By Brandon Miller–
As a financial advisor, my actual job is to help folks save for retirement along with all of their other life goals. Perhaps surprisingly, much of what we really do isn’t about crunching numbers. Instead, it involves the emotional and behavioral aspects of not only saving, but also living.
It’s Complicated
Is that your relationship status with money? It is for many of us. To better understand the realities of preparing for and living in retirement, Goldman Sachs developed key questions to analyze four behavioral characteristics in a recent survey: optimism, future orientation, risk versus reward focus, and financial literacy.
Goldman focused on exploring the concept of the “financial vortex,” a term they used to describe the challenge of saving for retirement while juggling competing financial priorities. They wanted to understand why some people are naturally better retirement savers. Why do some people choose not to prioritize retirement savings? The findings boil down to discovering your money motivators. By identifying these traits, we can help clients recalibrate their thinking as needed.
What Is Your Money Motivation?
Do you have high optimism or low optimism? According to Goldman, those individuals with high optimism more often take proactive actions with savings, such as setting up personalized financial plans, and actively changing investments in a volatile market. For someone more skeptical about saving, sharing historical stock market returns over the long term, for example, may be helpful. Which leads us to …
Do you look to the future beyond instant gratification?
According to the study, those with a future orientation tend to have good savings behavior, and are typically more financially prepared for retirement. If someone is more focused on today than tomorrow, we may spend more time demonstrating why good decisions today can assist them and their loved ones in the future. In short, the tradeoffs will be worth it. Long-term investing and savings can be influenced by a positive view of the future.
What is your risk versus reward approach?
Those with a reward orientation often take proactive actions with their savings such as setting up personalized financial plans and accessing financial help. We establish a client’s risk tolerance and plan accordingly. There are tradeoffs throughout when considering different types of risk-taking. Risk doesn’t have to be a bad thing; undertaking a thoughtful amount of risk can lead to outsized and critically important rewards.
How financially literate (or illiterate) are you?
And finally, those with high financial literacy are more likely to review retirement savings periodically, have emergency savings, and report less stress connected to finances.
No matter how you scored, there is a lot of groundwork that can be laid to set you up for future success. Here are some Saving 101 Basics to keep in your back pocket.
Don’t ignore the need to save.
Being aware and having it on your radar raises the tendency to work toward the goal in an achievement-oriented manner. Being conscientious is the most important of the “Big Five” personality traits affecting financial decisions, according to Kim Peijnenburg, a professor at the EDHEC Business School in Nice, France.
Be realistic about how much you may need to save.
People’s perceptions of their own longevity have implications for their retirement planning. That’s why we generally run our projections to age 100 unless there are known factors present that make that unlikely. According to Arizona State University finance professor Rawley Z. Heimer, many underestimate how long they will live when they are young, which leads them to consume and spend recklessly, save less, and make suboptimal decisions for retirement planning. But as they get older, they overestimate their lifespans, rein in spending, and go slow on drawing down their retirement assets.
Keep up with the Joneses.
In the case of saving, sometimes the desire to keep on pace can be a good thing. Neighbors, peers, family members, and coworkers can all help shape how much people save for retirement. Michael Haliassos, Chair of Microeconomics and Finance at Goethe University in Frankfurt, has extensively studied how “others” help boost wealth accumulation. Boiled down, this peer effect tends to encourage us to be more like our neighbors.
Ask for help.
Check in with professional peers, family, friends and loved ones. What is working for them? There are a ton of free resources out there to brush up on your financial literacy including the Consumer Protection Finance Bureau ( https://bit.ly/4f5fbly ). Finally, seek advice from a Financial Advisor if you are stressing about your future. That’s what we are here for.
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always, please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Brio Financial Group is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
Brandon Miller, CFP®, is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals. For more information: https://www.briofg.com/
Money Matters
Published on October 17, 2024
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