In Retirement Planning, What’s Your Retirement Personality?
There are many ways to think about retirement planning, and your personality can influence yours. If your personality and plan match, you have a greater chance of retirement success.
![A retiree and a financial adviser sit at a table going over paperwork with a financial adviser.](https://cdn.mos.cms.futurecdn.net/r3fAJQnUFsUtYjiouT5e9n-415-80.jpg)
When presenting a plan to a new retirement planning client, sometimes it resonates, and sometimes I get a blank look in response. I can tell right away if a retirement plan isn’t clicking with a client. But why do strategies that resonate with some clients fall flat with others?
It’s not because those latter plans don’t work, but rather, they don’t match the client’s retirement personality. If a client’s way of thinking about money doesn’t mesh with the plan, it’s unlikely to resonate with them. Research by Drs. Alejandro Murguia and Wade Pfau has shown there are four main ways people nearing or in retirement think about money.
1. Time-Segmentation Approach
The “time-segmentation” approach mentally places your money and assets into three buckets based on when you need to access them. Money you’ll need quick access to goes in a short-term bucket. You’d avoid investing this money in risky products because if the market is down when you need to access those funds, you’ll lose money. Instead, you’d choose lower-risk assets such as savings accounts, CDs and money market accounts.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Money you don’t need to access quickly goes in a long-term bucket. This money can be invested in riskier products because if the market crashes, you don’t need to withdraw from that bucket and can therefore wait for the asset values to recover before converting them to cash. Having a long-term bucket gives you a shot at beating inflation with your investments.
The third, intermediate bucket is for income you’ll need within three to seven years. You’d likely pick a medium-risk strategy for the intermediate bucket. Too safe, and you might not realize sufficient returns, while investing in overly risky products exposes you to the possibility of losses that could result in an income shortfall.
People who favor the time-segmentation approach tend to view retirement in terms of net results over time rather than on a more immediate basis.
2. Risk-Wrap Approach
At the other end of the retirement personality spectrum is the “risk-wrap” approach. Someone favoring this approach doesn’t want to think about moving money between buckets, and they don’t want to take many chances with their nest egg. Rather, they want the retirement equivalent of a steady paycheck.
This retirement personality type will likely favor retirement assets with downside protection built in. Structured notes, insurance products and deferred annuities that return modest gains during market upswings but are insulated from market downturns are products they’re likely to favor.
3. Protected-Income Approach
This personality type is a blend of the first two, leaning toward the risk-wrap approach. A “protected-income” retiree wants to know the income from their retirement savings will remain level throughout their retirement. They’ll tend to favor skipping longer-term, higher-risk investments in favor of more predictability.
4. Total-Return Approach
A “total-return” personality type doesn’t need to know that they’ll be withdrawing the same amount from their accounts year-over-year. They target ultimate retirement success and adjust their income plans frequently to keep the probability of that success high. This person is more likely to be willing to invest in higher-risk/reward assets during retirement.
Understanding the differences between retirement personality types can help you and your financial adviser arrive at a plan that resonates with your personality while still being a sound strategy. If you’re nearing retirement and are planning to meet with a financial adviser to discuss your retirement income strategy, it’s a good idea to consider which of these personality types best aligns with your values.
When you and your financial professional are in alignment regarding your retirement strategy, it increases the likelihood of retirement success. A strategy that is poorly matched with your retirement personality is one that you’re more likely to have negative feelings about. This can cause you to make changes based on your emotions, and doing so at inopportune times can have a negative impact on your finances.
Retirement plans matching your personality can also make retirement more enjoyable for non-financial reasons. If your retirement strategy makes you fundamentally nervous or upset, even if it’s a sound strategy, you will likely spend a lot of your time being nervous and upset. That’s not an optimal way to experience what should be an enjoyable permanent vacation.
Work with your financial professional to understand how your personality impacts your approach to retirement financing. Doing so can yield better results, financial and otherwise.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
As Principal and Director of Financial Planning, Sam Gaeta helps clients identify financial goals and make plan recommendations using the five domains of financial planning — Cash Flow, Investments, Insurance, Taxes and Estate Planning. He is responsible for prioritizing clients' financial objectives and effectively implementing their investment plans and actively monitors the ever-changing nature of clients' financial and investment plans.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published