“If I just had more money, life would be easier.”
Sound familiar?
Here’s the surprising part: Everyone says it. From our highest net worth client to our teenage kids, and everyone in between.
Overcoming fears with financial planning
If the fear of not having enough money is keeping you up at night, the first question we’ll ask is . . . ‘Do you have a financial plan?’
A plan is one of the best ways to overcome financial fears because it puts you back in the driver’s seat.
It puts your goals front and center. What do you want to accomplish in retirement? How do you want to spend your time? These goals were likely the primary drivers when you were saving for retirement, so they should also be driving your spending.
A plan gives you an accurate picture of where you stand. It helps you understand how your savings translates into lifestyle. Once you know how much you’ve saved and how much you need to do everything you want to do, you have the freedom to spend within those boundaries without fear.
A financial plan should also include a strategy for how you will withdraw assets from your portfolio so you will have enough to support your day-to-day life without running out.
What if a financial plan doesn’t calm your fears?
Even after reviewing financial plans that clearly show that it is very (and we mean very) unlikely that they’ll run out of money in retirement, we have had plenty of clients who still feel uncomfortable spending.
Take, for example, the physically active retiree whose doctor told him that he needed knee surgery and had two options: he could either wait two years to get the surgery done in his home city for free, or he could pay $15,000 to have it done in another part of the world right away.
We reviewed this client’s financial plan, and he had more than enough to cover the cost of the operation. Getting the issue fixed now would mean that, after the recovery period, he could spend the next two years doing what he loves to do: biking, hiking, traveling. But he still chose to wait.
Why?
The psychology of spending
Despite the idyllic picture of retirement you see on commercials (think sailboats, rocking chairs, and endless rounds of golf), transitioning from your working years to retirement can be a very anxious experience.
You’re going against lifelong habits of earning, saving, and planning as you have to start using your nest egg to fund your lifestyle.
Andrea McTague, Founder of ShiftGrit Psychology and Counseling, sees plenty of retirees who are experiencing anxiety about money. Many of her clients have spent their whole lives amassing wealth, carefully saving and investing, but when they stop working, they get what she refers to as a “scarcity complex” that prevents them from touching their savings.
What’s happening in the brain
McTague explains that the financial plan that says you can take that trip or pay for that surgery or do that renovation appeals to the part of your brain that handles executive functioning. This is the logic center. The fear of running out of money activates an entirely different part of your brain. This part is responsible for perceiving threats and reacting, often emotionally or impulsively.
The problem, McTague says, is that these two parts of your brain don’t always communicate well.
If your brain is perceiving a threat, your first instinct is likely not to run through all of the rational reasons why it’s not as bad as it seems. Your automatic reaction is probably one of these three stress responses: fight, flight, or freeze.
You’re probably familiar with fight or flight – those survival instincts that kick in when you’re stressed and tell you to either stand up to the threat or run from it.
When it comes to money, McTague says that the instinct is often to freeze. You see the value of your portfolio. Your financial plan tells you that you’re in good shape. Your wealth advisor says that you’re not going to run out of money. But you still find yourself unable to spend it.
How can you retrain the way you think?
McTague says that the first step is identifying the threat. Money is a minefield of triggers. But why is it triggering you? Maybe you didn’t grow up with wealth so the idea of having more than enough still seems foreign to you. Perhaps you have lost money in the past from a business deal gone wrong.
But once you’ve identified the threat, how do you deactivate it? McTague suggests a gradual process of desensitizing yourself. If you rescue a dog that has an irrational fear of suitcases, you don’t put one on the bed next to him the first day you bring him home from the shelter. Maybe you start by putting a suitcase in the same room as him. And then as the dog gets used to it, you move it incrementally closer.
The same concept holds true for us. Let’s take the person who can’t justify spending $15,000 on a surgery, even if it would enhance his quality of life, for example. McTague would tell him to start small. Buy that tailored suit he’s been eyeing, but seems like a bit of a splurge. Take his wife on a nice weekend getaway.
Going from a mindset of saving to spending thousands of dollars all at once can seem overwhelming. But if you tackle that anxiety step by step, chances are you will end up with a more fulfilling retirement experience.
Why is conquering anxiety around spending so important?
Over our years as retirement transition specialists, we have learned that retirement is about so much more than money.
The problem at hand is not what you should do or shouldn’t do with your money. It’s what you should or should not do with your retirement.
You don’t want to look back over your golden years and see the things you didn’t do, the places you didn’t see, and the changes you didn’t make.
If you want to make the most of your retirement experience, but anxiety is holding you back, we’re here to help. Sign up for our upcoming retirement seminar by clicking here.
To learn more about ShiftGrit, you can visit their website by clicking here.
David Popowich and Faisal Karmali are Investment Advisors with CIBC Wood Gundy in Calgary. The views of David Popowich and Faisal Karmali do not necessarily reflect those of CIBC World Markets Inc.
This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change.
CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. Insurance services are available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.
