In retirement planning, what is your retirement personality?
When presenting a plan to a new retirement planning client, it sometimes resonates, and sometimes I get a blank stare in response. I can tell if a retirement plan doesn’t click with a client right away. But why do strategies that resonate with some clients fail with others?
Not because these latter plans don’t work, but because they don’t match the customer’s retirement personality. If a customer’s way of thinking about money does not align with the plan, it is less likely to resonate. search by Dr. Alejandro Murgo (Opens in a new tab)ia and Wade Pfau Show that there are four main ways people approaching or retiring think about money.
1. Time division approach
The time split approach mentally puts your money and assets into three groups based on when you need to access them. The money you’ll need quick access to goes in a short-term bucket. You can avoid investing this money in risky products because if the market goes down when you need to access this money, you will lose money. Instead, you can choose lower-risk assets like savings accounts, CDs, and money market accounts.
Subscribe to Kiplinger’s free e-newsletters
Earn and thrive with the best expert advice on investing, taxes, retirement, personal finance and more — straight to your email.
Earn and thrive with the best expert advice – straight to your email.
Money that you don’t need to access quickly goes into the long-term bucket. This money can be invested in riskier products because if the market crashes, you don’t need to withdraw from this pool and can therefore wait for the asset values to be recovered before converting them into cash. Having a long standing bucket gives you a chance to strike inflation with your investments.
The third and middle bucket is for the income you will need in three to seven years. You are likely to choose a medium risk strategy for the IBC. Too safe, and you may not make enough returns, while investing in highly risky products exposes you to the possibility of losses that may lead to a lack of income.
People who prefer a time segmentation approach tend to view retirement in terms of net results over time rather than on an immediate basis.
2. Risk circumvention approach
At the other end of the retirement personality spectrum is the “risk wrap” approach. Someone who prefers this approach doesn’t want to think about moving money between buckets, and doesn’t want to take too many chances with their nest egg. Instead, they want to retire at a fixed salary equivalent.
This type of retirement personality is likely to prefer retirement assets with negative protection built in. Structured securities and insurance and deferred products annuities Those that make modest gains during market upheavals but are isolated from market slowdowns are products they are likely to prefer.
3. The protected income approach
This personality type is a mixture of the first two types, leaning towards a risk-taking approach. An “income protected” retiree wants to know that the income from retirement savings will remain at its level throughout his or her retirement. They will tend to skip high-risk long-term investments in favor of more predictability.
4. The total return approach
The Total Return personality type does not need to know that they will be withdrawing the same amount from their accounts on an annual basis. They aim for success in eventual retirement and adjust their income plans frequently to keep the probability of that success high. This person is likely to be more willing to invest in higher risk/reward assets during retirement.
Understanding the differences between retirement personality types can help and help you financial consultant Come up with a plan that resonates with your personality while still being a sound strategy. If you are nearing retirement and plan to meet with a financial advisor to discuss your retirement income strategy, it’s a good idea to consider which of these personalities aligns best with your values.
When you and your financial professionals are aligned regarding your retirement strategy, it increases the likelihood of retirement success. A strategy that does not match well with your retirement personality is one that you are most likely to have negative feelings about. This can cause you to make changes based on your feelings, and doing so at inappropriate times can have a negative impact on your finances.
Retirement plans that align with your personality can also make retirement more enjoyable for reasons other than financial. If your retirement strategy is basically making you nervous or upset, even if it’s a sound strategy, you’re likely spending a lot of your time feeling stressed and upset. This is not the ideal way to experience what should be an enjoyable permanent vacation.
Work with your financial professional to understand how your personality affects your approach to retirement financing. Doing so can lead to better results, financial and otherwise.