When we are evaluating decisions, it is useful to understand what we know and what we don't know before determining what to do.
Unfortunately, when it comes to financial planning, virtually all decisions are made with incomplete information. There is way more that we don't know than what we do. But we often act as if we know something in order to manage our money anxieties. Ironically, embracing what we don't know can reduce those anxieties because we relinquish control. So let's look at what we know and don't know and what we can do about it.
We don't know how long we are going to live or how health will impact our future. When people are worried about running out of money, it is usually because they are concerned about what their situation will look like decades down the road. If you knew you were going to die tomorrow, you would not spend too much time worrying about going broke. But since we don't know how long we are going to live, we need to weigh running out of money against not creating the lives we want to have because our money lasted longer than we did.
Let's think about what we can know. We can know how much we spend. No one needs to replace income in retirement, they need to replace spending. That replacement is going to come from only a few places: Social Security, pensions, additional earnings, investments or gifts. Spending does not stay constant. You usually spend more when your kids are at home and less later in life. In fact, people should spend more in the early years of retirement when they can get the most enjoyment from travel and grandchildren.
But the price of managing your cashflow during working years is limiting spending to meaningful things and investing extra money. The key is to spend money on the things that are most meaningful as determined by you. The only way to do that is by paying attention to your spending, making choices and evaluating those decisions. If you are married, I can promise you that you will not be in agreement on every spending choice. But come to agreements around those differences without inserting your values into theirs.
We don't know when we are going to get derailed. But we will. We may not get that promotion, markets may fall apart, we may lose a loved one. Something that we didn't want to happen is going to happen. What can we do about it? Make our wants adjustable. Getting derailed through significant loss means you appreciate what you had, grieve its end, recognize that it will now be a part of you, and move forward to a different future.
Many of our clients are derailed by their adult kids. They wanted them to marry differently, choose a different career, value money in the way they were taught, or at least show a particular type of appreciation for all that was done for them. Hours are spent trying to legislate how their kids need to show appreciation in a particular way to experience the benevolent parent.
Adjusting wants involves deciding what you can actually control. You can't choose whom your kids marry but you can choose to not pit yourself against your children's spouses. You can decide whether your gifts have strings attached. You can choose to support them in their career and ask them whether they want your ear or your advice. And you can decide whether you want to force them to adopt your messed-up relationship with money or allow them to create their own.
We know that we don't know how the future will play out, but the endless possibilities can be cause for excitement rather than anxiety.
Ross Levin is founder of Accredited Investors Wealth Management in Edina. He can be reached at ross@accredited.com.
