#40 How to Ride the Rapids Towards Retirement [Podcast]

Working towards retirement can feel like rafting a river full of dangerous rapids. As you flow down the river of your life, you're constantly having to navigate events that threaten to turn your life upside down. Unemployment, death, divorce, college costs, healthcare, recessions, corrections, inflation and countless others can put you on the rocks. This week I discuss how to "self rescue" if the rapids of life put you into the water.

INVEST WISELY - The Folklore of Finance: Beliefs That Contribute to Investors’ Failure

Last week I read an article in the New York Times discussing the release of a study by the State Street Center for Applied Research. It's titled:

The Folklore of Finance: Beliefs That Contribute to Investors’ Failure

The 2 year study tried to answer the question: "What does true investment success look like?"

Interestingly, according to the article, they found "that the way individual and professional investors made investment decisions was so skewed that achieving both high returns and long-term objectives was nearly impossible."

In the Podcast I discuss some of their findings, including:

Overconfident in abilities
Unable to stay focused on long term objectives
Short term noise
Investors want to invest with a long time horizon yet react to short-term swings that derail the strategy
Come to distrust their advisors
Focus on the noise
Focus on short term results
A Culture of “beating the markets”

The study found that financial services firms spent 60 percent of their capital expenditures on resources to help generate short-term high performance. 60 Percent!! As a veteran of a major financial firm, I can attest that the value proposition of most major firms is that they can predict markets and guide you through them. I've always found this funny...having a value proposition based on predicting the future.

Better, I think, to accept the uncertainties of the world, have a prudent process and focus having lots of little conversations so you can adjust as life unfolds.

PLAN WELL - How to Ride the Rapid Towards Retirement

If you've every been on a rafting trip, you're probably familiar with the term "self rescue." How to self rescue is a talk given by your rafting guide before you venture onto the river. The Guide makes it very clear. If you get thrown into the water, do NOT wait to be rescued. It is YOUR responsibility to rescue yourself.

Self rescue involves 4 steps that you can use to rescue your financial future:

Get to the Surface

Stabilize your cash flow
Self assess your financial health (skills, assets, debts)
Clearly define your 1 year objective

Take a deep breath (you may be pulled down again)

Build some cash reserves
create margin in your cash flow (increase income/cut expenses)

Float down river

Take a little time to reflect.
Set clear 1, 3, and 5 year objectives
Identify initial action steps

Start to Swim

Learn from others
- Seek out fellow travelers that you can emulate
- Learn from online resources and books
Find a guide to help you navigate the rapids

Being thrown into the rapids by life can be scary. It's okay. You can self rescue. I know you can.

What Rapid Are You Most Afraid of?

Tweet to @roger_whitney

[spoiler]

The Retirement Answer Man Episode #40

Yes! I’ve turned 40 today. Well, I turned 40 eight years ago but I like turning 40 again. This is Episode #40 of the Retirement Answer Man and my name is Roger Whitney. Thank you so much for joining me. This the show dedicated to helping you learn to find that delicate balance between living well today, maximizing today’s lifestyle, without sacrificing your tomorrow.

I think when we’re making larger financial decisions, that’s really what we’re trying to do. How can we maximize today’s lifestyle but still feel okay that we’re not sacrificing tomorrow? That’s what we’re going to focus on here today. I want to thank you so much for joining me.

Today, we have two interesting topics.

In our Invest Wisely segment, I want to talk about a study that just came out by the State Street Center for Applied Research. They spent two years studying on what true investment success looks like and I’ll give you some of the summary that I read and I’ll show you where you can find access to that study.

In our Plan Well segment, I want to talk about the concept of self-rescue and what that means in planning your life – how you can self-rescue your financial life if you feel like you might be drowning.

As always, you can find me at rogerwhitney.com. I’m working on blogging a little bit more consistently. I keep the podcast pretty consistent and I’ve been traveling a lot and I’m so thankful. Last night, I got home from my last work travel for the year – knock on wood – so let’s hope that’s the case and I’ll be blogging a little bit more consistently. So, go to rogerwhitney.com if you want to check out some of those resources.

Last week, I shared some of our reader survey. I got two responses. I had asked for some responses and I got two. I got one from Lisa – and, thank goodness, it was a lady! If you recall, when I shared my reader survey, it was all men. Everybody was a man! I never do well with the ladies but Lisa saved me. She responded and said, “I didn’t realize you had a survey. I’m sorry I missed it. Thank me before the show. I really liked it.” She says, “I’m really addicted to your program and feel as though you are very interested in what people have to say so it’s kind of ‘our’ show.”

Lisa, I can’t tell you how much that means to me. That means a lot because this show is all about you and that’s why I always want to know what you guys are struggling with. And she had a question about how to invest in stocks and read a stock chart – another question on trust. So, I’ll make sure that we address those in another program.

I got another email and this one’s from another guy. I got an email from Dean and Dean thanked me for the program which is awesome. He said although he missed the survey, he fit the profile of what a lot of the results were and he had a question about how long it takes me to prepare and deliver this weekly podcast and, Dean, that’s a really good question. If I had to add it up, I’m going to say it takes about three or four hours a week – that includes the prep time and writing the show notes and building my outline and doing any research and then the recording and then the processing of all that stuff.

At one time, I used a virtual assistant for some of that; currently, I’m doing it all myself but I’ll probably switch to that a little bit. That’s one reason you may have noticed that I’m not releasing on Monday mornings anymore; it’s because I was doing this over the weekend which was fine because I geek out and I love doing it, but I have a daughter and I have a son and I have a wife, and that just really wasn’t fair. I was spending too much time geeking out up in my upstairs studio and not spending time with them so I decided I’m going to produce it on Monday or Tuesday and release it hopefully every single Wednesday, that way I can have the weekend for my family so that’s the reason we’ve delayed that a little bit.

I want to thank you both and everybody that has sent comments and left a review on iTunes. It means a lot because this is somewhat one communication and I prefer it to be a community because producing this content I get from how I work with clients but I want to know what you guys are struggling with. So, if you ever have anything you want to share with me, Twitter is always great. I’m at @roger_whitney. If you go to my blog at You Ask, I ANSWER, you can fill it a little form there and I get an email directly to my email box. So, thank you so much for all the feedback.

All right. Well, before we get started, we’ve got to have that all-important – wait – disclosure, and that is only you know your whole financial situation so take this as helpful hints and education because I don’t know a thing about you and, unless we’re working together and I understand your full situation, I could never give you any advice on anything. I can only show you what I’ve learned, some of the wisdom I’ve learned from other people that are walking the same journey as you. So, before you make any decisions on anything you hear here or read on the internet anywhere, make sure you consult the people that are walking life with you and that could be very close friends, it could be your financial advisor, your tax consultant, your legal consultant, and that’s just not great disclosure language, that is a fundamental principle about planning well and investing wisely in your life.

All right. Well, that’s it. Let’s move on to our Invest Wisely Segment.

The other day, I read article in the New York Times and I don’t typically read the New York Times – not because it’s the New York Times but I don’t read a lot of periodicals – but this one caught my eye and it was talking about a study by the State Street Center for Applied Research and they released a study, a two-year study on what true investment success looks like.

Now, the article was written a day before the release of the study so the study is out by the time you hear this podcast, but what I wanted to focus on – and this what the article focused on – is some of the barriers to true investment success because I think that’s a very good way to look at some of the things we need to watch for as we work to invest wisely for our retirement.

The first barrier to success – and I think this is a barrier to success in almost everything we do – is that humans, you and I, by nature tend to overestimate our abilities. Would you agree with that? I know when you look at car driving ability that study after study says everybody always overestimates how good a driver they are and how good their reactions are to how to anticipate things. Well, I think the same thing is true with investing and that is what the study found as well.

It’s that we tend to think that we can outthink things and, when you think of it, when you look at markets, they’re basically a huge crowdsourcing mechanism on where the world economy is and where individual companies are valued. So, when you’re thinking that you can outthink the market, say, over time consistently, you’re basically saying that you think you can outthink – there’ s a lot of “thinks” in there – you’re thinking that you can outthink millions of people, many of them pure geniuses with vast research capabilities and technologies that are constantly pricing and looking at not just the economy but the evaluations of companies and they’ve dedicated their life to it 24/7, if you’re thinking that you can beat the markets or find that next hot stock, you’re basically saying that you’re going to be able to best this crowdsource of the entire world in finding the next whatever – not just that you can do that but you can do that consistently over time.

I’m a victim of that myself over my 24-year career, I mean, because most people get into my industry because they enjoy finance and they enjoy investing and they all hold that little – even if they don’t tell you – they all hold that little kernel of “maybe I can be that investment genius.” So, this is definitely a journey that I’ve had to work at humbly in myself to what I truly know and can understand and what is truly unknowable and I think this is an area of overestimating or having overconfidence in our ability.

The second barrier the study found that was talked about in the article was investors are unable to stay focused on their long-term objectives. When I say investors, I would include many financial advisors this way because financial advisors are pleasers – they want to please their clients – but I think, if you’re investing for your retirement, it’s easy to set long-term objectives when things are calm and you can think long-term.

But what ends up happening is the world conspires against you – whether it’s the financial media, whether it’s the advisors or newsletters or blogs or whatever it is – the world conspires against you to create all this noise – all this noise of all the next shiny ball, of the next great investment system, method, process, product, whatever it is – and it’s easy for you and I to get attracted to that shiny ball that starts floating over there and, all of a sudden, we were focused on our long-term goals one second and then we start floating our eyes and our attention to “Oh, that looks really cool,” and that could outperform or could do something that the long-term process that you were on you don’t think could provide you in the long term so we tend to not stay focused on the actual objective at hand.

Think about that. If your objective is I’m 50 years old and I want to be able to maintain my lifestyle once I retire in ten years, that’s a very clear important objective so you and your family, you and your spouse could maintain your standard of living after you retire. Now, that’s a meaningful objective that is very personal and you can develop a plan and start to implement a plan to that, and then this noise gets in your head. “Yes! But, if you bought XYZ, you could return X more than the markets!” Well, if your plan is to maintain that standard of living, the question would become, logically, “Well, if I bought XYZ product that performed X better, what would that buy me in lifestyle? Would that get me closer to my goal of maintaining my lifestyle? Or would it introduce more uncertainty to maintaining my lifestyle?” It could have nothing to do with that long-term objective but we’re so programmed to respond to the short-term feature and benefits, and I’m not just saying this, this is part of what the study unraveled as to what are the barriers to investment success – it’s our inability to stay focused on long-term goals.

That’s something, as an advisor, I find all the time and I’m here to counsel clients and, I’ll be blunt with you, I’m better doing this with clients than I am with myself because I have all of my own emotional baggage and desires and fears when I manage my own money and I use one of my partners to really help center me. So, it’s not just investors; I think advisors struggle with this, especially the fact that most advisors don’t have a very strict, prudent process that they follow so it’s very easy to get distracted by a shiny ball because they want to please their clients. They get the pat on the back. So, it’s not just investors; it’s advisors as well.

The third barrier that the article talked about that came out of this study was investors have come to distrust advisors. So, the investing public is getting less enamored with the value that an advisor brings to the table in helping them – not just invest but plan for their retirement – and, bluntly, that distrust is extremely well-earned. Our industry in its practices – its’ practiced and focused on sales and presentation – has caused a lot of that distrust and it’s not that the advisors are as a whole are bad. I think the vast majority are very servant-oriented. It’s the whole training system of how we all were trained to begin with because it came from a sales culture. So, that distrust that you, the investor, have is well-warranted, and I did an episode on how to choose a financial advisor and the key there is you want to look at people that don’t look at short-term results, that are willing to have a very prudent process that they’re a slave to so they can counsel you consistently over time. There are a lot of advisors out there that are extremely well-trained, they have very well thought out processes, they’re a slave to those processes, and they’re not short-term oriented. It’s just harder for the consumer to find those because the minority, I would say, that are true to those principles – and I’d like to include myself as one of those, but – we all struggle with that. But the distrust that investors have with advisors in a lot of ways is well-earned.

And then, the last barrier that they talked about in the article – and I’ll be interested in reading the entire study when it comes out – is this culture of beating the markets. This sort of dovetails into number three – the whole distrust of advisors – because advisors have been told by the firms that they work with that, “Hey, we’re a major investment firm! We have a zillion different brainiacs that are crunching numbers and analysts and market strategists and all this intellectual capital deployed, all to figure out what’s going to do well, what’s the best investments, what are the ones to avoid, and where are the economies going, and so forth,” that is, in a lot of ways, the fundamental value proposition of a lot of large investment firms and brokerage firms. It’s that “we have all these super smart people so you, Mr. Advisor, harness all of our brainiacs and share that research with the client and put together an investment strategy.”

In fact, the study found that financial services firms spend 60 percent of their capital expenditures on resources to help generate short-term high performance. Wow. That’s a quote from the article. Financial services firms – so, these major investment houses – spend 60 percent of their capital expenditures on trying to figure out how to generate short-term high performance. Statistically, they’re horrible at it and I would argue, “How does that serve you as a client if you’re really worried about, say, maintaining your lifestyle for the rest of your life through retirement? How does this short-term performance focus really serve you on achieving what you care about in your life?” I think this culture of “Hey, we’re super smart Wall Street people,” and “We can help you beat the markets,” that’s a culture that actually works against true investment success and I’m inferring a lot from this article but I’m also incorporating my own experience of walking this journey and having to overcome some of these things in my own practice over my 24 years.

I’ll put a link to the New York Times article and, if I can find a link to the study, I’ll put a link to the study in there as well. But I think these barriers to success, if you self-assess yourself then maybe your advisor if you work with an advisor, so you can avoid these barriers to investment success in your life, if you can work on not being overconfident in your abilities of what you can see in the future and what you can’t, if you can find ways of staying focused on long-term objectives, if you can find an advisor – assuming you want to work with an advisor – find an advisor that is truly process-driven and focused on the right things and not the short-term orientation, and if you can start to overcome this culture of beating the market as the whole purpose of investing rather than achieving whatever it is you and your family care about most, you’re going to be well on your way to investing more wisely in your life.

The thing is I think you can do it. I’ve walked a path and I’m as close to getting it down in terms of being prudent in my life. So, if I can do it, trust me, I know you can do it too or you can find somebody that can help be that guide to do it for you if you want to have somebody to take that burden of being a slave to that compass or that process.

Okay. Well, let’s talk about our Plan Well segment and I want to talk about self-rescue.

Last year at Thanksgiving, my family and I went to Costa Rica. It was our kids’ first real international trip and we went to Costa Rica and drove around the whole country which is a beautiful country, Costa Rica is. If you have any questions or ever want to go to Costa Rica, let me know because we had a driver – it’s very inexpensive – and I have a client that travels there a lot so we found a lot of great places to stay. So, if you’re ever interested in going to Costa Rica, let me know and I can send you some resources.

On this trip to Costa Rica, I had the chance to take my family white water rafting down a river with class three, four rapids. Now, I’ve been blessed. I’ve been white water rafting on almost every major, major river in North America over the last ten or twenty years and some really crazy rivers so I have a lot of experience white water rafting and that was my first chance to share this experience with my kids. My daughter is 16 – well, she’s 17 now – and my son’s 18. They were all for it. My wife was a little worried. She went and I promised her it wasn’t class five rapids. But she was a little nervous. I put a picture of us on the rapids in the show notes so you can take a look at that. My wife’s not real happy that I put a photo with no makeup and everything else, but it’s a good photo. She looks good. I love my wife.

Anyway, we go white water rafting in Costa Rica and, if you’ve ever been white water rafting, usually what happens is they put the boat on top of the van and they drive you to where they’re going to drop you off in the water. During that trip to the drop-off point, your guide, the gentleman who’s going to be navigating your raft for you, gives you a speech and the speech goes something like this: “Okay. Now, if we hit these rapids and you fall off the boat, don’t sit there and just wave your hands because I’m not going to come get you. I’m busy navigating this boat. I’ve got all these passengers in the boat. I have to navigate the rapids. I can’t turn around in the stream to come get you if you fall out of the boat,” and that makes total sense, right? Don’t just sit there waving your hands and yelling, “Help! Help! Help!” You have the responsibility to self-rescue, and he starts to describe what self-rescue is.

That’s one of the number one rules if you’re ever rafting. If you’re in trouble, your first duty is to self-rescue. Take care of yourself and they’ll do their best to come get you when they’re able to, when everybody else is in safety. So, I want to talk about self-rescue and how that applies to your financial life.

As you grow and age towards retirement, it’s sort of like going down a river. Often, in the distance in that river are a lot of rapids – some of them really scary. I mean, you have long-term care, Alzheimer’s, you have your health, you have the markets – that could be a huge rapid that could flip your entire life over and toss you into the water. You have inflation, you have uncertainty. There are many rapids that you have to traverse and you have college expenses, you have your parents you might have to take care of – all these potential white water events and rocks on this river of life that you’re going to have to potentially deal with, and that can get really scary.

So, what do you do if you start to have a little panic attack about these rapids that might be coming on your river of life as you age towards retirement? What do you do? Or what happens if you hit one of these rapids and you’re thrown into the water? How does this concept of self-rescue apply in your financial life?

Let’s go through the four steps of self-rescue and tell you how you can use these to help you when you’re getting a little anxious or you get thrown into the rapids of your own life.

The first step of self-rescue is get to the surface, right? If you’re thrown into the water, get to the surface so you can breathe again. That’s rule number one. Don’t think about anything else.

In your financial life, what would that mean? If something major happens, that means get focused on the short-term really fast. Get yourself to the surface financially. That means really stabilize your cash flow and understand where your cash flow is on what your expenses are right now and what your income is and find ways to create breadth there or excess cash flow.

And then, once you get to the surface, you need to assess where you’re at financially. Whatever rock it is that you hit – okay, what are my skills? Do I still have skills and earning ability? What assets do I have? What debts do I have? It’s like doing a body assessment. You know, is my leg broken? Is my foot broken? No, I can still move around. Once you stabilize your cash flow and get breath in your life, now it’s self-assess yourself financially and then clearly define what that first objective is in your life.

If you’re thrown into the water, that is, “Okay. I need to get to the shore.” But, if you’re in the rapids of life, what could that mean financially? That could be, “Okay. I need to increase my income over the next three months because I need to build more income,” or, “I need to increase my cash reserves because I have this huge whirlpool rock of long-term care that I’m suddenly facing right up front and close.” Whatever that first objective is, but make it really short-term.

Step one is, if you’re scared of the rapids or you’ve hit something and you have to deal with it, get to the surface. Stabilize your cash flow. Make sure you understand that. Self-assess yourself; do a net worth statement, and I’ve talked about how to do that. Know exactly where you’re at in terms of your assets and debt. And then, set a very short-term objective that you can work towards so you can actually start to make a little bit of progress, okay?

Step two, once you get to the surface financially because you’ve hit some rock in your life, now it’s time to take a big deep breath, okay? It’s not time to do anything major. Just take a big deep breath. You’ve gotten to the surface financially. Take a breath. Relax because you might get pulled down again.

If it was, say, a job loss and you’ve gotten your cash flow stabilized, take a breath and start to build up some cash reserves. Create some margin in your life so, if something happens that you get pulled down again, even if it’s temporary, you don’t go back into a tailspin. Once you get to the surface, take a breath and build some margin in your life. Financially speaking, generally, let’s build up a little bit of cash reserves. Whatever you’re able to build up, work on cutting unnecessary expenses so you can have a little margin for the next thing that might happen, just in case, and that will give you a little bit of breathing room to start to think a little bit more rationally because, when you’re first thrown off your boat of life, I guess, into the water financially, it’s scary. You’ll want to panic. So, once you get that first breath, this is your chance just to give yourself a big deep breath so you can relax just a little bit.

Now, once you do that, once you take that deep breath financially, you can move on to the third step which is, okay, now you just need to float down river. That’s what you do if you fall into the rapids. Get to the surface, take a deep breath, and then you get yourself into float position and you just float a little bit down river.

What does that do? Well, it gives you a little bit of time to reflect and assess your situation when you’re not in a super high stress mode, right? You got the surface financially. You got a deep breath. You got a little bit of cash flow. Now you can just, “Okay, let’s really calm down now and see where we’re at.” This is your time to reflect and now you can start setting a little bit longer term goals. “Okay. I took care of this last month. Let me set a one-year goal for my family or a three-year goal of what we really care about now that we’ve hit this rapid, and now I can start to use that to navigate my future decisions now that I’m not in such a high-stress environment.” And then, as you’re floating down river, you can identify those initial action steps to start to work on self-rescuing yourself whatever rapid hits you in life.

And then, the fourth step once you’re able to do that is you can start to swim. You can actually start to make some progress to self-rescue your financial situation because you’ve taken these three very important steps.

What would that mean financially? Well, let’s use a job loss as an example. What would you do? Well, you could seek out other fellow travelers that have gone down these rapids and come out the other side successful and start to learn and educate yourself on how they did it. Did they use LinkedIn? How did they write their resume? How did they network? How did they come out of that job loss successfully? There’s plenty of resources nowadays with podcasts and blogs and online courses and networks of friends through LinkedIn and Facebook and other social networks that you can find people that have traversed a job loss or traversed a big health care event or an unfortunate market event. Learn from them on what they did so you can pull the pieces that fit for your life and emulate what they did so you can self-rescue yourself.

Or if you don’t want to do that or that’s not your strength, you can find a guide. You can find somebody to help guide you through that experience. Let’s say it’s a job loss, it could be somebody that helped people find jobs. Or if it’s a retirement event, you could find a truly passionate, competent financial advisor that has walked or ridden those rapids with many people very similar to you so they know where the rough stops are, they know what to avoid, and the lines to take in the river because they’ve been down this river before with other clients.

If you don’t want to educate yourself fully and do it all yourself, you can hire a guide, but just make sure you have a seasoned guy that has rode those rapids many times before with people that have similar journeys – not somebody that understands it conceptually. You don’t want that fresh guy that says they understand all the theory but they don’t really have any scars on them, and that’s really the way that you learn – all the scars and, trust me, I’ve got a lot of scars. I know that’s one of the blessings of getting older but my point is you don’t want a new guide. You want a seasoned guide if you go this route.

As you ride your river towards retirement and you start to get anxious about these rapids up ahead or maybe you’ve been hit by a rapid, focus on self-rescue. It empowers you and it takes a lot of the fear away, and the fear is what’s really paralyzing, right?

1. Get to the surface. 2. Take a deep breath and give yourself some margin in your life. 3. Float down river and assess your situation from an unstressed place. Only then you can go to step four. 4. Start to swim and self-rescue your financial life

That’s a very simple process to deal with anything that might come at you.

The cool thing is you can do this because you’re going down this river anyway, right? It’s worth the trip because it’s a great journey if you understand how to navigate your own river and then, when life hits you – and life will always hit you – if you understand this concept of self-rescue, you can right size yourself, put yourself back into the boat, and get back on your journey, and it’s a wonderful journey and it’s an empowering journey as long as you have the tools to be able to make those smart decisions and I know you can do it and that’s the cool part and that’s bluntly why I spend three to four hours every week doing this podcast – because I know you can do it! I’ve seen many people live empowered and maximize their lifestyle now and still have that comfort that they’re going to be okay around the next fork of that river regardless of what’s sitting out there.

My question to you, and I’ll leave you with this, “What rapids are you worried about? What are the rapids that you’re struggling with that I can work to try to help guide you via this podcast?”

Go to rogerwhitney.com and go to You Ask, I ANSWER if you want to share that and I’ll work to try to be your virtual guide, I guess, via these podcasts as best I can because I do this for you so I appreciate you listening.

If you’ve enjoyed this show, I always appreciate if you go to iTunes and subscribe and leave a review. That really helps build the audience for this show so we can have more fellow travelers on this river towards retirement.

I’m Roger Whitney. I am the Retirement Answer Man.

Until next week, plan well and invest wisely.