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Not Knowing What you Don't Know About Retirement Planning · The Happiness in Retirement® Hour

• 0:00
  Intro: 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. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.
• 0:49
  There is no representation or warranty as to the current accuracy, reliability completeness of decisions based on such information and it should not be relied on as such. Del-Sette Capital Management LLC is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Delsetti and its representatives are properly licensed or exempt licensure. For additional information, please visit our website at www.happinessinretirement.com.
• 1:35
  Bill Del-Sette: Hello, folks. Welcome to this episode of the Happiness in Retirement Program podcast. I'm Bill Del-Sette, certified financial planner, registered life planner, creator of the Happiness in Retirement Program, and this podcast. Thank you so much for joining me today because the road to and in retirement should be an adventure, not a survival strategy. Well, let's dig right in.
• 2:01
  Today, I wanna talk more about the mindset of retirement, not the mechanics, Because retirement isn't just about money. We already know that. Right? It's about clarity. It's about confidence.
• 2:12
  And ultimately, yes, it's about happiness. I wanna talk about something that quietly affects many retirees and especially intelligent, capable, and successful ones. And then I wanna get into the subject of emotional guardrails. We'll finish with that. The first thing I wanna talk to you about is called the Dunning Kruger effect, first identified by two psychologists, David Dunning and Justin Kruger.
• 2:39
  And if you've saved well, invested well, and built wealth over decades, this episode is especially for you because you in fact be suffering from the stunning Kruger effect. Now this effect describes how people with limited knowledge in a particular area or domain often overestimate their competence. I know I'm certainly guilty of that when it comes to doing anything with my hands, working with my hands. In short, they don't know what they don't know. In 1999, Dunning and Kruger discovered this cognitive bias and they were awarded the LG Nobel Prize in psychology in the year 2000 for their work.
• 3:21
  You see, the more we learn, the more we realize how complexity there is in any particular field of study. And in retirement planning, this can play out in a very, very powerful way because retirement feels like something. Let's face it. We should understand. After all, maybe you've managed your investments for years as you're accumulating wealth.
• 3:43
  You've built a career, you've raised a family, you've navigated recessions, but retirement isn't accumulation. It's decumulation. And decumulation, my friends, is a very different ballgame than saving for retirement. It takes a very, very different set of skills than accumulating wealth. So where does this Dunning Kruger effect show up in retirement?
• 4:06
  Well, let me give you a few examples. Example one, I'll just take 4% of my portfolio value out every year. It's called the 4% rule. And you might say to yourself something like, well, I've heard of this 4% rule. I'm just going to take 4%.
• 4:21
  Everything's going to be fine. But that rule makes certain assumptions. Number one, certain market conditions will exist. Number two, certain time horizons. Number three, certain volatility patterns.
• 4:32
  And it doesn't address something called sequence of return risk or tax bracket management. You know, where are you going to get your money from or Medicare Irma thresholds. That's the Medicare premium tax you pay, which can go up the more that you earn in retirement. It doesn't take into consideration Roth conversions or spousal longevity differences. That's a big one.
• 4:55
  In fact, the 4% rule might just underestimate how much you take from your portfolio or you should take and leave money on the table. And as the saying goes, you've probably never seen a hearse towing a U Haul. You can't take it with you. So it doesn't mean the 4% rule is wrong. It's just incomplete and incomplete confidence can be dangerous.
• 5:18
  Here's another example. I've managed my own portfolio. I've done it for thirty years. Well, that may be true, but here's the difference. During your working years, were contributing maybe to a four zero one ks.
• 5:29
  You were dollar cost averaging, meaning you were buying more shares of whatever investment you were going into as it declined in value. And you had income, you weren't drawing on your portfolio. Mistakes could be offset because you had time on your side. However, in retirement, withdrawals magnify volatility. A 5% withdrawal with a 25% market decline is a 30% decline.
• 5:55
  Sequence risk becomes permanent. All that really means is you may go into what we call liquidation mode, and that means having to sell stock investments low, and you may never recover from that. And you don't get new savings to fix those errors. So the math changes. Certainly the psychology changes big time and the stakes grow larger.
• 6:19
  They change by a lot. Here's another example. I can stomach a big downturn without selling low. No problem for me. Well, unless you've managed your own money during the two thousand and eight financial crisis or the COVID crisis, how about the tech wreck in the early thousands and actually experience what that was like with your own money and actually doing that when you're drawing from your portfolio and not saving.
• 6:45
  Again, it's an entirely different ballgame. And you've got a lot of fortitude to manage your own retirement money, in my humble opinion. So, you know, it's kind of like, does a man will a man ever know what it's like to give birth? Right? You know, we can talk about it, but we'll never experience it.
• 7:03
  We can talk about what it was like during 2008, during that downturn. But it's a different story if you're managing your own money and maybe you were perhaps overly confident that you can do so without making what could be a temporary decline, a permanent loss in your portfolio value. That's a big one. Another example, social security overconfidence. Some retirees claim early because they think I just don't trust the government.
• 7:32
  Well, others delay automatically because they've heard maybe that it's an 8% guaranteed return. Meaning if you wait and delay taking social security, you don't take it early. You actually get more money later. Of course, there's a cost of money involved there, but very few run longevity modeling or stress test tax brackets or model Irma exposure at Medicare premium tax. Confidence without modeling is just often comfort and comfort can be misleading.
• 8:02
  There is no one size fits all by the way. So let's talk about the retirement confidence curve. Retirement often follows a three stage emotional curve. The first stage is early confidence. I've saved.
• 8:18
  I'll be fine. Stage two, we call that complexity shock. Wait a minute. Required minimum distributions, Roth conversions, Medicare timing, Medicare premium increases due to IRMA, estate planning. What about tax brackets in retirement?
• 8:32
  All of a sudden confidence dips. And this is actually a healthy phase because it means awareness of the complexity is growing. The third stage is what we call grounded confidence and real confidence isn't loud. It's quiet. It says, I understand the risks.
• 8:49
  I've modeled scenarios. I've stress tested my plan. That's different from I know what I'm doing. So really, really important. You get to that grounded confidence phase, that's a good thing.
• 9:01
  So let's talk about the other side of the Dunning Kruger effect. This is really interesting to me. It actually works in reverse as well. You see some retirees underestimate their financial strength and again, they spend too cautiously, they delay experiences, or they live constantly in fear of running out of money. And even when modeling shows that they're probably secure, that's not confidence inflation.
• 9:28
  That's confidence suppression. And both can rob retirement of joy. Really what you want to have in retirement is humility and we call that the retirement superpower of being humble. The healthiest retirees I meet aren't the most confident. They're the most aware.
• 9:47
  They understand that markets are unpredictable, but they have a financial plan. They understand that longevity, mortality risk, it's uncertain. We don't know how long we're going to live. Tax laws change. Emotions influence spending and humility creates flexibility.
• 10:03
  Flexibility creates resilience. And resilience, my friends, supports happiness in retirement. Here's a question I want you to sit with. Where might you be overly confident in your retirement plan and where might you be unnecessarily afraid? Because both distortions can limit your happiness.
• 10:23
  Retirement isn't about having perfect answers. It's about having thoughtful systems and a plan. It's about pairing confidence with curiosity and building a plan strong enough to support the life you actually want to live. That's what we do. Not just retirement planning.
• 10:38
  How about retirement living? Okay. So now let's talk about this idea of emotional guardrails in retirement that ties in really well with this Dunning Kruger effect. And this rarely shows up in retirement plans, but it has a massive impact on whether or not people actually will enjoy retirement. This topic is emotional guardrails because retirement is not just a financial transition.
• 11:03
  It's an emotional one. By far, this could be the biggest transition for decades. Perhaps you had structural purpose, routine, and identity tied to your work. And when retirement arrives, even if your finances are solid, you may feel something unexpected. Most people do it's uncertainty and even anxiety perhaps.
• 11:23
  So let's talk about what emotional guardrails are, why they matter, and how they can help you protect both your wealth and your happiness in retirement. So why is retirement emotionally different? Well, for retirement, life has a rhythm. You work, you earn, you save, you build, you've got a routine. Your paycheck provides reassurance that more money is coming.
• 11:48
  Retirement, my friends flips the script. Suddenly you go from accumulating money to spending it. And that change alone can create a lot of emotional tension. Even retirees who have plenty saved often struggle with questions like, can I really spend this money? What if the market crashes?
• 12:05
  What if I outlive my savings? And what if I make a mistake? These are very real and valid concerns and they're natural concerns. Without some guardrails in place, these emotions can push people into decisions that actually reduce their happiness. Two common examples.
• 12:22
  Some retirees become too fearful and never spend the money they've worked so hard to save. We talk about that time and again in this podcast. Others go the opposite direction, however, and spend impulsively early in retirement, this doomsday spending phenomenon. Neither extreme leads to a balanced retirement and that's where these emotional guardrails come in and can really help. So what are they?
• 12:45
  Well, think about driving on a mountain road. Guardrails are there to keep you from drifting too far in either direction. They don't control the car, but they protect you from going off the edge. And emotional guardrails in retirement serve the same purpose. They help you protect from making decisions driven by fear, anxiety, or even overconfidence.
• 13:06
  Right? That Dunning Kruger effect. They help you stay aligned with your long term retirement plan. In other words, emotional guardrails help you manage the psychology of retirement. And that psychology, my friends, is just as important as the math.
• 13:21
  So what are the three biggest emotional risks you face in retirement? Well, the first one is the fear of spending. Incredibly common. You worked for decades to save money. You've built habits around frugality, and then retirement arrives and suddenly you're supposed to start spending that nest egg.
• 13:38
  Many retirees struggle with that transition and especially the so called ant money mindset that we've talked in prior podcasts. People become overly cautious. They postpone travel and experiences. They tell themselves maybe next year, but next year may never come. That's the reality.
• 13:56
  Retirement has seasons and there is a window when you have this triangle, health, energy, and time. We call these again in prior podcasts, we've talked about this the go go years. If retirees wait too long, that window of health, energy, and time when you've got all three, that window is going to close. One emotional guardrail is recognizing that spending on meaningful experiences is not reckless if done within the context of a financial plan. It's the whole point of planning.
• 14:26
  Okay. Number two, market anxiety. The second emotional trap happens when markets become volatile. During downturns retirees may feel the urge to sell everything, maybe stop spending or abandon their long term strategy. But reacting emotionally to market swings often leads to worse outcomes.
• 14:46
  A well designed retirement plan includes volatility. It's baked in. It anticipates uncertainty. Emotional guardrails help retirees remember short term market noise should not derail a long term plan. Your plan should drive your investment approach, not current conditions.
• 15:04
  Okay. Third emotional challenge is less talked about, but it's just as real. You see, when people retire, they don't just leave a job. They often leave an identity. And for many people, work provided structure, social interaction, and very much a sense of contribution.
• 15:20
  And without those things, retirement can feel disorienting and maybe even depressing. That's why one of the pillars of a fulfilling retirement is having a purpose. We talked about this in the last podcast. Purpose doesn't have to come from paid work. It can come from mentoring, volunteering, learning, creating, contributing to others, mentoring can certainly even come from a second act.
• 15:43
  But without purpose, retirement can feel empty. So what are five emotional guardrails that you can use in a retirement? Guardrail number one, have a clear retirement income plan and play the plan. When retirees understand where their income is coming from each year, it dramatically reduces anxiety. Guardrail number two, define your joy spending.
• 16:05
  You see, not all spending is equal. Spending on things that bring meaning like travel, family experiences, and learning often create the greatest happiness. Guardrails help ensure those priorities stay funded. Guardrail three, protects the go go years. The early years of retirement are often the most active guardrails help retirees avoid delaying the experiences they care about if done within the context of a financial plan.
• 16:32
  Guardrail four, schedule annual life planning reviews. Retirement shouldn't only focus on investments. Each year it's helpful to ask yourself or with the help of your life planner, how satisfied are you with your life? Are you spending time on things that matter? Are you nurturing important relationships?
• 16:49
  Those conversations help keep retirement aligned with your values. Finally, guardrail number five, folks stay connected. So important in this disconnected world. I'm not talking about staying connected on social media. It's the opposite of that.
• 17:04
  Strong relationships are one of the most powerful predictors of happiness at any stage in life. Just look at the Harvard study that we've talked about in prior podcasts. Guardrails help retirees protect time for family, friends, and community. Schedule time with friends and family and community. So what is the real goal of retirement planning then?
• 17:25
  Well, ultimately retirement planning is not just about avoiding risk. It's about creating a life that feels meaningful. Financial security provides the foundation. You've got to have it, but then health relationships, purpose, experiences are what create fulfillment. That's what the money is for.
• 17:43
  And emotional guardrails help retirees stay aligned with those priorities. They protect both your wealth and your well-being. So if there's one idea I'd like you to take away from this podcast, it's this. A successful retirement is not just about having money. It's about having the confidence to live well and emotional guardrails can help you do exactly that.
• 18:04
  They help you avoid fear driven decisions and they help you protect your most valuable asset. It's not your money. It's your time because retirement should not simply be about stopping work. It should be about starting the life you were meant to live. And that my friends is what we mean by happiness in retirement.
• 18:24
  Thank you so much for joining me today. I hope you enjoyed this podcast. If you have any questions, shoot me an email, billhappinessinretirement dot com. Share this with a friend or family member, hit subscribe, and I will see you next time. Bye bye.
• 18:41
  Intro: 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 Delsetti Capital Management Facebook page. Until next time, here's to a happy, healthy, and financially secure retirement.