Predictability and prudence, not hope.
Retirement income built around your life, with the right instrument for the moment rather than someone else's bias.
The law of the instrument is a cognitive bias that involves an over-reliance on a familiar tool.
The illusory truth effect is the tendency to believe information is correct after repeated exposure, believing something to be true because you hear the same thing over and over. Psychology attributes the law of the instrument to psychologists Abraham Kaplan and Abraham Maslow.
So what does this have to do with income planning?
Our experience suggests a large percentage of investors allow both the law of the instrument and the illusory truth effect to influence their decisions at a time when making the right decision is never more critical. Each investor’s situation is unique. Allowing the biases of those who are likely in a vastly different financial situation than your own can adversely impact the retirement you desire.
When the time comes to leave your primary source of income, the number one thing you now need is a new and predictable primary source of income. Where will it come from? Social Security, savings, a 401(k), 403(b), or some combination?
Studies show, year in and year out, that outliving your money is the number one fear of soon-to-be retirees. In a study by Allianz, 92% of respondents believe the United States is facing a retirement crisis, with 47% fearing they won’t be able to cover basic living expenses in retirement. These numbers are staggering.
As noted in our philosophy, Shoshin is beginner’s mind, and we approach income planning in exactly this way. What instrument or instruments will provide you with the most predictable and reliable source of income for the rest of your life? We believe there is a mathematically correct solution for each of us, one that provides a predictable replacement income stream for life with the ability to increase over time with inflation, addresses immediate emergency needs, and provides growth throughout your retirement years.
Those looking to draw income from investments exposed to market fluctuations are subject to sequence-of-returns risk. We would advise against using hope or luck as strategies of choice when predictability and prudence are necessary, and against allowing someone else’s law of the instrument to dictate what the right instrument is for you.
Let’s look at your position from the other side.
A conversation, not a sales pitch. Bring your questions; we’ll bring all sides of the story.
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