The Surprising Way Binary Thinking Can Ruin Your Retirement
Remember old-fashioned teeter-totters? The kind made from a wobbly wooden board? As a child, I’d spread my arms wide and stand in the middle of the board with one foot on each side, swaying back and forth, trying to balance and suspend both ends above the ground.
You're the kid on the playground when making decisions about money and life. One end of your teeter-totter is today; the other is tomorrow. With every choice to save or spend, work or play, eat well or splurge, you’re trying to balance your teeter-totter, living a great life now while holding out the possibility for a great life later on.
In my years as a practicing financial planner, one of the biggest hindrances I’ve witnessed to finding this balance between a great life now and in retirement is the notion that retirement is a series of A or B choices. It works like a light switch. You’re retired, or you’re not. You’ve saved enough, or you haven’t—end of story.
I have great news! Done right, retirement can work more like a dimmer switch. Making that happen requires expanding your thinking and considering a range of options for major decisions. Don’t allow yourself to get trapped by binary thinking, limiting your choices to only A or B.
Take the question of work. Every year, we survey the listeners of the Retirement Answer Man podcast, asking what excites them most about retirement. The landslide winner is time freedom. Historically, retirement meant that you stopped working entirely to obtain that open schedule. Today, with the range of options available for remote positions and gig work, it’s possible to leave a high-pressure, 40 or 50-hour-a-week job and find something that provides supplemental income and that most alluring prize, more free time . I like to call this pre-tirement, an optimal target that permits you to retain your income-earning superpower while liberating you from full-time work demands. Maybe you don’t have enough savings to retire fully right now, but what could you do if you pre-tired for 5 or 10 years?
Let's take the example of Jim. He had a successful finance career in New York City with significant earnings and has been a conscientious saver. His particular job required lots of hours, stress, and a lengthy commute, a noble sacrifice many make to provide for their families and save for retirement. Realizing he was approaching retirement, Jim got creative and found a new job teaching finance at a university close to home. The position provides enough income to live on and preserve retirement savings but comes with a lifestyle that gives him back what is most valuable: his time. Jim gets the best of both worlds without the binary decision of "I retired.” He can enjoy his passion by teaching finance while gaining time with his family and flexibility to do what matters most to him.
Savings. Another sticky subject that lends itself to binary thinking. Most traditional financial planners will have you run the numbers for your life, crunch them into a calculator that tacks on inflation and projected investment growth, and then spit out a daunting figure for your target nest egg. Want to retire and maintain your current lifestyle? Good luck.
I firmly believe this is another area where creative thinking can grant you the agency to enjoy life now and still be reasonably confident that you’ll have enough to live on when you’re 90. Roll up your sleeves and get ready to negotiate with yourself. Identify your must-haves and want-to-haves. Maybe you can’t retire today and travel every year for the rest of your life… but could you go every 3 or 4 years? In my experience, expenses tend to get front-weighted in retirement, in what I call the go-go years. It’s improbable that your costs will remain the same, growing to account for inflation, for the entirety of your retirement. Financial reality is what it is, and working within the numbers will naturally provide some constraints; that said, I wouldn’t let the quest to reach a magic savings number drive your retirement.
The go-go years of retirement can be incredibly fun and an area where your creativity shines! These are the years to be active while you can. I think of the retired couple who wanted a second home on a lake to be a place of enjoyment and relaxation for their kids and grandkids. Purchasing this home would constrain their retirement plan. The binary way to approach this is to say no (because this is a yes or no decision). The easy solution is to stop there and give up on this vision, but what if we leaned in a little more? With teamwork and collaboration, we came up with a solution where they purchased the home with an understanding that they would sell it in ten years, bringing those assets back into dollars to support their later years of retirement. Those first ten years will most likely be the most active years of their retirement, and thankfully, they didn’t let binary thinking prevent them from making memories with loved ones at the lake.
Binary thinking can be tempting because it’s easy. Identifying the host of options between all or nothing can be downright daunting! I encourage you to maintain your focus on the vision you have for your life. Know who you are and what you value. Let your vision guide you in uncovering available pathways to take action. Then, may you find that sweet spot where both teeter-totter ends are hovering above the ground.
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