Wednesday, November 1, 2017

Winter is Coming

Lori and I have been working with a financial adviser on our retirement plan. We’ve been facing down a whole host of decisions regarding risk assessment, asset management, and prudent reserves. We’re not rich – we both work for the government. We’re about as middle class as they come. And in about ten years we’ll both be leaving our jobs and joining the wonderful tribe of Retired People. We hear they’re nice. We hope we fit in.
            You find yourself pouring over charts indicating that you will be eighty-years-old in 2038 and ninety in 2048, if you make it that long. We set up our plan so that we’ll be stone cold broke by the time we turn 98. If we make it past that we’ll just have to go out and get a part time job. Walmart door greeter or something.
            It’s been a revealing process. You lay yourself bare. Our financial advisor knows more about the details of our private life than all of our friends put together. It doesn’t work if you keep secrets. Think about it. Like the forensic accountants currently dissecting the Trump family’s bowl-of-spaghetti financial entanglements with Russian oligarchs, your financial planner is going to go over every penny of income and expenses with a fine-toothed comb – all your habits, foibles, obsessions, and weaknesses will be dragged out into the light of day. Sometimes when I’m in his office I feel like it would be easier to stand on the conference table and take all of my clothes off.
            One of the surprises about financial planning – it’s a lot like philosophical self-examination. You have to come clean about who you are, what you have, and what you want. You have to clearly articulate your values – what matters most, what matters least, and what doesn’t matter at all. You have to be assertive and direct, but you have to be humble and willing to be led. You have to be very, very clear on what you know and what you don’t know. If you get that wrong, everything goes wrong. When in doubt, which will be most of the time, take the advice.
            Naturally, (and I say naturally because this is the same boat the overwhelming majority of us are in), we haven’t saved enough for retirement. These next ten years are going to be austere as we try to close the gap, or more austere than I’d previously imagined.
            There are two mistakes people commonly make in their retirement thinking, and I was making both of them. One, I assumed that once you retire your expenses go down. Wrong. Most people spend more when they retire than when they’re working. They start traveling more. And of course, later in life, healthcare costs skyrocket. And two, I forgot to account for inflation. Ten, twenty, and thirty years from now, things are going to cost a lot more. Think of how much a gallon of milk, a gallon of gas, or a movie ticket cost thirty years ago – they’ve nearly tripled. This is why your savings will lose 67% of its value over a thirty year span.
            And this is why working with a professional financial planner, preferably a fee-only planner, is so important. A fee-only planner charges you for their services like a dentist, a plumber, or an attorney. All other types of financial planners earn money on commissions from the investments they steer you toward. In other words, you can never be sure that their investment advice is untainted by self-interest. Are they pushing investments that are best for you, or that yield the highest commission for them? Despite their best assurances, you never really know. I’m not saying that commissioned sales people are inherently deceitful – I’m sure they’re mostly wonderful folks – but their business model is ripe for abuse, most of it beneath the surface and hidden from view.
            The other way that estate planning is like philosophy is that you have to face the fact that you are going to fade away and die, and a good financial planner, like a good philosopher, is going to help you do it as consciously, joyfully, honestly, and compassionately as possible. In both endeavors – financial planning and philosophy – the goal is to embody the principle of no-harm: no harm to yourself and no harm to anybody else. Only when you honestly, courageously, and unflinchingly face the fact that you are going to grow old and die can you rightly set your affairs in order to maximize benefit and minimize needless suffering.
            Another benefit of financial planning is the way it challenges and changes your relationship with your stuff. As you grow older you begin jettisoning excess baggage, if only out of kindness for the friends and relatives who are going to have to endure the miserable task of emptying your house or apartment when you’re gone. Show them a little love. Get rid of all the extra crap right now, the stuff you could easily live without. You’ll be shocked by how much bigger your home feels, and how much freer you’ll feel.
            But the biggest benefit of estate planning by far is the way it lifts guilt, shame, and worry off your neck. You no longer have to regard the future as a dark, menacing cloud full of uncertainty and danger. You know that no matter what happens, you’ve seen to it that you will be financially supported throughout. Your affairs are in order. Your investments are safe. Your insurance is sufficient. Your tax strategies are maximized. In the event of your death, your spouse is taken care of. And in the event of both of your deaths, a calm and rational process unfolds for the dispensation of whatever assets remain. You just don’t have to stay awake at night worrying about that stuff anymore. How much is your peace of mind worth?
            And all of this for only a few thousand bucks. It is money well spent. I only wish I’d done it sooner. I feel like grabbing every twenty and thirty-year-old I know and forcing them to make an appointment with my financial planner. But I know I can’t. It’s not my place. But because of the miracle of compound interest, a tiny monthly investment into retirement savings over a forty year span is a gazillion times better than even the most aggressive savings plan begun in one’s forties or fifties.
            With all that being said, it’s never too late to take what you’ve got and make it better. The only thing holding most people back from hiring a fee-only Certified Financial Planner (CFP) is fear and shyness, two things I know a lot about. Thankfully, my life-long philosophical training and hard-won life experience convinces me of one simple, unimpeachable truth – problems don’t get better by ignoring them.
            Facing the fact of one's own impending decline and death, facing the facts of one's own spending habits, and facing the fact that your years of denial and avoidance have yielded little but frustration and anxiety, you finally pick up the phone and start the process. It's going to hurt. But not nearly as much as the alternative. Winter is coming. And even the squirrels know how to hide nuts for later, when all the trees are bare.