Here's one thing you can do daily to set the stage for a secure financial future.
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00:00What's one thing people can do every day, presently, to help set themselves up for retirement?
00:07So, a couple things. One is, you know, make sure you're saving. But also, you know, saving for what?
00:12And, you know, the thing that I like to think about is, okay, it's one thing to have a pile
00:17of money. It's also another thing to calculate what your expenses will be in retirement. So,
00:22for instance, imagine that you have no paycheck anymore. And what you need to do is say, well,
00:29how much do I need to accumulate in order to fund 30 years of housing expenses, 30 years of
00:34transportation expenses, 30 years of insurance, 30 years of taxes? Where's that money going to
00:40come from? Will it come from a 401k, from a Roth IRA? Will it come from Social Security? Am I lucky
00:45enough to have a defined benefit plan? And so, you need to really think about, like, what do you have
00:50and how is that money going to be spent? And then the second thing I would sort of mention is
00:55retirement. I always think about planning for retirement as it's all about the rewards,
01:00right? I'm saving money to accumulate a big nest egg of money. I think about retirement
01:05differently. I think about retirement as all the risks that you'll face in retirement. So,
01:09the Society of Actuaries, for instance, notes that there are at least 15 risks that people
01:13will face in retirement. They include things like longevity risks, inflation risks, sequence
01:18of return risks, death of a spouse, change in housing needs, etc., etc., etc. So, I think people
01:23not only need to think about what expenses they'll face in retirement, but how will they manage and
01:28mitigate all these different risks that they'll face? And the tools that you'll use to manage and
01:32mitigate some of these risks will be different. So, I mentioned inflation risks. Well, you might
01:37want to make sure that you're investing in stocks to keep pace with inflation so that you won't
01:41experience a decline in your standard of living. On the other hand, longevity, the fear of outliving
01:47your assets, is a very real risk that you'll face too. Equities, investing in stocks, doesn't always
01:53manage and mitigate that risk, but things like annuities, income annuities, QLACs, deferred
01:57income annuities, those are tools that you could use to manage the risk about living your assets
02:02or the risk of longevity. So, think about, just to summarize, you know, think about your expenses in
02:08retirement carefully, and then think about the risks that you'll face in retirement and what
02:12tools you use to manage and mitigate those risks. So, give us the benefit of hindsight. What do you
02:19wish you knew about retirement when you first started your career? Well, so, one of the things,
02:25you know, it's become very popular to talk about in the financial planning profession these days
02:30is what are the behavioral biases that people have as they think about saving for, investing for
02:36retirement. And one of the terms that is probably unknown to many people is something called present
02:42bias, which refers to the tendency of people to give stronger weight to payoffs that are closer
02:47in the present time when considering the tradeoffs between two future payments. So, for example,
02:52if, Conway, I was to offer you $10 today or $15 tomorrow, if you were to choose the $10,
03:00you would be, you would have something called present bias, which is being valued that money
03:04more today than you do tomorrow. On the other hand, you know, it's quite possible if I was to say to
03:09you, Conway, I'm going to give you $10 a year from now, and then I'm going to give you $15 a year and
03:14a day from now, you might say, well, waiting the extra day is worth it. People need to understand
03:20what their biases are, especially as it comes to money. And, you know, we talked a little bit about,
03:25you know, this notion of fear of missing out or living for today and not for tomorrow.
03:30Present bias sort of encapsulates that, right? This notion of I have money in my pocket,
03:36it's money to burn, I'm going to spend it now on, forget about lattes and whatnot, I'm going to
03:40spend it on all life's pleasures today and think less about my 65 year old or 70 year old or 85
03:47year old self, because I don't, I don't have, I don't care about that person I care about today,
03:53and I care about the money in my pocket today. So if I had to go back in time,
03:57I wish I had a better understanding of present bias, I think.