“Independence is happiness”- Susan B. Anthony.
As this nation embarks on a celebration of its 250th year of winning its independence, it is a poignant time to ponder the power of what it means to be independent. Why were our founding fathers willing to risk their lives for this particular goal?
The Webster’s Dictionary defines “independence” as, “the state or quality of being free from the control, influence or support of others.” In other words, independence is synonymous with freedom: Freedom of choice, freedom of thought, freedom of action. It is in the human condition to strive for free will and it is akin to inhumanity to be under the control of others.
As we consider this “self-evident truth,” it causes me to consider conversations that I have with clients every day about financial planning and retirement. One of the banes of the financial advisory industry is clients who profess a desire to retire at a certain age, receive thoughtful mathematical feedback regarding what savings and investing strategies will accomplish that goal from their advisors and then do not take the necessary steps to achieve their goal. We all have stories of this phenomenon, maybe very personal ones, where retirement security is sacrificed in the name of current enjoyment.
It makes me think of a line in the television show How I Met Your Mother when Ted and Marshall resolve a fight by agreeing that the conflict is “future Ted and future Marshall’s problem.” So why, when retirement security is so mathematically achievable for so many, does this country have such poor retirement preparation, savings and security? Obviously, this is a highly researched topic and one of the primary reasons that behaviors are misaligned with goals comes down to perceptions and phrasing. In other words, words matter.
The research in this area is both vast and consistent. When the goal is phrased as “retirement,” a person’s willingness to take the necessary savings and investing actions is spotty and sporadic at best. But when the goal is rephrased as financial independence, the follow-through goes up dramatically.
In digging into the research, the hypotheses of the scientists who studied this phenomenon tend to be aligned: Retirement has connotations of loss and independence has promises of gain. And for those of us that understand behavior finance, in particular loss aversion, we know that the fear of loss compels greater action than the promise of gain. In other words, framing the goal as retirement planning has a greater possibility of failure than framing the goal as financial independence has a chance of success.
So, what is going on here? What is behind these findings? Why do people see retirement through a lens of loss? There are many theories in the research, but a couple of key ones are, in my opinion, worth highlighting.
The first is the shift in the nature of work itself. For example, I think of my grandfather. He worked on a shop floor, carrying 100-pound gears from various assembly lines in blistering heat in the summer and frigid cold in the winter. Physically, he could only do that for so long. Without being overdramatic, in his mid-fifties he had a choice, retire or die. I have a very different professional framework. I could perform my profession well into my seventies. I have no physical need to step away. Likewise, my grandfather’s work had no intrinsic value, no purpose. He loved what his paycheck did for his family but did not love what he did. In contrast, I love the impact I make on my clients every day. I don’t dread Sunday nights or Monday mornings in the way he did. My work gives me purpose in and of itself. And that is true of vastly more people than it was 20, 30, 50 years ago. Retirement for so many people is less a gain in time (that they do not know what they would do with anyway) but rather a loss of purpose. Loss=Pain.
Second, even in professions where there a low professional satisfaction, framing the goal as retirement has challenges. There is a study on lawyers that I found particularly interesting given that the world of big law is a world I know well. As the researchers studied attorneys who were in the five-to-fifteen-year timeframe, they found woeful retirement savings rates. As they dug into the data and started to interview the attorneys, what they found was a common consensus that, in the interests of doing what needed to be done (i.e., work grueling hours) to make it to partner in their firms, these attorneys needed to “reward themselves” with luxuries (cars, homes, country clubs, exotic travel) rather than worry about retirement. They were myopic in making it to their professional goal and, if they got there, “future them” would figure it out.
But here is the interesting part of those studies: Once the goal was reframed from retirement to financial independence, behaviors changed. Savings rates went up, investing acumen was improved, actions aligned with goals. Why? Because humans love freedom. We would literally give our lives for it. And if we give our lives, we clearly would give up some of our lifestyles.
Advisors who compelled these behaviors changed everything in the conversation, the planning, the goals. The goal to be achieved was financial independence; in other words, the choice to do whatever you choose financially. Those choices could include quitting purposeless work, choose different purposeful work or continuing to perform meaningful work. Once the goal shifted from a loss framework surrounding “retirement” (loss of purpose for this amorphous thing called free time that I have no idea what I would do with) to gain (choice, self-control), the data shifted dramatically. In this unique time in our country’s history, for those of you out there who have never found “retirement” to be a compelling goal (and that is true of a growing number of the clients I work with) I would ask you to reframe to choice, freedom, independence. More choice is never a bad thing. A little sacrifice now has the potential to purchase material peace of mind in the future. Now, go enjoy those fireworks, burgers and apple pie. God bless America.
“Today, we celebrate our Independence Day.” - President Thomas Whitmore from the film, Independence Day.
