370: Psychological Components to Investing and Retirement When the Economy is Screwed

Catch the full episode: https://www.wealthformula.com/podcast/370-psychological-components-to-investing-and-retirement-when-the-economy-is-screwed/

Buck:

Welcome back to the show, everyone. Today, my guest on Wealth Formula podcast is Emily Guy Burke, and she is a that is award winning personal finance writer and author of The Five Years Before You Retire and coauthor of Stacked Your Super Serious Guide to Modern Money Management, as well as three other books on personal finance. Emily, welcome to Wealth from your podcast.

Emily: Thank you so much for having me.

Buck: So yeah, let’s get into this right? So the five years before you retire, why first of all, why the five years? What are you talking about there?

Emily: So five years is kind of what I think of as go time before retirement. Yeah. When you are younger, you know, in your thirties and forties, retirement seems like this far away country that you’ll never actually reach, you know? So it can be hard to prioritize. Yeah. Even once you hit ten years out, that is often when a lot of people have a lot of competing needs for their finances.

You know, they’ve got kids in college or getting married. They have elderly parents. But in that five years before you retire, that’s when like, oh, it’s it’s a common and what do I need to get my ducks in a row? And even if you’ve been diligently saving the entire time, even if you feel like you’ve got a great handle on what you need to do for your nest egg, there’s still that question of like, okay, well, I’ve been accumulating assets.

How do I access them in retirement? What am I going to do about health insurance when I’m retired? Wait a minute. What do I need to worry about with taxes? So it kind of gets to all of those logistical little issues that come up that you are not necessarily spending your time thinking about when you’re in the accumulation and career phase of your life, but then suddenly kind of loom large and can be overwhelming once you’re in that kind of five years before you retire.

Buck: Yeah. Yeah. How does self-awareness about your relationship with money help determine, I guess, what you might call a retirement plan?

Emily: Mm hmm. So the way that I look at money can sound kind of woo woo for people who are very much like, okay, red ink, black ink, dollars and cents, I can do this. But the thing about money is that it doesn’t actually exist in nature. We made it up. And so because we made it up, we project our own feelings on to it.

So that could be, you know, whatever you learned in childhood about money, if your parents struggled. And so you think of money as safety because you felt unsafe as a child, or if you had parents who gave you everything. And then that could affect the way that you see money, because you see that as a way of showing love.

So I think that it is very important for us to really think through and unpack our beliefs about money, because oftentimes they are going to be in they’re so deep, we don’t even know they’re there. And that’s partially because we don’t talk about money in our society. So one of my favorite stories about my mom, because we formed these beliefs in childhood and we form lots of beliefs in childhood, but most of them we get disabused. So my mom, when she was a very, very little girl, thought that doctors weren’t allowed to get sick or else they’d go to jail.

Buck: And I’d be serving a life sentence by now for that.

Emily: Exactly. Yeah, maybe I am. And that was I mean, and when I say a little girl, I think she was like four at the time, and it was made logical sense to a four year old. And because we do talk, you know, about doctors, we talk about illness, we talk about jail. You know, she was much older before someone told her, No, no, no, honey, that’s not correct.

But when you form a view of money, when you’re about four years old and we don’t talk about it, it stays there because no one says no, no, honey, you don’t need to give things that cost money to show that you love someone. We don’t say that because and so we just continue to build on that. So when we have these deep seeded beliefs, they can cause us to have reactions to money that are disproportionate to what the actual input is or could cause us to make disordered money choices that are not going to get us closer to our goals and will be frustrated and angry and not even know why?

Because, you know, we just have this immediate reaction like, No, no, no, can’t do that or No, no, no, I have to do that and not even necessarily realize why. And once we kind of take the time to separate out, like, what is this belief that I’m following? Does it actually fit with my goals? Does it make me feel good as a parent, as a doctor, as a spouse, you know, whatever and most important role in your life is, then you can start saying like, okay, I don’t need to follow that belief and I can make this choice instead. And that will lead to a better outcome with my financial goals. I’ll feel happier. I’ll feel better. And that, I think, is something that we just don’t do enough of.

Buck: So how does that relate to this? You know, you’re 45 years old and, you know, maybe you haven’t thought of this thing called retirement. And so how how does that how does that affect that?

Emily:

Well, one of the things I think happens is we get so focused on I want to solve this problem like it’s an algebra equation. So, you know, how much do I need to retire? And I you know, I’ve determined that I need $7 million to retire and oh, my goodness, right now I only have 3 million and I’m not going to make it.

And so, like, I will have failed. So the the issue is you are focusing on the wrong aspect of the equation because like, that’s just a number that doesn’t actually tell you what your retirement is going to look like or if it’s going to meet your needs. So I like to suggest to people instead of thinking through like, okay, you know, how much money do you need each year to all of this, blah, blah, blah, blah, blah.

Start with what does an ideal day in retirement look like for you? What does an ideal week, an ideal month and ideal year? And by going through that and thinking through like, okay, you know, an ideal day, when do I wake up? What do I have for breakfast? What do I do that day? Who am I spending time with?

What is the weather like? Where am I? And then going through that with a week, a month and a year can help you figure out what is it that you need to feel good in retirement? What are the things that are going to make you feel satisfied and content in retirement? And then you can work backwards from there of like, Well, how can I get that with the nest egg I have?

Or what am I missing in what I’m planning financially that I might need? That is not necessarily going to be like another $4 million of my nest egg. It might just be like, okay, I just need to make sure I have enough to be able to travel to the seaside every every year or, you know, visit with my grandchildren or whatever that is.

So if you start from a place of knowing yourself and knowing what is most important to you, you can kind of let go of the financial side of it and just recognize you need to find a way to make your money work for your vision rather than have your entire vision taken up with the amount of money you have.

Buck: Yeah. You know, I think that the challenge for me sometimes is when I think about when I try to think about the work, because that’s, you know, it is it is a different way of thinking, but it’s still sort of in that that fairly conventional idea of, you know, how much is it going to take, how much am I going to need? And and I think that that’s fine. But I think that the challenge for me when I think about that is I think you you kind of alluded to sort of the algebraic part of this. Mm hmm. And the even if you determine what those needs are and what you want, I think it’s very challenging thing to use the you know, the financial advisors often talk about buckets and this one is going to grow this and this one’s going to grow at that. So I think I think there’s two parts of it, right? Like, yeah, you, you know, in order to achieve this certain kind of life, you may need these kinds of resources. Obviously, you’re going to need to put some kind of number in there for inflation. And they may not be 2% like this one, but but on the other hand. But on the other hand, the question of like, you know, how you get there and what are the tools to get there. Is your message more about the former or the latter?

Emily: I think my message is more about kind of letting go of any sense of there being a right way to do things, because that is often how it is framed in both financial media and when you meet with a financial advisor.

Buck: Sure.

Emily: So and you know, some of that is because a lot of financial media is is it’s just entertainment. But you know, you like people call in to get yelled at by a financial guru. Yeah. And we all call we all listen in because it’s kind of funny and there’s a little bit of schadenfreude and like, okay, at least I’m not doing that badly.

But that gives this idea that there’s a right way to do it. And if you get it wrong, everything will fall apart. And so you get that with like a financial advisor saying, you know, like, okay, well, you have these different buckets. You do it this way and do it this way. People kind of get like, Oh gosh, I’m not sure if I’m doing it right or like, Oh, did I choose the right buckets or did I choose the right investments?

Is are my asset allocation what the optimal because it took a downturn last year. Should I move it? Should I do this? Should I leave it? And so I want people to kind of let go of some of the stress that they feel about money, which I know that’s a tall order of, you know, it’s just like, don’t stress about money. It’s like telling someone, don’t panic. It doesn’t really help.

00:10:40:02 – 00:10:56:20

Buck:

I think a lot of people I think, you know, I don’t remember statistics on this, but like, you know, the number of people who are afraid of running out of money before they die. Mm hmm. More than they’re afraid of death is significant.

So. So I think, you know, in in particularly these days, I mean, we don’t live in a in a world where there is, you know, the same type of setup as it used to be, where, you know, Social Security is going to or your pension and that sort of secure. But your pension plan, you know, from working in the factory for 50 years.

And if it’s going to take care of you and you know, you only live for five years after you retire anyway and everybody’s happy, the company’s happy, you’re dead. You’re you know, you got taken care of for five years and, you know, so on and so forth. So I think that’s that’s the challenge. So from a psychological standpoint, yeah, it’s it’s a tall order.

Buck: But yeah, tell us I mean, tell us more how you would suggest doing that.

Emily: Mm hmm. So the first thing I think is helpful is this kind of is kind of embracing a bit of financial nihilism. And that is so some of my my beliefs about money stemmed from a very odd place. And that is there was a graphic novel by Art Spiegelman called Mouse, and it was a it was a comic book that’s kind of semi biographical about his father living through the Holocaust.

And one of the things so his father was incredibly good with money. He was the kind of person who could meet a person and make a handshake deal and all of a sudden have, you know, like have all these ways of making money. And he managed to continue doing that even once he and his wife were put in the ghetto and they were not there with the money and their property was taken away.

He managed to find things that he could trade for, to be able to sell, to still make money, to take care of his wife and his child. And then once you went into the concentration camp, same thing, even though there was no money in the concentration camp, he figured out ways to wheel and deal to get better treatments off and his wife to get a little more food and those sorts of things.

What that taught me was that there is nothing stopping the universe, the world, you know, people with pitchforks coming and taking everything away from me. They cannot take away my skills. And so that’s what I mean by by embracing kind of financial nihilism, recognizing that, you know, if and I’ll use this example, because it’s still a little less fraught than talking about the Holocaust.

But like, for example, we have a zombie apocalypse or, you know, the asteroids coming or, you know, there’s some sort of major. They’re very useful. But, you know, we have the zombie apocalypse and you are going to find that everything is crashed. So, yes, like Warren Buffett will have a bit of a head start because he’s got private jets to fly away to the places where the zombies aren’t.

But eventually he’s going to be, you know, having to hammer in plywood over the windows as well. So by kind of embracing that financial nihilism, recognizing that all of this is made up and no matter what the world can take away from you, it can’t take away your knowledge, your skills, your attitude, your abilities that I find to be very freeing, especially when you start thinking about things like what if I run out of money before I die?

Because when you think of it that way now, you know, obviously if you’re thinking about like, if I’m 90 and I have no money, like you’re not going be able to go back to work. But don’t think of it that way. Think of it like, okay, I’m in my sixties. I’m not sure if I have enough retirements. What are things that I can do to be a gift for my 90 year old self?

What are the things I can do now to take care of my future self? And so, you know, once you start thinking of it that way and thinking kind of a very self-directed sense of like, no matter what happens. And for instance, in 2015, I wrote a book about Social Security. Three weeks after I turned my my draft in Congress with the stroke of a pen, changed Social Security, which invalidated 50% of the book I had just written.

I try not to complain about that too much because there are a bunch of people who are planning on retiring within the next six months who their entire plan was was screwed up because of this. So recognizing that could happen, but you’re still you you still have your power, your talent, your your knowledge, your charm, whatever it is that you rely on, that makes you good with money and you can pivot and just recognize that there are always opportunities to to pivot, to make different choices.

And that I find very affirming for myself. I know that it can sound kind of depressing. I start the Holocaust and.

Buck: I know I get it, but you know, I mean, I think I think basically what you’re getting at is the Mike Tyson idea that everybody can have a plan until they get punched in the face. Mm hmm. Right. And yeah, I mean, we’re then and we are actually living in a kind of a unusual period right now in the economy. You know, the rates going up very quickly. I saw a you know, I saw actually some data that showed and this you know, I don’t I don’t know why this isn’t more broadly published in that. But, you know, bankruptcies are actually at 2008 levels right now, which is which is unbelievable. So there’s there’s a stuff creeping in, right. Like we’re living in it and there’s obviously the markets are not doing great. The real estate markets are getting, you know, destroyed. But we’ll get through it. Yeah. And you know what? Like we’ll get through it with you have these downs and then you have these ups and yeah, it’s it’s hard to think about it that way when you’re when you’re in the thick of things. But I think that’s kind of what you’re getting at, Right.

Emily: Yeah. There’s, you know, the idea of this too shall pass. Yeah. Which I think is really important for investors to remember, no matter what’s happening, you know, when things are going get gangbusters, remember, this too shall pass. And when you are feeling like down in the dumps, because it’s the market has just taken a dive, this too shall pass.

00:17:27:23 – 00:18:00:15

Emily:

And that’s I think what happens often with money is that people want there to be a kind of stability of answers that there cannot be. So, you know, you will see it with people who, you know, embraced like crypto currency. And, you know, they I don’t have anything against cryptocurrency. I think it’s a fascinating investments. But you see people saying like, this is what’s going to cure poverty and child hunger.

Yeah, I mean, really, really. And it’s because we as human beings, we like the idea of there being something stable that we found the answer and we can stop looking. And for one thing, I don’t think that’s how it works to be alive. That definitely is not how it works with finance. There is there is no one answer and then you’re done.

It is a series of small decisions that you have to keep making, and then just relying on the fact that even when you make a bad decision, you can get up and make a better one next time. You always have another chance to make a good decision. And, you know, that’s kind of the optimistic side of the financial nihilism, is that say, you know, nothing really matters in the in the immediate moment. What matters is in aggregate and if you consistently try to make the best decisions you can with the information you have and learn from previous mistakes, you’re going to turn out just fine whether or not you reach your specific goals.

Buck: Let’s talk about when you’re there, okay? Now you’re retired. It’s kind of funding for me to say retired because I don’t I’m not one of those guys who ever thinks of myself as, like, not doing something. You just playing golf or something. But but I know some people do look at things that way. And so once you’re retired and say you’re no longer working for the income and you are in that place and luckily your buckets were balanced just properly and your, you know, your plan came to fruition, How does your mindset, how does it how does your mindset have to to shift at that point?

Emily: One of the things that can be really tough is for people to feel comfortable actually spending the money that they spent all this time accumulating. There is the sense of, you know, the fear of like, okay, well, what if I take money out of the market at the wrong time? And, you know, so there is that aspect of it’s there is is also depending on how you retire there is the the kind of loss of self aspect of it as well if you’ve been doing the same thing for, you know, 30, 40 years and all of a sudden you’re not, that can also be a very difficult mindset shift because you are no longer defined by your career, which many of us are in America and so I think what is very helpful is to do what you can prior to retirement, to kind of invite retirement into your life before you get there. And that’s partially because we have this tendency. We want things to be very black and white, like we’re working and boom, we’re retired.

And life doesn’t necessarily work that way. You know, you might take some time off, go on a sabbatical, or you might take some time off to care for family or kids or something like that. And so, you know, there’s that aspect of it. And then there’s also just the fact that, you know, if you go like work, work, work, work, work at finish line, boom, retire, you’re going to maybe have a few weeks or months and then go, okay, now what?

So I think that’s changing our view of work instead of it being like just something that we do straight. I would love to see our society be more open to people taking a little time away and then coming back as as as they feel comfortable with it, you know, prior to their mid-sixties. But I’d also like to see people who are looking towards retirements, finding ways to kind of invite retirement into their lives.

And so that could mean anything from taking an extended break where they can, you know, like two or three weeks. I mean, that’s not super long if you’re in Europe, but in America, that’s a long time away from work to to, you know, go check out a place that you might want to retire to or that could mean starting to find new hobbies that you’re interested in. It could mean going down to part time work for for a time prior to retirement so that you kind of have a transition rather than it be a hard stop.

Buck: Yeah, yeah. I think these are you know these are all, I guess, questions. I think that everybody kind of starts to need to think about a little bit earlier than they do. Right. I mean, bottom line, is it the other thing is I don’t think it’s psychologically good for people to go from like doing a lot to nothing. Right. Like, I think that’s a real problem. And I’ve seen it before where, you know, people are super happy at work and then they think they just need to retire and then, boy, they just completely realize that, you know what? And the camaraderie that they had at work and the, you know, the friends and the routine that that has all gone. And and it’s is it really better to be doing nothing every day? Well, if you have you think about it ahead of time, maybe you’ll have some plans and how you’re going to actually fill that time as well. Right.

Emily: Mhm. The going from a structured life to a life without structure is just very, very difficult. Disorienting, Right. Yes. And so, and it’s something where if you haven’t thought about it before, it can be hard to realize that that’s, that’s going to be facing you and that’s going to be problematic. Well anyway, you said the book again is the five Years before you Retire Retirement planning when you need it the most. Emily, thanks so much for being on Wealth Formula podcast today.

Emily: I thank you for having me.

Buck: Be right back.