger number one, market volatility. Just stop checking your portfolio. Check in with your advisor. Never ever make the big mistake And if you're thinking of doing it, call your advisor. Even if you don't have a relationship with one, call one and let them help you through it. Okay, trigger number two, the emotional trigger when it comes to retirement planning and investing. What if I live too long? Great question. People are living longer now. They're healthier for longer periods on average. And so there's a concern that you may outlive your money. And this fear can quietly drive underspending. So the reality though, and this is all research based, and also I can tell you from my experience of being a retirement planner, is that people gradually start spending less in retirement. They start spending less as they age out. And on average, they spend about 2% less a year as they age. You've probably heard of the retirement go-go, slow-go, and no-go years. And what ends up happening, or should happen, is basically retirement should be broken into three different distinct time periods. The first is when you are healthy. The go-go years is when you're traveling and you're making memories. You have your health and you're able to do all the things that you want to do. But then eventually you graduate into the slow-go years. Health maybe starts to become a concern and you spend less. And then finally you reach the no-go years where health is a really serious concern. And then you're hardly spending on discretionary items at all. However, healthcare costs could skyrocket later in life, but people generally gradually spend less over time. So that's one thing that should give you some peace of mind. Secondly, and this is really, really important and how we do retirement planning at Del Sette Capital. you need to separate your essential from discretionary spending. So what are the expenses that are essential for your life? And can you cover those expenses relatively easily? In other words, your pension, social security, and maybe stock dividends or interest, is that enough to cover your non-discretionary spending easily, your essential needs? food, shelter, housing, clothing, all that stuff. And if you can meet those expenses easily, then that should really give you peace of mind. When survival is secured, fear decreases dramatically. Okay, so you want to make sure you have those expenses covered. And if you do have them covered, the next question is how much extra do you have? How much extra do you have for the fun stuff? And so in market declines, if you can tolerate a temporary market decline and not eat into your essential spending, then you're going to be okay. And you're probably in all likelihood not going to outlive your money. The other consideration is, and we've talked about ants and grasshoppers in prior podcasts, the Aesop's Fable of the Ant. ants in the grasshopper where the ants are getting ready for winter. They're storing food and there's a grasshopper watching them and the grasshopper is playing a guitar and sipping a beer. And he asks, what are you doing? And the ants say, hey, we're getting ready for winter. And the grasshopper says, yeah, I'm not going to do that. I'm just going to enjoy myself. Winter comes and what happens? Well, it turns out people on average, or generally speaking, can be broken up into either ants or grasshoppers when it comes to money. Ants have a really hard time spending their money. They're great at saving, really frugal potentially, but not so good at spending money, whereas the grasshoppers don't have any money because they spend it all. Well, it turns out people that work with financial advisors generally are ants, which means that you are probably, if you're listening to this podcast, you may underspend. And I can tell you in my career, that's certainly been the case where people actually don't spend enough. So keep that in mind. So longevity, anxiety, again, separate essential income from discretionary spending. Make sure you have enough to at least cover your essential spending easily through fixed income and dividends and maybe interest. And then the rest is gravy. Okay. So second thing, remember. that on average spending actually declines as we get older. Third trigger, a big one, third emotional trigger is identity loss. Now we talked about this in a prior podcast. This is an emerging field of research, but let's face it, people are very much tied to their work. Very, very, their identity is tied to their work, regardless of what they do for a living. And what happens? Retirement removes title, it removes routine, and it removes recognition. Wow, the big three. So, first off, if you are a teacher, a doctor, a lawyer, an engineer, whatever it may be, that title probably means something to you, and you worked hard for it. It really doesn't matter what that title is, but that goes away. Second, the routine goes away. You wake up one morning and guess what? You don't have to go to work. In fact, you don't have to do anything that you don't want to do, and the recognition is gone. That admiration, that recognition for whatever you have accomplished throughout your career is gone, and you wake up, your title is gone, your routine is gone, and the recognition is gone. You see, sometimes spending anxiety isn't about money. It's about meaning. Again, I mentioned emerging research around this and essentially meaning matters just as much, if not more than being financially prepared for retirement, making sure. that you have a game plan to find meaning in your life. Now, I am a registered life planner. That's a designation that means I went through a program and a continuing education to help people live their retirement dreams, if you will, create a plan and help them find the meaning in their life. And so I think that's really important, however you decide to find that meaning. But you've got to find it or else you can go through some really emotionally turbulent times. So define your purpose early on. Figure out what you're going to be doing because money without meaning feels unstable. So really what is this all about if we tie this all together? Really calm is the goal. Financial success is not just net worth, It's emotional stability. Ask yourself, what decision would I regret most if I made it in fear? Now I can tell you mixing emotion and investing is, it can destroy your retirement plan. You want to build guardrails around that. You absolutely want to have a plan to find meaning when you're no longer working as well. Okay. And you want to perhaps time you're spending with the go-go years, maybe spending more. The slow-go years where inevitably you're probably going to be spending less. And then finally those no-go years. Okay? Volatility is inevitable. Panic is optional. Retirement does not eliminate uncertainty. It teaches you to live alongside it. Emotional guardrails don't remove fear. They prevent fear from running your life. If you're going to retire and be fearful and worried all the time, don't bother. Stay working. So anyway, that's it folks. The next episode we'll talk about another very important topic, designing your retirement identity. And who you want to become now. That's where retirement truly begins, designing who you want to become in retirement. I hope you enjoyed this episode of the Happiness in Retirement Program podcast. Any questions, please reach out. Bill at happinessinretirement.com, hit subscribe, send me an email if you have questions, send this episode to a friend or family member, and I will talk to you soon. Bye bye. SPEAKER_00: All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such. That's it for today's episode of the Happiness in Retirement Program podcast. We hope you found some valuable insights to help you create the retirement you deserve. If you enjoyed this episode, be sure to subscribe, leave a review, and share it with someone who's planning for their future. For more tips and resources, visit happinessinretirement.com or the Del Sette Capital Management Facebook page. Until next time, here's to a happy, healthy, and financially secure retirement.