It’s the job of the fiduciary to always act in the best interest of the client – even if the client doesn’t know his own best interest. In the purist sense, the role model is the classic turn of the (nineteenth) century bank trust officer.
This stereotypically stodgy curmudgeon often acts as the surrogate parent to the beneficiary. The trustee poses as a barrier between wanton spending and financial discipline.
While all this makes a great Victorian novel, we can relax knowing this kind of paternalism all but disappeared with the entrepreneurial eighties. People today do a much better job looking out for themselves. What’s more, individualism rocks. Folks don’t want an alma pater looking over their shoulder. They seek the freedom of self-reliant independence.
Alas, human nature being what it is, it’s tough for anyone to stay the financial course. That’s where the modern fiduciary comes in.
We can isolate several specific life periods where making the right decision can have a dramatic impact. In terms of retirement, almost everyone agrees on at least two such periods – the beginning of the career and the end of the career.
One’s retirement life can be quite comfortable if one makes the right decision to save massive quantities at the beginning of one’s career. But there’s no reason to believe you’ve missed the boat if you missed the opportunity of this first period.
As we near retirement, we actually enter into a second period where decision-making can offer a dramatic impact (see, “Fiduciary Advice: 5 Critical Behaviors to STOP Within 5 Years of Retirement,” FiduciaryNews.com, October 4, 2016).
This is where fiduciaries must do their best impersonation of those old-time bankers. The last few working years represent the best chance to best prepare for retirement. But remember, retirement is a significant lifestyle change, and the inherent uncertainty can scare people.
How do you react when you’re scared? Some people circle the wagons and fight with a steely glint in their eye. But those people are about as rare as a lonesome cowboy. Many more people undertake a form of psychic numbing, thinking if they ignore the problem, it will just go away.
Do you doubt this? Log into your memory banks and program the Way-Back Machine to 2008-2009. Can you recall how many employees tossed their unopened 401(k) statements into the “ignore forever” pile. (OK, so it could have been worse. They could have opened those statements and sold at the market bottom, but that’s not the point.)
Behavioral science says people would rather live in the present than sacrifice for the future. Is that in their best interest?
Humanities majors might consider this a philosophical question, but those versed in finance know the undeniable truth of compound interest.
That means thinking several moves ahead. That means forging – not squandering – today’s resources into a happy tomorrow.
In these two periods of life – the beginning of the career and the end of the career – the temptation is to, in the first case, buy the things you could only dream of when you were a kid. In the latter case, the comfort of a lifetime of accumulation makes it all the more difficult to contemplate the vastly different lifestyle of retirement.
But if you ignore this for too long, well, that’s when mistakes are made.
Retirement comes in a variety of flavors. While we all can’t have the perfect retirement, there exists an optimal retirement for everyone. It’s reaching for the perfect that causes people to lose out on the very acceptable optimal.
It’s up to the fiduciary to identify the losing choices and help guide the retirement saver towards making the hard choices that will benefit them in the future.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
