A Pound Of Worry For An Ounce Of Life

15 November 2023

FINANCIAL PLANNERS – How many clients have you worked with who were worried about running out of money in retirement?

I’ll go first. I reckon that over the years, it has probably been about 2,000.

Compare that with how many clients came to you worried about not spending enough and dying with money (and life not lived) in the bank.

Hmmm, over the same 20-year period, I’d say it’s… none.

Strange, huh!

Now, let’s compare that to the number of clients who HAVE actually run out of money in retirement.

For me, there was the odd case where they lost themselves and spent the lot—I’m not talking about living on the streets ‘ran out’, but their pot ran dry for the nicer things in life.

So… 2,000 worriers for something that happens once in a blue moon.

And conversely, how many clients of yours have died with more money in the bank than they needed? (or unnecessarily lost to Care Fees?)

I’d say about half of my clients who have passed away have ultimately died with more money in the bank than they intended when they retired.

So, your clients worry more about something that has a 0.01% chance of happening than they do about something that has a 50% chance of happening.

And that is why, when you present your cashflow modelling and talk about income vs. capital, clients will often sway towards capital (drawdown over annuities, for example) because they want *control* over their money.

They want it accessible because, in their heads, the more access, flexibility, and control they have, the more likely they are to spend it.

But they don’t.

Why is that?

Well, largely because they’ve spent the last 40 years of their lives programming themselves to save. Every time they received a statement showing their savings and pensions going up, they felt more secure and comforted.

And your one-hour financial planning session, with your fancy cashflow modelling, isn’t going to reverse this ingrained psychology.

Oh, they’ll nod in all the right places and say all the right things about how having it all accessible means they’ll be able to spend it ‘whenever they like’ and you can write up your notes and feel great about delivering another kickass financial plan—but you’re just the emperor showing off their new clothes.

As soon as the markets are down, they’ll put off the big holiday. Whenever they feel nervous, they’ll draw a little less because their savings are their safety blanket and have been for the last 40 years.

In essence, your paper financial plan is just that—paper.

And yet, ironically, if they had converted some of their savings into an income, they’d have been more likely to spend it.

Why?

Because, in our heads, income is *earned*, and it’s OK to spend money that you’ve *earned* on nice things because you’ve *earned* it, in all senses of the word.

But *savings*… well, *savings* are not to be enjoyed or squandered on luxury things; they are to be *saved* for a rainy day.

And so, in their desire to have control over their capital and give themselves the flexibility to spend, they often achieve the exact opposite.

Just because a financial plan works on paper doesn’t mean it’s going to work in real life. Clients aren’t computers that make logical decisions every minute of every day. They make decisions based on emotions and fear.

And our job as financial planners is to know this, to coach, to challenge, to recognise the emotional triggers, and to weave them into the plan. Treat every financial plan that ends with too much money in the bank as just as big a failure as those that end with the money running out.

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