A Different Way to Measure Progress

 By Daniel Dorval, CFP® | Tuesday, November 6, 2018

We recently asked a couple when they wanted to retire, and their response was not an uncommon one for us. They said they would retire once their investments reach $1,000,000! When asked what they would do if their investments never reached that mark, possibly due to factors completely outside their control, they both appeared a little confused and were not sure what they would do? They just thought everyone needed at least $1,000,000 to retire. We hear this all the time and even refer to it as the “magic million” because it is a nice round number that is so often cited by our clients (and in media) when talking about retirement. In this case we were able to show them $1,000,000 is a completely arbitrary number that might be easy to measure, but really was not necessary for them to be financially independent and retire on their own terms.

We all have a driving urge to make progress in our lives. It starts as infants when we go from crawling to walking and ultimately to running. We often find great joy in our progress because moving forward gives us a sense of fulfillment and accomplishment which can make life more meaningful. It also means we like measuring things! Think of how parents often measure their kids up against the same wall each year to track their height as they grow up. My kids loved seeing their progress in getting taller! Progress also applies to our financial lives, particularly in the context of investing and accumulating assets. Many of the people we help have enjoyed progress in their investments for quite some time now, but may have experienced setbacks in October leading to increased uncertainty and even anxiety. That is a perfectly normal reaction to feeling like we have taken a step backward in working toward our goals!    

Market declines often cause this type of emotional response, but in our experience, the biggest financial planning challenge to our desire for progress is the idea of retirement. For most of us, we spend a lifetime working and earning income to satisfy our needs and wants, but also making progress in accumulating assets in a very measurable way. We might contribute to our 401k plans, Roth IRAs, or savings accounts with the goal of having more. Technically there is never enough when “more” is the standard, but more always makes us feel like we have reached new heights. We tend to naturally feel better when our balances are increasing and feel worse when our balances are decreasing. The desire to have more means those fortunate enough to have accumulated $1,000,000 are usually not satisfied. More would still be better! Wouldn’t you rather have $2,000,000?

Retirement presents us with a fundamental shift in this mindset of making progress from a financial perspective. Choosing to no longer work forces us into a transition from accumulating to decumulating which can be a very challenging concept for most of us to wrap our brains around. The whole idea of spending what we have worked so hard to save is counter to how we tend to evaluate most of our life and often makes us feel like we are going backwards. Most of us will feel a sense of letdown, or maybe even disappointment, as balances might stop increasing and may even decline for periods of time. That is part of the reason why so many of us experience a deep sense of fear and anxiety about retirement as we worry there will never be enough and we may outlive what we have accumulated.

As advisors, we like making progress too, but our planning and advice is always focused on advancing and improving quality of life! We want to change the perspective of progress from numbers, that might ultimately mean very little, to personal experiences and goals that may mean a lot. Quality of life is a very personal thing based on our unique values and priorities. Using the financial resources we have accumulated to create meaningful memories, experiences, and social interactions is far more impactful to our personal joy and happiness than simply seeing numbers go up or down based on factors that are often outside our control.  

If you are the type of person who finds comfort in numbers (and there are many of you out there), we suggest focusing on income over balances. Balances can be volatile and change every day. Income is usually more stable. This is why we relentlessly remind our clients about the great value in guaranteed income sources such as Social Security and pensions that do not fluctuate with changing market conditions. Focusing on income can give us a sense of peace and security when considering an uncertain future.

We understand a lot of people might be concerned about recent market declines because lower balances might feel like we are moving away from our goals. Instead of measuring progress in this somewhat arbitrary and impersonal way, we encourage everyone to carefully consider what really matters in life. We believe measuring progress from a personal quality of life perspective is a healthier, and ultimately happier way to think about your finances and will lead to better decision making about difficult, emotional life changes such as retirement!