Take Back Retirement
What Happens When The Plan Goes Wrong?
About eight years ago, we had a client—let’s call her Alison. She was in her late 30s and doing great in her career. Her income was picking up. We had thought about the best way for her to save her money for the things she wanted to do, among which was to leave her high-stress job before the age of 65. One day I got a text. Her husband had died. Her whole plan had gone sideways.
In financial planning, we focus on planning for your future. We talk a lot about what you want to do, what you enjoy, and what you dream about. But we also have to talk about what to do if things go wrong. Given that we’ve all just lived through 2020, we know that things can go terribly wrong, and we know people (perhaps ourselves included) who have suffered horrible tragedies.
Listen in and learn the four steps to take in case your financial plan goes wrong, and why it literally pays to redefine how we view change.
- What should you actually do when the plan blows up? (3:24)
- Step One: Do nothing (5:25)
- Step Two: Find a support group or other people to talk to (08:36)
- Step Three: Preserve your flexibility (11:53)
- Step Four: Address the life decisions before the money decisions (13:45)
- Remember, we don’t create financial plans; we do financial planning (16:30)
- “In the midst of these changes, disruptions, and upsets, be at peace with your finances.” (18:12)
- The real purpose of the emergency fund (20:58)
Stephanie McCul…: 00:06 Welcome to Take Back Retirement, the show for women 50 and better facing a financial future on their own. I’m Stephanie McCullough. And along with my fellow financial planner, Kevin Gaines, we’re going to tackle the myths and mysteries of quote unquote retirement, so you can make wise decisions toward a sustainable financial future. Through conversations and interviews. You’ll get the information and motivation you need to move forward with confidence, and we’ll be sure to have some fun along the way. We’re so glad you’re here. Let’s dive in.
Stephanie McCul…: 00:41 About eight years ago, I have a client we’ll call her Alison. She was doing great in her career. She was in her late thirties. She was really succeeding in her firm. She had been made a partner. Really, things were going well. Her income was picking up. We had talked about how best to save it for the things that she wanted to do. Buy the beach house. Maybe have the opportunity to leave the high stress career before 65 and do something different. We were putting money towards all these different goals. And then one day I got a text. Her husband had died.
Stephanie McCul…: 01:18 Coming to you semi-live from the beautiful Westlakes Office Park in suburban Philadelphia. This is Stephanie McCullough and Kevin Gaines of Sofia Financial and American Financial Management Group. Say ‘hello,’ Kevin.
Kevin Gaines: 01:28 Hello, Kevin.
Stephanie McCul…: 01:30 In financial planning, we focus on planning for your future, putting the dollars towards the stuff that you want to do in your future. Right? We talk a lot about ‘what do you want? What do you enjoy? What do you dream about?’ But we also have to talk about ‘what if things go wrong?’ This is a harder conversation to have. And yet, we’ve all just lived through 2020. We know things go terribly wrong. We all know people who have suffered horrible tragedies, probably many of you listening have gone through times of upset in your life.
Kevin Gaines: 02:09 And it’s challenging because talking about your future is fun, normally. Because it’s just like, ‘hey, I want to do this. I want to do that. We really are looking forward to the vacations, the grandkids.’ Whatever it may be. And then like you said, we have to talk about the, ‘what ifs.’ And in some ways they’re not too difficult either because it’s like, well, that’s somewhere in the future. So yeah, we can talk about it a little bit, but it’s not real.
Stephanie McCul…: 02:39 Until it is.
Kevin Gaines: 02:40 And then it is.
Stephanie McCul…: 02:42 Yeah.
Kevin Gaines: 02:42 it sounds like it could be a trailer for a movie ‘and then it was. It wasn’t real. And then it was.’
Both Speakers: 02:50 [laughter]
Kevin Gaines: 02:50 But, you’re stuck with the emotions is the problem, right? Because you’re sitting there, it’s like, ‘okay, so it’s abstract that I’m going to die or that our investment value is going to go down.’ Or it happens a lot that grandparents are taking custody of their grandkids. That’s a big trend right now, demographically speaking. So there’s a lot of these things that, okay, fine. We can kind of build a contingency in, but when it’s actually happening, it gets scary.
Stephanie McCul…: 03:23 And that’s what we want to talk about today. What do you do? What actually should you do when the plan blows up? When the things that you really had counted on in your life, all of a sudden you wake up one day and you’re facing a whole different situation, right? We’ve mentioned death of a partner or a family member. It could be a divorce. It could be a forced early retirement, right? All of a sudden your job doesn’t exist anymore. Or your spouse’s job. Maybe your whole industry kind of disappears. And all of a sudden robots are doing your job. Or maybe there’s a pandemic.
Kevin Gaines: 03:56 The list goes on. There’s always something. We have a client Doris. She was recovering from divorce. Fortunately for her, her kids were grown and they were already established. So it was easier for her to focus on rebuilding her plan. And then she gets hurt walking and slipping, on ice in a parking lot. And now she goes on disability. She can’t work. Now all of a sudden these projections of, ‘hey, we’re going to save X amount of dollars. We’re not going to have to worry about social security or Medicare or Medicaid. We’re not going to worry about any of these things for a while. We’ve got everything sorted out.’ I can honestly say, when we talk to clients about working on their planning, going on disability, that’s not something that comes up very often. It’s just there’s other big or bigger issues we think on. And then it’s just something out of left field. 12 months ago, who was planning, ‘hey, what happens if a pandemic hits?’
Stephanie McCul…: 04:56 Right. Yeah. So you wake up one day, everything’s changed. The world has turned on its head. What is it that you’re supposed to do? And people often think that our job as financial planners is all about the numbers and the spreadsheets and the calculator. And it’s not because money is emotional. All the financial stuff, it touches all these important parts of our lives. So yeah, we’ve got to deal with the real messy human things. I think the first thing to do is absolutely nothing, right? Nothing. You’ve got to just sit and be with it and figure out what the new situation is.
Kevin Gaines: 05:38 And that’s important. Remember most financial decisions you don’t want to make in the first 30 seconds of something happening. In most cases, you don’t have to make that decision either. Fortunately.
Stephanie McCul…: 05:50 Yes. You have time. Nothing’s that urgent. And usually if someone’s you it’s that urgent, they’re going to get a commission out of the deal.
Kevin Gaines: 06:00 Right. So just take your time. Take a breath. Deal with what you have to deal with. If it’s a death, deal with the death. If it’s going on disability, get that figured out. Yes, there might be some initial expenses you’ve got to worry about if you go out on disability or lose your job unexpectedly. Yes, you may have to worry about the first couple of months of expenses. Hopefully you have an emergency fund, which is where this comes into play. But most of the, for lack of a better phrase, the major decisions regarding adjustments to any type of plan you’ve developed, it can wait until you’re in a better place. You may not be in a good place, but a better place to make some decisions that may or may not be hard.
Stephanie McCul…: 06:47 And it is fascinating to me, all this brain science that’s out there now, right? The behavioral research. They can look at our brains and how they operate. And one of the things they’ve discovered is if we are in a state of heightened emotion, our higher-level reasoning, that part of our brain, which kind of can do the big rational, calm thought, it almost gets shut off. We are really impaired in our rational thinking when emotions are high. So there’s actually a scientific reason for this whole kind of, ‘wait, take a lot of breaths. Take time before you decide anything.’
Kevin Gaines: 07:22 We’re actually going to have a guest on in a later episode. And she’s going to be talking about how the mind can impact a lot of these decisions. And I think that’s going to be fascinating. But this is big stuff. Understanding that you’re not in a position to understand is important.
Stephanie McCul…: 07:43 Yeah. I’m certainly not an expert on emotions, but we have to let ourselves feel them. Right? You have to kind of take that time to grieve. We’re talking about negative changes in your life. So there is going to be a grieving process for the life you had the day before this happened to you. So whether it’s grieving for a lost marriage, a lost loved one, a lost job, whatever it might be, I really do think there’s a phase of grieving and you can’t rush grief. It doesn’t happen quickly. It doesn’t happen in a nice, neat order. It can come back for a long time. So that’s our first tip. Do nothing. Give yourself time to kind of absorb and readjust. And our second tip is find someone to talk to. Find someone where you feel safe being vulnerable about how you feel.
Kevin Gaines: 08:45 You need to have somebody to talk to. And it needs to be somebody you trust because you need to be honest. That’s a big problem we all have. It’s not just a river in Egypt, right? Denial happens to all of us. So we’re not talking about financial planners. We’re talking about a friend. We’re talking about a therapist. We’re talking about somebody that, if nothing else you can just dump on as far as your emotions, your worries, your fears, your frustrations, whatever it is. Would you call it a cleansing, Stephanie?
Stephanie McCul…: 09:17 I think so, right? And support. There are lots of support groups out there. I recently was told about the modern widows club. There’s online supports for if all of a sudden you find yourself in that category of widow. There are people who have lived through it and are willing to share their experience and help you out. So that’s another source. Or you’re in a caregiving role, perhaps. There are support groups for caregivers. You’ve got an incapacitated loved one. That’s a 24/7 job. That is overwhelming. Having some support for you so that you can carry on is super important.
Kevin Gaines: 09:53 That’s a good point talking about groups and other people that are in the situation with you. We all say ‘in the good old days,’ but when it comes to support groups and just emotional help, these are ‘the good old days’ now. Now with the beauty of the internet and the chat rooms and Reddit and all these things, it’s easier to find people who have been in your situation or at least close enough. I remember when my dad was diagnosed with cancer. My parents they went on the internet and they found a support group for carcinoid cancer specific to their situation. And it was emotional support. It was ideas. It was a very involved community. And my dad’s been gone for a few years now, but my mom still goes to this group. To support, but also to help people saying ‘this is what we did. This is what we dealt with.’ So there are people out there who want to help.
Stephanie McCul…: 10:57 Yeah. That’s awesome. A good friend of mine’s mother runs a group, both scientific research, but also kind of a community for folks with multiple myeloma. And then our other good friend’s father got multiple myeloma. So she was able to say, ‘oh my gosh, I have a ton of resources for you here.’ But if it doesn’t happen that your best friend has gone through this situation, there are resources out there. Sometimes it feels too vulnerable even to start asking people how to find them. But again, then Google’s your friend, I think. You can find a lot, like Kevin said, we spend too much time sitting in front of our screens, but they can be super useful.
Kevin Gaines: 11:38 Yeah. What do we always say? ‘Technology is great until it isn’t.’ Here’s a time where technology can be a really good tool for you.
Stephanie McCul…: 11:46 So our tips are step one, do nothing. Step two, find someone to talk to. Step three, and this is kind of more, just a rule as opposed to an action, but you want to preserve your flexibility. This is not a time when you want to do something that’s irreversible. Whether that means packing up and moving to another state, which I guess is not irreversible, but it’s still pretty significant or investing all your money in a certain thing. We want to make sure that whatever you think the plan is today, if it changes in three months, you can still adjust.
Kevin Gaines: 12:27 Yes. And that’s a good point because we frequently say one of the most dangerous rules out there is the rule of thumb, because now we’re shifting from getting grounded or dealing with the situation in front of you. Now we’re starting to shift into the conversation of adjusting the plan, making these decisions. The rule of thumb is, ‘oh, you should always do this or you should normally do that.’ Understand your situation. Case in point. And I don’t want to get too much in the technical details here, or the rules and regs. But IRAs, if your spouse dies, you have one of two choices as the surviving spouse. Nobody else has these two choices. You can take the IRA and make it your own, or you can keep it as a Beneficiary IRA. There are pros and cons on both sides and understanding what they are will help you make a decision there. And IRAs, as we always say, a lot of those decisions are one and done. You do not get to undo some of these things,
Stephanie McCul…: 13:30 Right. So you want to make sure you don’t move too quickly before you understand all the implications of what it is you’re doing. And I think that’s a good time to bring up step four, Kevin, which is you’ve got to address the life decisions before the money decisions. We always say that money is a tool. It exists to support you and the life that you want to create. So we shouldn’t be making any money decisions before you’ve spent some time thinking about what this new chapter of life is going to look like.
Kevin Gaines: 14:14 Financially speaking, when you make these changes, there may not be much impact to your plan. If you lose your partner, yes, there might be impacts on your income, but there could be impacts on your expenses. Maybe you don’t want to do as much. You don’t want to take trips around the world.
Stephanie McCul…: 14:32 Spend as much.
Kevin Gaines: 14:32 Yes, you’ll be happier just hanging out with the grandkids or hanging out with your friends. Life decisions before money decisions. But this step actually hasn’t changed from when everything was going well. In the beginning, you still make your life decisions before your money decisions. You have this vision of what you want your retirement to be. For example, we’re going to do this traveling and all these things. From there, you make the money decisions. Okay, so if we’re going to have these goals in retirement, and this is what we want to do to make ourselves happy and to have a rewarding second half of our life, we need to have our money be able to do this, that, and the other and support these things. We’re going through that process again now. When these changes happen, your goals might change, probably will change. So you need to look at them again and say, ‘what do I want to do now? Now that this is my reality. Now that I have this new reality, what do I want to do? Where do I want to go?’ Then we have the conversation about ‘what do we do with the money to get you there?’
Stephanie McCul…: 15:48 Yep. And it all circles back again, right? You don’t have to do this quickly. You don’t have to know within a month or two, what your new vision of life is. You’re probably not going to. It’s going to take a long time to adjust and to absorb where you are now and what it means. And that’s okay. Which ties into the preserving flexibility, right? Since we don’t know, talk to your financial professionals about what is the best way to preserve the flexibility that I might change my plans, things might adjust again. This is kind of true for all of us, right? Things might adjust at any moment, which is kind of the whole point.
Kevin Gaines: 16:30 Good point, Stephanie. We’re always saying, it’s not your retirement plan. It’s not your financial plan. It’s planning. It’s ongoing. It’s evolving. It’s constantly changing. What we’re talking about here, strangely, is more of the same. Things are changing. This particular episode is about a dramatic change.
Stephanie McCul…: 16:53 Yeah. Dramatic negative change.
Kevin Gaines: 16:54 But it’s a question of magnitude. It’s not a question of if the change happens. It’s how big the change is. This episode is about big dramatic changes, but we’re always talking about little changes. ‘In a normal life, we were planning on having three children. Oops. We ended up with five.’
Stephanie McCul…: 17:16 [laughter]
Kevin Gaines: 17:16 ‘Or I want to make sure my grandkids are kept care of. Again, I’ve got three to worry about. Hey, now I’ve got five to worry about.’ Those are little adjustments. Those aren’t big, but they’re still adjustments.
Stephanie McCul…: 17:28 And sometimes it’s, ‘hey, my gosh, Aunt Millie left me $2 million. I had no idea at Millie had any money.’ That’s a lovely adjustment.
Kevin Gaines: 17:36 Exactly. It’s big dramatic changes. What we focus on are the bad ones, but there are some good ones.
Stephanie McCul…: 17:43 What do they say? The only constant is change.
Kevin Gaines: 17:45 The only constant is change.
Stephanie McCul…: 17:46 And that’s why financial planning is a verb, not a noun. Financial planning as it should be practiced, is not a binder with lots of papers that sits on a shelf. It is the ongoing evaluation and adjustment of your dollars to line up with your life and your values and your goals.
Kevin Gaines: 18:07 So I saw this great quote the other day. I don’t know how old it is. It could be centuries old, but it kind of sums up what we want to do as financial advisors in helping people, helping you. So the quote goes like this: “Peace. It does not mean to be in a place where there’s no noise, trouble or hard work. It means to be in the midst of those things and still be calm in your heart.” And that’s what we want to do. Like we said, change happens good, bad. As you already said, the only constant is change.
Stephanie McCul…: 18:42 So we want you to be in the midst of these changes and disruptions and upsets and be at peace with your finances, right? Knowing that financially you’re going to be okay no matter what occurs. That’s our goal.
Kevin Gaines: 18:56 Right. There’s actually a commercial right now for some sort of homeowners warranty thing. I don’t know the name of the company or whatever, but the whole ad is these homeowners. Things are going wrong. Pipes are bursting. The roof is falling or whatever. Tornadoes coming through. But the entire time that they’re plugging this product, they’re sitting there smiling and saying, everything is good because I’m covered by this warranty. I don’t have to worry about the cost and everything. But the key part, the take away for me is they have peace. Things are going wrong. Things are changing, but they have that peace. That’s what we’re trying to do here is help you find that peace or a path to get that peace in your heart, even though everything is happening around you.
Stephanie McCul…: 19:46 Peace in your wallet.
Both Speakers: 19:50 [laughter]
Stephanie McCul…: 19:50 No, I think that’s true. And I think it’s a good point. Sometimes again, the behavioral science shows us that it’s really hard for us to put things aside for a future goal, some kind of smooshy future that’s hard to envision when it means sacrificing something that our today selves want. Like, ‘no, I want to eat that piece of chocolate cake, which means it’s harder for me to lose the five pounds or 15 pounds. I want to buy stuff today, which means it’s hard for me to save for the future or build up that emergency fund. What the heck’s an emergency fund? Why do I need that cash sitting there anyway?’
Kevin Gaines: 20:25 ‘I’m never going to need that emergency fund.’ [laughter]
Stephanie McCul…: 20:29 Right? Because shiz happens. Life happens. You have to build these financial safeguards up before you need them. So yes, making your financial decisions after a disaster. Now that’s what we’ve been focusing on today, but what do you do knowing disaster might strike? And that’s kind of the basic idea to build that strong financial foundation for resilience, which is what we do with our clients.
Kevin Gaines: 20:55 We touched on the point before. I’ll just reiterate it because it’s so important to both of us. The emergency fund. It’s not so much, well, yes, it is so much that it’s there to pay the short-term bills when something goes wrong that you don’t have to… But the thing is, it’s there so you don’t have to make hard decisions or permanent decisions. You have the ability just to tap on something, to get you through until you’re in a better place.
Stephanie McCul…: 21:22 Yeah. It could be as simple as you lost your dream job and you don’t want to have to go work at The Giant as a checkout person in the meantime. You want to focus on looking for your next dream job, which means you need to pay the bills from that emergency fund, the money in your bank, so you don’t have to make a rushed, perhaps a decision you might regret later.
Kevin Gaines: 21:43 Right. And that’s what we’re saying is take your time, have the flexibility to take your time and have a support system in place both personally and financial or maybe one in the same. I’m always happy to say your financial planner could very easily be your best friend. Right?
Stephanie McCul…: 22:04 [laughter] I see where you’re going with that.
Both Speakers: 22:04 [laughter]
Stephanie McCul…: 22:08 But on a serious note. We want to send so much empathy to those of you who are going through rough times, who have suffered a tragedy and a loss. It is so difficult. There are financial implications, which can feel overwhelming. So our messages is it’s okay to not deal with it right away. Find people to talk to and focus on the life stuff before the money stuff.
Kevin Gaines: 22:34 That kind of says it all.
Stephanie McCul…: 22:36 Thanks for being with us. We’ll talk to you next time. It’s goodbye from me.
Kevin Gaines: 22:39 And it’s goodbye from her.
Stephanie McCul…: 22:45 Be sure to subscribe to the show and please share it with your friends. Show notes and more information available at TakeBackRetirement.com. Huge thanks for the original music by the one and only Raymond Loewy through New Math in New York. See you next time.
Disclaimer: 22:59 Investment advice offered through Private Advisor Group, LLC, a registered investment advisor. Private Advisor Group, American Financial Management Group, and Sofia Financial are separate entities. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investments may be appropriate for you consult your financial advisor prior to investing. This information is not intended to be substitute for individualized tax advice. Please consult your tax advisor regarding your specific situation.