Stan's World - Managing Fears
Everyone loves acronyms. When it comes to stock market investing, for example, FOMO is often used to explain why investors suddenly jump in when the market rises at a breakneck pace. (FOMO = Fear of Missing Out.) When investors have FOMO, they’re desperate to get on board so they don’t get left behind as the market keeps going higher. (I think we know how that always ends for latecomers.)
Along the lines of FOMO is TINA, which stands for There Is No Alternative (to stocks). I guess people who have FOMO eventually come to realize they must invest in stocks because they develop TINA. Of course, if you think about some of these acronyms for too long, you’re apt to develop NAUSEA, which means exactly what it spells.
For retirees, there’s a relatively new acronym for those of us who won’t, or can’t, spend the assets we’ve accumulated over our lifetimes: FORO (Fear of Running Out). As a (mostly) retiree, I understand that fear. (Since we’re acronym-tossing, I guess the opposite of FORO is YOLO, or You Only Live Once. My guess is the YOLO crowd doesn’t care what happens tomorrow and throws dollars around like confetti. Please, please don’t become one of them.)
The point of a financial plan is to take as many significant factors as possible into consideration when a person retires. How much will you spend? How will retirement be funded? Is the plan likely to endure future market downturns? What if you live longer than projected? What if you need care in your later years? A financial plan is designed to allow retirees to enjoy retirement, not endure it.
The fear in FORO (again, Fear of Running Out, for those keeping track) is that employment income has ended. The fear is that the stock market may go down and take too many years to recover. The fear is that a family member may need your financial assistance, and you will want to help. The fear is that you’ll live a long life and ultimately call upon your family to help you to finance your needs after all your funds are exhausted.
Sometimes, our fear of exhausting our funds is self-inflicted. When I was client-facing and held one-to-one meetings with retirees, I always feared hearing unexpected news, especially about health issues. On some occasions, there were what I can best refer to as ‘uh-oh’ moments, when I would worry whether the financial plan that we had so carefully crafted would be put in jeopardy.
Some examples of uh-oh moments:
“My grandchild needs money to pay for college tuition.” Uh-oh.
“My adult son/daughter lost his/her job.” Uh-oh.
“My neighbor made a fortune from a rental property, so I was thinking about…” Uh-oh
“My brother-in-law was telling me about his vacation home, so I was thinking about...” Uh-oh
“My son-in-law just got a job with this great new start-up, and they’re looking for investors.” Uh-oh
You get the point. The list of uh-oh moments can go on and on, and with each case, I worried that a plan that was on target was going to fall apart. Sometimes I was able to avert disaster with my persuasive personality and good-looking boyish looks. Other times, the barn door had flown open, and the horse was gone.
I often envisioned the mental sequence that got us to uh-oh moments: the bills are being paid, we have money in the bank, life is good, let’s do something crazy.
A financial plan is an attempt to peer into the future. Admittedly, planning would be so much easier if we knew our date of death, or whether we will ever require assisted living or home care aides, or whether our health will dictate where, and how, we’ll live. But we don’t know those things, and we shouldn’t always assume the worst, because the worst may never occur.
I always used to joke that after completing a financial plan, there were some clients I had to push towards the window ledge (e.g., “You can spend a little more than you’re currently spending.”) while others had to be pulled back (e.g., “This is not going to work, so tell me how much your kids love you and whether they have a spare bedroom.”). If you’re in the FORO camp, and worried that you will outlive your assets, let me leave you with a thought for your consideration.
If you’re a retiree with a financial plan, you likely know approximately how much you’re going to spend each year, and where those funds will come from. You also have a (hopefully) conservative expectation as to how your portfolio will perform.
When the year ends, look at your numbers. If you spent less than you thought you would spend, and/or your portfolio went up more than you thought it might, collect those excess dollars and spend some of them. Buy something; go somewhere; give gifts to your children and grandchildren; take your family on a vacation; donate to charity. Use those ‘surplus’ dollars now, while you’re able to use them; while you’re able to watch your family members enjoy your largesse. Those ‘excess’ dollars represent ‘No Regrets.’
As my mother aged, she was fond of saying: “We’re nearer than further.” She knew to spend each year’s ‘allocated’ dollars, because she had too many friends who didn’t get the chance to do so. Yes, the markets may drop next year, but we can’t live every year in constant fear that bad tidings are coming. It’s not a healthy way to live. Let’s use the time we have doing what we enjoy, and let’s leave FORO in the dust.
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