Jan 14, 2020
T.J. McCance, AAI, MBA
This is an interesting topic, and one I thought I should address because I don’t read or hear about it very much anymore with the markets being in high gear. As most financial advisors will tell you, there are numerous things that clients fear. After all, clients are human, and fear drives them because it is the most powerful emotion known to mankind – more powerful than love.
Often times, fear is tied to only one or two things. For example, market volatility – worrying about what the market is going to do today – and medical cost – what if some type of care is needed later on – are the top two. But the number one fear connecting the other two, is: running out of money – how do I replace my income and make it last?
We dive right in by asking three basic questions:
What are your goals? What do you need in income? How will you create income in the most efficient way possible? We are then able to talk about solutions to avoid running out of money, and how to stop worrying about the market. We want our clients to have happy and successful retirements. Unfortunately, many retirees have come way too close to running out of money due to their undisciplined spending habits. Clearly, there are people who are very good savers, but there are also people who are very good spenders. Burning through their assets ahead of schedule many times has more to do with self-control and an inability to control spending than it does market volatility or medical costs.
It’s OK to Spend a Little
A few years ago I wrote a piece, “Defining Wealth,” about how time – not money – is your most valuable asset, like time in the market; time to recover from loss and time to build lasting wealth. But by your not spending money to enjoy life and time with your family, you are missing out. We encourage clients who have the money to go ahead and spend some of it. These folks have been so used to saving they don’t want to spend much in retirement. Therefore, they deny themselves and they really don’t have to. As result of the planning we have done for them, we show them how they can spend money to go to Alaska or take their grandchildren to Disney. We want them to spend their money because they can’t take it with them. So, it’s all about balance.
Will My Kids Take Care of Me?
I tie in medical costs with illness and needing someone (even their kids) to take care of aging parents. Do these two fears revert back to running out of money? Yes – but now the issue is about long-term care planning, an area that I specialize in and considered the most under-planned-for-concern in our industry. Many people are hesitant to talk about the potential to needing care later on. However, they can’t ignore the fact that someday they will likely need some type of care. Our best advice to you is that you talk with us about your healthcare needs and goals first. We’ll create a viable solution for you and your family.
Where Will I Receive Care?
What a dilemma if Mom says, “I’m OK with going to a nursing home; I don’t want to burden my children,” and Dad says, “We built this house and I am staying here.” If I had two parents with differing opinions that never communicated any of this to me, what kind of position does that put me in as a son? This is why we make sure long-term care planning is one of the first topics we talk about before we do their planning.
All too often, when a parent incurs some type of health care event, families and siblings end up fighting with each other. I often tell my clients that three children who love Mom and Dad do it in different ways and will have differing opinions about how to care for them. So unless parents tell the kids what their goals are, and asks what they would like to see happen if one or both parents need care, the kids face potential failure and ongoing conflict.
Financially, should they be taking care of Mom at 85 as well as the kids and grandkids? Should they be protecting Mom’s assets or spend them down for Medicaid benefits? These are major stress areas for anyone heading into retirement, and all the right reasons to talk to us.
We suggest building a team of professionals around you now to help you plan for tomorrow. What I do as an advisor is going to impact your tax situation, so your accountant should know why we’re making certain recommendations. If your attorney is going to draw up a trust to protect your assets, we need to make sure the accounts and the plan we’re doing for you aligns with what the attorney is doing. The worst thing that could happen is to have a client pass away and none of their advisors have coordinated anything with each other. Attorneys also like the fact that we are involved because it makes their lives easier.
Time IN the market, not time-ING the market leads to long-term success. Market volatility shouldn’t be the driving force behind whether you buy or sell. So when your financial situation changes – but your advisor’s advice doesn’t – he or she is not doing a proper review or asking the right questions. If I have clients in their 50s who plan to retire in the next 10 years, my advice in how to invest is going to be different than it would be if one spouse, who planned to retire in 10 years, becomes disabled or whose child was in a car crash and needs special needs planning. It just makes sense that my recommendations will change – as they should.
Where some people get in trouble is when they invest like they did when they were in still in their 20s but are now nearing retirement or already retired. When I recommend long-term investing, it will never consist of timing the market or letting the fear of day-to-day market movements dictate what we do. There are far more mistakes made from timing the market than staying the course. Furthermore, if you are long-term investors but have a short-term need for those funds; clearly, you shouldn’t even be in the market.
My Own Fears
Yes, I have them too. One fear that I have is seeing an individual who has a lot of things going on in their portfolio not getting the advice they need to improve their situation and we don’t get the opportunity to tell them. I worry about the people we don’t work with.
Another fear I have is making a recommendation to a client who doesn’t act on it or make a change for one reason or another. And this is not even a trust issue because we tell people if there is no trust, then we shouldn’t be working together. Education builds trust and we educate our clients very well at Hefren-Tillotson. So if a client is not making an effort to take our recommendation, it’s obvious they’re not getting the full value from working with our team. Unfortunately, fear and emotion have dictated the next step for them and for us.
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