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.
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.
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
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.
-
Is Your Social Security Earnings Record Wrong? Here's How to Fix ItYour Social Security benefits are based on your Social Security earnings record. It's important to review your records to avoid having your benefits reduced.
-
Stock Market Today: Markets Discount Another U.S. DowngradeAfter Friday's closing bell, Moody's followed Standard & Poor's and Fitch and cut its rating on U.S. government debt.
-
Donating Complex Assets Doesn't Have to Be ComplicatedIf you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? WrongThe wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term CareMany people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
-
Social Security Pop Quiz: Are You Among the 89% of Americans Who'd Fail?Shockingly few people have any clue what their Social Security benefits could be. This financial adviser notes it's essential to understand that info and when it might be best to access your benefits.
-
Such Attractive Yields in High-Grade Munis Are Rare and May Not Last LongAccording to this munis expert, the last time munis were this cheap was a brief period in 2023. If you kicked yourself for missing out then, you have a second chance now.
-
Financial Analyst Sees a Bright Present for Municipal Bond InvestorsHigh-tax-bracket investors have an excellent opportunity to secure low-volatility, high-quality returns at yield levels rarely seen in over a decade.
-
I'm an Insurance Pro: How Not to Get Dumped by Your Insurance AgentYour insurance agent or broker might show you the door if you do any of these five things. Being a good customer is about more than paying your bill on time.
-
Two Estate Planning Issues You Should Never OverlookThis estate planning attorney explains why proper asset titling and beneficiary designations make a big difference when it's time to transfer your wealth.
