How to MENTALLY and FINANCIALLY Prepare to RETIRE - Wise Wealth Podcast ep. 10

Preparing Canadians for retirement in both the accumulation phase and in the retired years is a huge part of this channel. So in this video I'm going to ask Sean about some of the biggest complexities in navigating retirement that we see clients face and how you can either avoid entirely or overcome these complexities successfully. So Sean I put together some questions relating to some of the conversations that we've had in the past regarding the complexities of retirement planning that I think will be really helpful for me and also people listening. So the first question is why is retirement planning so important and why does it so often cause anxiety? You know I think one of the main reasons it creates anxiety and maybe that surprises people it's not just about this exciting transition you're not going in for work to work every day working for a living but it does have a little bit of anxiety attached to it. So examples would be something as simple as going from a regular paycheck to having to generate income from pensions other sources of investment income can be a little bit anxiety producing for people. There's also a psychological aspect of the transition where when you're working you always feel you've got a bit of a buffer right so if you've got surprise expenses you just work harder you work longer and you can deal with the surprise expense events that come up. The economy as long as you've got a solid job doesn't create as much anxiety. Capital markets may fluctuate but again you're not retired yet so you can roll with those changes but it's not like that when people retire they're more keenly experience some of the emotional roller coaster of uncertain markets uncertain economy added to that you know how do we generate income what are the practical mechanics around that and then as a transition in retirement they'll be surprised by some of the emotional psychological things that they will be impacted by. So structure, purpose, relationships, retirement basically impacts almost every aspect of their lives and so so it will cause anxiety and it's sometimes just an undercurrent people aren't even really aware of it but they're wondering why they're not as excited as they thought they would be and that's that's some of those reasons we'll unpack some more of those reasons through this conversation. Yeah I think that's really good it's it's tricky in that transition right is that you go from relying on human capital to all of a sudden relying on the capital that you've accumulated over the years and those are just kind of they're just different right so uncertainty is definitely tricky with that change and so that kind of leads us into our second question here which is what are some of the key emotional challenges that you've seen people face during retirement planning and how can they be addressed? So that really leads into something I just alluded to you now have more time and with that time what I've experienced I've had to have this conversation with many clients is it's okay to watch the news it's okay to consume the news but make sure you have a sense of perspective so what you find people do is they begin consuming all kinds of content and they get pulled more into the drama that's going on around the world and all the upheaval that happens and and so it creates this again this generalized anxiety and that generalized anxiety can lead to bad decision making by people and so there's a whole bunch of reasons physiologically why that is but as you're under low-grade stress when you're making decisions sometimes you make really poor decisions so part of your retirement plan needs to be how do you deal with stress anxiety what are your practices around health and stress reduction activities and making sure that you're counterbalancing the negativity that you're going to experience so again when you're working full-time you feel more resilient when you transition in retirement you feel a little bit more exposed and so you're going to be more subject to that roller coaster so you need to make sure you build in like i said ways of reducing anxiety stress reduction good overall health practices i remember there was a bit of a market crash at the end of 2024 and all the youtube thumbnails on all the videos regarding the market were just red flames and you're just going through and it just the whole point was just grab your attention cause fear and make you click on the video the next question i have here is how should individuals approach the emotional and psychological transition of retirement there needs to be a recognition that the retirement decision is a transition that you'll go through and so there's going to be what we refer to as the letting go stage the neutral stage and then embracing the new reality so whether you like it or not a lot of your sense of purpose and meaning when you're working and going into retirement came from your colleagues the work you did the ways you're making contribution and that whole world was part of what you did every day for days years decades so you can't just all of a sudden leave that world and then transition into a new one right away so you need to just process the fact that you are going through a transition that you're letting go that the person you were is now going through a transition and change and there's some great books out there we'll have a link a couple that you can take a look at that helps people really process that emotional psychological transition so letting go you're now moving into a different environment there'll be a neutral zone and one of the practical ways that we see people processing the neutral zone is many people don't really appreciate the amount of stress that they've been under it's not until you leave that a work environment that you suddenly realize just how much stress you're carrying on your shoulders so in that neutral zone there definitely is a period of just decompression resting healing and just making sure that you're fully recovering from decades of work there are a lot of good stuff but there are a lot of stressful things and so it's a natural process to go through that neutral zone in the process and in that neutral zone you're beginning to think about work through what the new reality for you will be how will you cultivate purpose and meaning how will relationships change and how will you redefine relationships in your life even if you if you're married you have a partner that relationship will go through a transition as you retire and you have to renegotiate those relationships you're going from an environment where you are you know have lots of relationships in terms of boards that you're you're volunteering for work colleagues different kinds of activities those relationships will change and so the neutral zone is a very important component and then eventually you're going to transition into the new reality new patterns new schedules sometimes new relationships new patterns to get meaning and purpose and so there's definitely a three-phase transition that you need to be thinking about and what we find is people who don't really grapple with that i know a lot of people that watch our videos it's all about the money and that's a really important component but what i'm talking about right now can create health issues and that anxiety can lead to bad decisions as well so that three-phase transition is really important to be mindful of so that leads us into our next question which is what are some of the key financial mistakes and myths that hinder effective retirement planning there's a few you know i'm always surprised at how people think that their situation doesn't warrant you know proper planning that it's a simple situation or they don't have enough money or value in their portfolio to justify planning and nothing could be further from the truth so that's a bad myth to embrace and in fact it's probably even more important for people to engage in proper planning for retirement if their resources aren't quite as significant everyone benefits from a plan planning is really really critical another myth or or thing that comes up is just like well it takes time it takes effort and i'm not sure i have time to do i'm and i'm i'm often surprised by that so a lot of people don't have plans they don't engage in proactive planning into their retirement years and what they should be doing because they're busy doing other things and i think you know you need to make time for this transition planning financially and in other areas that we've talked about it's really really critical and then sometimes what keeps people from planning effectively is maybe embarrassment maybe they think they should have made more progress financially and they don't want to sit down with someone to go over their finances and help you know make improvements in their planning again advisors particularly if you're if you're not a self-directed person you're prepared to work with an advisor seek out counsel and advice the person that you're going to deal with is not going to be judgmental they're going to sit down with you and do a great job helping to make the most effective use of the resources you're built up as well have some frank conversations maybe you want to retire soon but when you look at the numbers you're gonna have to work a little bit longer because you're just behind the eight ball a little bit it's not condemnation it's not judgment it's reality and i find that with people when you confront reality there's a real freeing up emotionally and then you begin moving in a really positive direction another thing that happens is that some people are in delegation mode and they don't spend the time improving their their knowledge and their financial literacy and i think that one of our key responsibilities as practitioners and our team joshua is helping our clients helping people to be more literate financially because the more literate you are the better the decision making on your planning going forward people who are not literate financially economically tend to be tossed back and forth by the the winds and the the waves of economic uncertainty and market volatility whereas those people with knowledge tend to make the high probability decisions and we see it as a responsibility to help clients get there with with good decision making through education moving in more to the retirement planning aspect of this conversation we talked about some of the myths and the mistakes that people make what are some of the key financial questions individuals should ask themselves before developing their retirement plan so the first thing is look at the show notes we're going to put a link in the show notes for a great questionnaire that i encourage people to go through that helps them to be clear on a lot of the questions you should be addressed addressing so again go to the show notes there's a document there around envisioning your retirement what that looks like what a great retirement looks like but there's basic questions like okay when is retirement happening what level of after-tax income do you need when it comes to your after-tax income have you take into account a sinking fund for a vehicle replacement every once in a while when maybe extra discretionary expenses many people are thinking this way and that's the whole idea of go-go years slow-go years and no-go years what about investment returns are you a conservative investor are you a growth investor are you a balanced investor and does your plan take into account your investor profile obviously your approach to your investments is going to have a big impact in terms of your retirement planning key to that is looking at tax planning and a lot of times people will hire us because a lot of the areas they can sort of work their way through but they are not sure how to plan out a de-accumulation strategy tax effectively and that's a really really important piece as well then things like longevity do you have longevity in your family how long do you want your portfolio to last for and those are all key questions that retirement planning specialists will ask you or you need to ask yourself and and it's not just you know one time it's not a one and done sort of planning you need to be revisiting these questions on a regular basis because the inputs will change based on the on the ground reality of economies interest rates inflation rates all those things are ever-changing you need to review the plan on a regular basis and keep asking those questions so we've talked about myths some questions to discuss prior to developing the retirement plan now we have a plan is financial literacy really important for retirement planning i know you touched on this earlier but maybe elaborate a little bit on that yeah like i think that we can't emphasize it enough for some of you watching this video you a higher professional and just expect they're going to do a good job for me and they may be doing a very good job but because you haven't engaged in the topics and you have not a lot of knowledge sometimes there can be some surprising experiences along the way right so a good example would be that your advisors put together a retirement portfolio that is matched to your retirement plan and it's a balanced portfolio let's say a medium risk portfolio which does have some short-term financial risk attached to it you haven't invested any time understanding you know what that actually means in terms of the year-by-year swing rate on the portfolio and then when you go through a down market you're surprised you're shocked you're full of anxiety and because you don't have any you know backup knowledge level in the area you make a knee-jerk decision or maybe fire your advisor or change your portfolio and get out of the market which may not be the right thing to do at that time so that knowledge level should be something that is a collaboration between you and your advisors you don't have to be an expert right you just have to have enough basic understanding so you don't get yourself in trouble and that you'll make high probability decisions and you'll understand at a basic level why your advisor is working the way they are in terms of the retirement income plan if you're hiring some now obviously if you're self-directed it's not a relevant discussion but I think even sophisticated investors we've got some very sophisticated clients and you know when I ask them why are we at the table with you accountability encouragement sober second thought I mean I don't want to be making these decisions by myself because I'm human I can rationalize all kinds of decisions that may not be great decisions for me so having somebody at the table to walk alongside me through my retirement planning is really critical and that's the role that we play for people. I'm trying to find resources to improve my financial literacy where can I go to find that? Yeah I think that the the biggest thing is go to our YouTube channel we've got lots of playlists information on different topics and some of the topics that I think are really relevant as it gets people in trouble is in the investment planning area we'll have some links as well to some topic areas that will be helpful but I think if you are relatively novice at investment planning then I think getting educated in that area is really critical because that's the area that will hurt you if you don't make the right decisions over time the other is is cash flow and budgeting and de-accumulation so education that is really critical the number one thing that can get people in trouble in their retirement is their spending plan either was not realistic or they've exceeded it and they were too late in responding to the fact that they've exceeded that and so those two areas cash flow budgeting de-accumulation and then of course investment planning are really critical areas to get up to speed on. Okay so we have a retirement plan now an advisor is involved so what is the role of a financial advisor coach in retirement planning and is it really essential? So you know whenever I talk to people about this I know it comes across a little bit self-serving but it but it's true and so the first thing I'd share with you there's some great data and research has been done over the years on how advisors can enhance long-term wealth for their clients and in fact that's what happens and it's not rocket science I'll talk about the main factors that drive that wealth but the reality and I alluded to this before is that we are human beings we're subject to emotion we're subject to rationalizations that help us to justify bad decision making it's particularly a problem for people who are kind of making decisions in isolation and they're not taking counsel and they think they're going in the right direction but being human sometimes leads them to really bad decision making. So Vanguard did a study called basically they call it advisor alpha and they looked at the impact of clients who had worked with advisors to those who hadn't so in the United States people can go to the platforms and buy the ETFs offered by Vanguard directly or they can build their portfolios with the interest helps the advisor goes to Vanguard to build the portfolios by getting ETF products so one group's non-advised the other group's advised and then they did studies and questionnaires and they could also see the performance numbers between the two channels non-advised and advised. On every metric the advised households had better performance had more peace of mind were tracking in their towards their goals more effectively and they said that there were four or five factors that were really driving that so first of all behavioral coaching helping clients to be accountable when they need encouragement giving them encouragement de-accumulation strategies asset mix strategies rebalancing the portfolio overall wealth planning and financial planning done and updated on a regular basis and then they refer referred to the coaching model they said what does a coach do a coach sits down gets to know the client to understand their goals and objectives their pain points their concerns looks at an assessment of their current situation identifies gaps or problem areas so where do you want to be financially where are you today what are the gaps and then the specific strategies that need to be inputted to the client situation to bridge that gap once the strategy development takes place then offering accountability and encouragement to make sure clients act on that so they don't you know defer or not get around to it the advisor really is that accountability coach to make sure things get done and then reviewing reassessing the plan adjusting the plan along the way and then reviewing the goals again and that cycle is really really powerful we know that it works with dieting programs or physical fitness programs or that kind of thing and it certainly has been proven to work in the financial arena or that coaching relationship it's not a linear relationship by the way so it's not like every year the advisor team adds another two to three percent per year but long term that's those are the kinds of numbers that we're talking about and you know that's over and above the investment portfolio returns but it's it's non-linear you know it's it's responding to client volatility in their life it could be a marriage breakdown it could be retirement it could be the death of a partner it could be economic markets that are volatile all those things sort of play into the wash of the value of a coaching relationship to step into the breach and to help the client make great decisions and for again those people who seek out coaching they typically have better experiences than people that fly solo yeah and i guess to tie this into the title of the video but it's really in the complexities that the advisor really gives the alpha if you're just throwing your money in a index fund and you're not touching it for 25 years the role of an advisor is not really there and i was looking at the conclusion of that study from vanguard and they had this one quote so some of the best opportunities to add value occur during periods of market duress or euphoria when clients are tempted to abandon their well-thought-out investment plan so it really is during complexity and volatility when all our behavioral biases are kicking in that an advisor can really add the extra alpha so moving yeah and i and i see that we and i see that all the time we talk to people all the time so we've been in a pretty good bull market run for the last few years you know our team's been doing this for 30 years so we've gone through lots of economic cycles so it's always it's it's kind of surprising to me but not surprising we've got a lot of investors now who are hurling towards retirement they've been very serious about their portfolios the last five six seven years they really don't know what it's like to go through a bear market they really don't know what that is we can we can think about it we can intellectualize it and so when that bear market hits and it's going to hit right so we don't have a crystal ball on that but that's when a well-organized very disciplined strategy becomes critical it needs to be in place before that bear market happens ideally so that the client can make great decisions through that period especially in retirement right if you hit a bear market when you're young it's one thing but when you're relying on the portfolio it's completely different and then we get to our last questions the last question is given the demographic shifts and challenges to government and corporate pensions what's a key message for retirement planning one of the most important things in the area of retirement planning is you need to take personal control over your plan you can't rely on your employer you can't rely on government pensions to to do it for you you need to take active interest and engagement in the planning process that's that's the first thing the other thing is that demographics are going to be putting pressure on traditional systems that we've kind of counted on so if you look at pension systems there's less and less in the way of defined benefit pension plans that will continue to be a trend within the country so people have to save personally or be part of group rsp plans or defined contribution pension plans health care costs it's not news to anyone that our health care system is under crisis we will see some sort of fixes over time and those fixes likely will be maybe higher taxes maybe a movement to a mixed care system but the reality is costs are going to go up and we can look at our you know parents or grandparents ahead of us where the system worked not too bad and their expenses didn't keep going up and up and up as the age likely when we look at people retiring over the next 20 years they're going to be retiring into a different environment so we've got a demographic squeeze fewer baby movers more people pulling money out of the system for health care and pensions less people putting money into the system that creates a squeeze financially and as a result the benefits the health care programs are things we've come to rely on probably won't be as robust and we need to make sure we've got a financially sound foundation to deal with those challenges you can plan for those things that's why it's so critical to have a plan that contemplates those kinds of changes going forward so you know there's going to be some challenging times i mean again if you properly plan it's not all doom and gloom but there will be some you know inertia that we have to fight through because those demographic changes if people want to plan where should they go to get a plan well in the show notes for this particular interview you'll see a link back to our website so in our home page you can find out more about our retirement planning services and as well we have some complimentary resources as well that you can tap into get to know us a little bit poke around the website and then if you are serious about planning and would like to get your own customized retirement income plan you can reach out to us from the website perfect all right so if you made it to the end of the video make sure you subscribe there's gonna be a lot of retirement planning content and just finance content in general coming out so thank you for watching and we'll catch you in the next video take care