It was a cold Friday at 10pm, and I was flying out of Chicago from advisor meetings back to Minneapolis. I was exhausted, in a bad mood, and all I wanted was to go home. It was one of those weeks. And in typical Chicago fashion, the “Windy City” was howling, gusts over 50mph.
I kept refreshing my Delta app to see if my flight was cancelled. This wasn’t the weather you want when taking off a runway. To my surprise, the flight didn’t cancel. I’m not a huge fan of turbulence, but I wanted to go home, “to hell with the wind” I thought.
I knew the turbulence was going to be bad. But it was worse than I thought. Turns out 50mph winds can throw an airplane around pretty good. It was the kind of flight where you get shot up a few hundred feet and then back down. It was a flight full of passengers gasping, babies screaming, and each time the plane got thrown by the wind your stomach was in your throat.
I remember being borderline terrified. I knew it was highly unlikely we would crash, but I couldn’t help think of the worst. It’s times like this you realize your own fragility. How tough I thought I was stepping onto that plane, was a lot tougher than I actually was. In fact, it was the feeling of pure vulnerability and zero control.
Luckily, I landed in Minneapolis, and I lived to see another day. But I’ll never forget that flight. That flight taught me some valuable lessons. I’m sure everyone reading this has their own version of this story. Moments of pure vulnerability, moments of fear.
Today I thought of that windy day after I saw a quote from financial writer, Morgan Housel. He said, “It’s impossible to know your risk tolerance until you’ve lived through a big decline.” In the same way for me on that plane, I wasn’t as tough as I thought I was.
For those who have known someone from the Depression era, there’s a high probability they didn’t have a large appetite for risk. And it’s probably why many seniors use low yield products, like CDs. The past is burned into their memory. It’s because they witnessed the mother of all declines.
Our industry worries so much about returns and metrics, yet it so often forgets to emphasize psychology. When in fact, psychology could be argued as the most important characteristic of a successful retirement. And when I say, “successful retirement”, what does that really mean? We all know a successful retirement means one that lasts. But also, you would think one that is happy. One that isn’t filled with worry.
The financial services business uses simple fact finders and risk questionnaires, questionnaires that can be filled out with little thought. When in fact, they should be looked upon as the most important part of the plan. Because if a plan cannot be stuck to, it’s not a plan at all. And those reading this most likely understand the comfort that annuities can provide during times like this.
Even the originator of the 4% rule, which states a retirement must have at least 50% allocation to equities, can’t stick to it. A recent article in the Wall Street Journal states, “Bill Bengen [the originator of the 4% rule], now retired, is invested in 20% equities, 10% bonds and 70% cash.” And is “uncomfortable with the markets in retirement”.
With all this volatility we have seen, it’s a reminder that times aren’t always good. In fact, sometimes they very, very turbulent.
And maybe, well…we aren’t as tough as we thought we were.
