Given the financial turmoil of the last year and a half, cultivating a quality of resilience has become increasingly important as we look to rebuilding financial futures. This characteristic was something that was identified by Diane Coutu in the May 2002 Harvard Business Review: How Resilience Works. Ms. Coutu’s research revealed that resilient people possess three primary characteristics, all of which can be applied to loss and recovery in the financial realm:
1. A staunch acceptance of reality;
2. A deep belief, often buttressed by strongly held values, that life is meaningful; and
3. An uncanny ability to improvise.
The current reality includes the fact that stock markets began declining in the fall of 2007 and finally hit bottom in early March 2009. This was the worst stock market crash since 1931, and it was certainly an event that could derail a retirement plan. But how would you be able to make that assessment if you didn’t have a financial plan?
A financial plan specifies the annual asset levels you will need, year by year, in order to have the capacity to withdraw living expenses from your investment assets when you need them. In my experience, people who are willing to pay for professional financial planning are willing to face reality, not avoid it. They are able to assess what the downturn really means for them and continue to plan accordingly.
One of the most helpful characteristics of a financial plan is that it specifies a track for the future so that clients are able to assess how they are doing and make adjustments as necessary; they have real reference points, year by year, to determine if they are on or off track. We prefer to be conservative when planning for the future, which is why we recommend planning for a life expectancy of age 100. We would rather our clients end up with more money than they planned on rather than run out of money when they are no longer able to work—in general, the years beyond 70.
In the midst of the financial storm of 2008/2009 it was easy to become caught up in the zeitgeist of the culture—people felt as if the world was coming to an end. Now that the S&P 500 is up more than 60% since March 9, 2009 and the rate of job losses has slowed significantly, it turns out that the world did not come to an end after all. If you had a retirement plan prior to the crisis, no doubt you have experienced significant recovery. If not, enlist the help of a certified financial planner to help you get a sense of where you stand financially and develop a plan for the future.
Admittedly, there are times when we are just not willing or able to immediately face reality. I have heard many stories of investment management clients who simply could not bring themselves to open their investment statements from October 2008 until June of 2009. But knowing is power. Knowing your financial status allows you to adapt to reality in the present and plan realistically for the future. This can create peace of mind.
Life Is Meaningful
Life is not implicitly meaningful to everyone, but it is interesting that Ms. Coutu’s research revealed that one characteristic of resilient people is the belief that life is meaningful. One way to think about this, rather than a discussion of what may or may not be meaningful, is to compare and contrast a destination philosophy of life with a journey philosophy of life.
A person whose approach to life could be described as destination oriented might live with an underlying story like this:
The downside to the destination philosophy is that it is based on an assumption that happiness or satisfaction can only be attained by achieving a specific result somewhere in the future; nothing else in the present or along the way matters.
The journey philosophy is characterized by an attitude that attaches meaning to the experiences of life, even when bad things happen or specific goals are not met. There is always something to learn; things change, people change, plans change. Life is a journey; the journey is meaningful.
Having experienced the worst recession since the 1930s, resilient people are asking:
Some of our most resilient clients have told us that after the drop in value of their real estate and other financial assets, they realized that their “excess wealth” was actually a distraction from what was most important to them. Their wealth kept them busy with trips and various indulgences that were not particularly deep or satisfying. Their losses have forced them to think more deeply about:
A journey philosophy helps us view life as an adventure. No matter what happens, I can find meaning and value.
An Uncanny Ability to Improvise
With the worst global economic downturn in 78 years, individuals, families, businesses, and governments have had to accept reality and improvise.
When income or financial security declines, resilient people redesign their lives and budgets based on introspection about what is most important or meaningful to them. Resilient people find personal, spiritual, and professional growth opportunities as a result of loss and change.
Resilient people improvise in response to their personal economic situations. Some have moved to less expensive homes or communities, decided to rent a room or rooms in their homes, taken on part-time jobs, started businesses, become consultants, gone to graduate school, sold real or personal property, decided to work longer, stopped traveling, reduced spending, increased savings, and any number of other improvisations.
People are redefining what retirement means. The idea of a cold-turkey retirement, where a person no longer works at all and only pursues leisure activities, has become less realistic and less attractive. Funding a 30- to 40-year retirement with a 30- to 40-year career requires uncanny discipline and productivity. The possibility of continuing to work and earn income beyond ages 65 and 70 is becoming a sensible and attractive improvisation.
Cultivating an Attitude of Resilience
I would speculate that resilient people are not necessarily born that way. They might have been raised to be that way or, through painful personal experience, have grown to embrace a resilient attitude or journey philosophy. If we are not naturally or innately resilient, we can learn from these people.
Learning how to be more resilient can certainly affect the quality of your life. And if this allows you to face the reality of your financial situation—with the help of a certified financial planner—resilience can positively affect your financial future as well.
The 2018 tax season is now upon us, and with that comes tax documentation to assist you in filing your return. All official tax reporting information will come directly from Schwab. Please see below for timelines (varies by document type). 1099 – Paper Mailing For retirement accounts, you should have already received your Form 1099-R. …Read More