retirement planning

Easy Access to Financial Advice Requires Analytical Thinking

It’s up to each investor and retirement saver to separate fact from fiction and to overcome their own personal biases.

Even in the best of times, Americans face a daunting range of financial decisions as they approach retirement. And, let’s face it, these are not the best of times. So, I understand when people turn to the internet for answers, or listen to financial gurus who dole out free advice on TV.

It’s easier, faster — and probably more entertaining — than calling a financial adviser every time you have a question or need help. You can do a deep dive into just about any issue of interest (Do I have enough money to retire? Do I still need life insurance? Should I pay off my house?) and find plenty of suggestions out there.

Pros and Cons of Overabundant Advice

The upside to limitless access to answers is that retirees and soon-to-be retirees have the potential to become much more knowledgeable about investing and financial planning.

The downside is that it can be a challenge to differentiate between good and bad information or facts and opinion. It also may be difficult to understand how a specific strategy or financial forecast pertains specifically to your situation. You may not even realize how your personal biases are playing in your decisions.

Trying to Google your way through a retirement plan is a lot like trying to diagnose an illness by typing symptoms into a search engine or watching a health segment on the news. You might receive some worthwhile guidance, but you’ll also find plenty of confusing contradictions. And, depending on your personality or experiences, you might decide you’re fine when you aren’t, or that you’re in dire trouble when there’s an easy fix.

We All Have Our Biases

The tendency to look for information that supports your views and ignore data that proposes something different is called confirmation bias, and it can be dangerous for your finances. It can lead investors to make poor decisions when it comes to saving and investing, especially when there’s a barrage of anxiety-inducing news out there.

We all fall victim to our biases; it isn’t a fault or a failure. It’s just something you should know about yourself to ensure you’re careful about how you filter the information you receive, whether it’s coming from social media or the news or, for that matter, from your co-worker, neighbor or brother-in-law. If your mindset tends toward the negative, you’re likely going to latch onto the things you see and hear to confirm that view. And if you’re an optimist, you’ll have little trouble finding signs to suit a strong bias.

If you believe inflation is going to explode in the next few years, you can find evidence that you’re correct. The same goes for worries about taxes rising or Social Security disappearing. And, if you think the economy will rebound in six months and everyone who wants a job will find one, I’m sure you can find support for that, too.

The Keys to Overcoming Them

So how can you battle your biases?

The first step to overcoming confirmation bias is to acknowledge that it exists — not just for you, but for everyone out there offering an opinion on how much risk you should take with your portfolio, when you should claim Social Security, or how much money you should have saved to retire comfortably. (Yes, that includes professional financial advisers.)

Then, knowing that these biases exist, stay open-minded about alternative points of view. Make a list of pros and cons, and don’t just nod when you hear what you want to hear and tune out everything else. Whether you agree or disagree with the person giving the advice, ask challenging questions.

Finally, in my opinion (and, of course, I may be biased), it’s important to have a retirement plan that assigns a purpose to each asset and account you own or in which you might invest. This means knowing the meaning of every product and strategy and when it’s meant to come to fruition – now, in a few years or many years down the road.

Separate your income-producing assets from your growth assets so you have money for now and in the future. Have a reserve account meant only for emergencies — for the grocery store or when a tree lands on your roof, not when you want to go to Key West. Have a plan for inflation, taxes, your home and your health care. Be prepared for things to change in the world, and in your personal world, as you age.

Knowledge is power when it comes to investing — but it starts with knowing yourself, your goals and how to attain those goals. Make a plan built with purpose — not based on fear or folly. And then, work the plan.

Kim Franke-Folstad contributed to this article.

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Sterling Wealth Management are not affiliated companies. Investing involves risk, including possible loss of principal. 710844-9/20

About the Author

Kyle Kay, Investment Adviser Representative

Founder, Sterling Wealth Management LLC

Kyle A. Kay is a licensed insurance agent and an Investment Adviser Representative and founder of Sterling Wealth Management LLC (www.swmfl.com). He has three decades of experience in banking and financial services and has helped guide clients to success through four economic cycles.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Most Popular

Tax Wrinkles for Work-at-Home Employees During COVID-19
taxes

Tax Wrinkles for Work-at-Home Employees During COVID-19

Are your home office expenses deductible? How does going out of state to work for a while affect your tax picture? There are some interesting wrinkles…
November 9, 2020
Retirement: It All Starts with a Budget
personal finance

Retirement: It All Starts with a Budget

When you’re meeting with your financial planner, do you talk about your budget? If not, you should.
November 10, 2020
Will Joe Biden Raise YOUR Taxes?
taxes

Will Joe Biden Raise YOUR Taxes?

During the campaign, Joe Biden promised that he would raise taxes for some people. Will you be one of them?
November 10, 2020

Recommended

How to Vote for Social Change with Your Investments
investing

How to Vote for Social Change with Your Investments

Want to invest your money in companies that care about climate change, racial equity or other issues important to you? Consider “Socially Responsible …
November 23, 2020
I’m Not a Millionaire, But I Just Gave $250,000 to Morehouse College: Here’s How (and Why)
personal finance

I’m Not a Millionaire, But I Just Gave $250,000 to Morehouse College: Here’s How (and Why)

You don’t have to be a millionaire to make a generous charitable donation to a cause that means the world to you, just like I did. Here’s the strategy…
November 23, 2020
Medicare Mania: Some Basics to Know During Open Enrollment
Medicare

Medicare Mania: Some Basics to Know During Open Enrollment

What’s Part A, Part B, Part C and Part D and what do they cover? What are Medicare Advantage plans? And how about the deadlines involved? There’s a lo…
November 21, 2020
Have Equity Compensation? Strategies to Handle Stock Market Volatility
Employee Benefits

Have Equity Compensation? Strategies to Handle Stock Market Volatility

The stock market can be volatile, as we’ve all seen recently. To make the most of your equity compensation and manage your income tax bill at the sam…
November 20, 2020