Can I Afford to Retire? – Beware of Binary Bias

Clients’ Favorite Questions: 

1. Is ____ a good investment?

2. Can I afford to retire?

3. Is it a good time to be in the market?

Advisor’s Favorite Answer:

“It depends.”

Clients’ Least Favorite Answer:

“It depends.”

I’ve spent almost 20 years helping clients plan for retirement and as I thought about it, I couldn’t count how many times I have been asked one of the above questions. It’s interesting how we crave simple binary, yes or no answers to some of the most important personal and financial questions when the world is ultimately so nuanced. We also tend to relate to our own condition at any moment as “0” or “1,” “black” or “white.”

Fat/Thin

Like/Dislike

Rich/Poor

Happy/Unhappy

Prepared/Unprepared

In Love/Not In Love

Good Parent/Horrible Parent

Binary Retirement Planning

Over the last 50 years, pensions served as the ultimate gateway to retirement. Achieve the defined-benefit age and bang – “I’m vested!” Yesterday I couldn’t retire, today I can.

These days (increasingly absent of pensions) we hear so much about “your number” in regards to funding retirement. I spent the early part of my career focused on solving for people’s “numbers.” The number is the estimated target accumulation of investable assets that could support a retirement spending plan (plus whatever Social Security benefits and other income a client reasonably expects). It’s a good exercise and helps clients get a handle on how much they need to save; what level of return they should aim for; and roughly when they will accumulate enough to retire. The problem is that it sets up the same false binary paradigm. In reality, achieving a targeted accumulation number doesn’t guarantee your retirement, nor does being $10 shy of your target mean that you’ll need to keep working.

Imagine that your theoretical retirement number is $1,000,000. You save and invest for decades to build your nest egg, finally achieving the magic number for your retirement. Unfortunately, the market falls and your nest egg decreases in value right after you begin this new chapter in your life. Does this mean that you now CAN’T afford to retire? Of course not, it’s silly in this context but this is exactly what grips people when markets get volatile.

Yesterday I could, today I can’t.

Meet Me in the Middle

Why do we continue to approach the nuanced transition into retirement as such a binary/cliff event? I think it’s mainly habit, extending back to the industrial days when you were either employed or not employed. No in-between.

How wonderful that we now live in the ultimate era of nuance. Never before in human history have we had such choice about lifestyle or such opportunity to balance work and leisure. I can be “retired” and working. I can work from home or work from abroad. I can find something I love to do and still have an income, and probably work on my own terms. In addition, I don’t have to make such monumental decisions all at once. I can surf, glidepath my way into retirement over a 5, 10 or even 20-year period. I can exist in the middle space between full work and retirement.

What’s the catch? It’s nuance. The path to achieving it is not as clear. Fewer people have gone before us to show us the way (but the numbers are climbing). We’re still trailblazing. It’s going to take time. There’s much to consider; explore and design to turn a nuanced dream into reality. While many corporations are warming to transitional employees, it’s still not the norm. As a result, it doesn’t fit neatly into our primal binary frameworks. We might have to be a bit uncomfortable while we work out the details or get it started.

Or, if you want the quick answer, there’s always our old binary Q&A:

Can I retire yet?

 

 

 

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