Most people do not know how to plan for retirement. They just know they want to be able to do it comfortably, whatever that means. A successful retirement can be boiled down to a simple question. It has often been said if you want to improve the quality of your life ask yourself better questions.
The most common questions we hear from pre-retirees thinking about retirement are centered around what, how and where. “What” is my number? “How” much money do we need? “Where” are we going to live? Just to name a few. We believe these questions, although important, totally miss the mark, so we strongly urge our clients to go deeper, asking and thinking about the “why.”
After spending more than three decades working with people to help them find their definition of financial freedom, it has become obvious to me that the individuals best positioned to have a successful retirement are those that first and foremost have a “why.” Of course, they need to have the “what,” the “how” and the “how much,” but without the “why” the other ones almost don’t matter.
For a person who has spent a lifetime building a business or working their way to the top of the corporate ladder, that has been their why — their reason to get out of bed every morning. If they don’t have that anymore, what are they going to do? What will be their purpose?
The ‘Financial Red Zone’
Work gives meaning to people’s lives. They may say they go to work for the salary because that helps them provide for their family or some other plausible reason, but our identities are often closely tied to what we do every day. That’s one of the reasons why so many successful retirees think about what the next phase of life looks like.
When that touchstone of the daily grind is no longer there, it can leave a big void in that person’s life. That’s something that we spend a lot of time talking about with our clients in what we call the financial red zone. I recently had that conversation with a client who was considering retiring and selling his business to his son-in-law, who had been working with him for years. The more we talked, the more it became obvious that he didn’t really want to sell because he had no idea what he was going to do next. He just thought it was the right thing to do, but he didn’t have his why.
Retirement Isn’t for Everyone
I tell my clients that retirement is an adventure, but I also realize that not everyone is ready to start on that adventure at age 65, 70 or even 75. Look at guys like Warren Buffett who is 91 years old and his investing partner Charlie Munger, who is even older at 97. They’re both still working, maybe not at the same pace they did 30 or 40 years ago, but they’re still at it, because their “why” is crystal clear.
And that’s okay, retirement isn’t everyone’s goal. In planning with people in their 40s and 50s, I’ve found that a majority view their lives as a rat race that they can’t wait to get out of. We have found that they just want to get to the point where they have the financial flexibility to get off the treadmill of life and the rest can’t see any reason to stop doing what they’ve always done.
Even if a client has no intention of giving up their career, we still want to get them to the point where they know they can retire whenever they so choose. If they’re on that commuter platform waiting for the train Monday through Friday or spending their days in a home office enduring an endless parade of Zoom calls, it should be because they want to be there, not because they have to be there. That financial freedom can set the tone for a better way of life because it relieves so much stress and anxiety about the future.
The Holy Grail
Once we help someone answer the why of retirement, our next goal is to get them to a place of financial comfort, which is different from being comfortable financially. It’s not a question of whether or not they can pay their bills. It’s more about being emotionally comfortable around their current and likely future financial situation.
That emotional comfort is the holy grail of financial planning. Great advisors are instrumental in building this over time through financial education and long-range financial planning. It is our mission to help get clients to an emotional place where they can maintain a level of comfort that allows them to stay calm the next time there’s a tariff situation with China or some other event that causes the market to drop 8%, 9%, or 10% overnight. That kind of financial comfort translates to financial independence which ultimately leads to a better way of life and a true sense of financial freedom.
“It is our mission to help get clients to an emotional place where they can maintain a level of comfort that allows them to stay calm the next time there’s a tariff situation with China or some other event that causes the market to drop 8%, 9%, or 10% overnight.”
Among the reasons why we start retirement planning with the “why” question and establishing a level of financial comfort is due to the distinct links that research has demonstrated between stress and overall mental and physical health. Our goal as advisors should be to educate our clients and work with them on a plan that delivers financial comfort.
The Health Connection
When you can show people, the numbers underlying their particular financial situation and how the math in their plan works out, is when that level of comfort and peace of mind really takes hold. This the intersection of math and pure human emotion. One of the things that causes the most stress is worries about money.
We also know there’s a direct link between chronic stress and health. The American Psychological Association notes that stress can cause disease, either by forcing changes in the body or as a result of overeating, drinking, smoking and other unhealthy habits people use to cope with stress.
While we help clients lessen their financial stress to get to a better place emotionally, we also encourage them to take care of their bodies as well. In my experience, people who are successful in retirement recognize the importance of good health and they take better care of themselves. They exercise, eat healthier, stay fit, do yoga, go to the doctor for regular checkups and are prepared for a longer more vibrant life.
This is why we are so focused as financial advocates on helping our clients get to the point where they intellectually know they can retire. Then they can get to the fun stuff which of course is “when, what and how”.
Barry Mitchell is founder and managing director of Next Level Private LLC, an independent registered investment advisory firm. Next Level Private offers a full range of financial services and headquartered in Harrison, NY. He can be reached at barrymitchell@nxtprivate.com.
