“Despite the good withdrawal rate, I still fear some catastrophic situation and imagine sitting on the curb as a bag lady! That, of course, requires a therapist--not a financial planner, eh?”
(This blogpost appeared four years ago, but it bears repeating.)
The above quote comes directly from a client, let’s call her Mary (not her real name) responding to an article I emailed her about the 4% withdrawal rule in retirement.
Mary’s retiring from the UC system at the end of the year. She’s very savvy with money, has a net-worth of close to $3 million and earned a Masters and Ph.D from UC Berkeley. Together, we developed a comprehensive financial plan focusing on a tax efficient retirement income strategy.
After much careful analysis, stress tests, modeling worst case scenarios, using Monte Carlo simulation - even after all those tools illustrated clearly that Mary had a secure retirement ahead of her, something still nagged at her.
I couldn’t quite put my finger on what it was. It seemed to me at the time, that like many clients that develop financial plans when they’re nearing retirement, it takes a while for the actual numbers to sink in and become your reality.
Mary’s annual portfolio withdrawal rate when she retires is projected to hover between 2-3% for the rest of her life. Much of this has to do with a pension she’ll be receiving from CalPERS as well as living well below her means. And because she likes to play it very safe, we assumed an annual investment return rate of 4.5%.
The Fear of Becoming a ‘Bag Lady’
If Mary’s email was a one-off, I probably wouldn’t have thought too much more about it. But this fear of becoming a bag lady that many women have is real and more common than most people would imagine possible.
I’ve heard this fear expressed by women so often that perhaps Mary’s response was a tipping point. I don’t think most men understand how prevalent a fear this is for women. On the surface, it seems irrational, right? How could someone with such a high net-worth that leads a frugal lifestyle be worried about being a bag lady?
In Mary’s case, she knows intellectually that her financial future is as secure as could be, it’s the emotion of fear about her future security that’s causing her problems.
Fear around money is a very primal emotion. When we feel our security, our future, is in jeopardy, all the financial analysis in the world is not going to alleviate the fear. We move into fight or flight mode. So e-mailing the article to Mary and hoping she would understand AND feel safe and secure about her future retirement was not going to do the trick.
The nexus of money and our emotional intelligence, (EQ) being mindful that are thoughts create our feelings is where I needed to go in order to help Mary deal with her anxiety. So that’s where we focused our energy and time after I received her email.
Be Mindful of Your Thoughts
Feeling safe is one of our primary human needs according to Maslow’s hierarchy of needs. And when we don’t feel safe, we worry and worry, which increases our stress level which negatively impacts our health.
Full disclosure - I’m a recovering worrier around money. Worrying about money was a skill I mastered at a very young age. If there were an Olympics for worrying about money, I would have taken the gold.
Fortunately for me, my turn around occurred after I read the seminal book on your relationship with money-Your Money or Your Life-Transforming Your Relationship With Money and Achieving Financial Independence.
I mention this because it’s so easy to relate to Mary and many other women clients that deal with this chronic fear of winding up homeless one day. On the surface, all looks good financially, but underneath the surface is a different story. And because women are not shy about sharing their feelings around money, I’ve heard their stories and felt their fear, pain and anxiety up close and personal.
Becoming mindful of your thoughts is one way to deal with your fear. Although easier said than done, if you’re someone that worries about money and it’s affecting your ability to feel happy, then being the observer of your thoughts is a good first step.
I used to keep a journal of all the crazy and irrational fears my overly active mind would conjure up. Getting them out of my head and into a journal allowed me to see more clearly that it was me and me alone causing my fear. Soon, being the observer of my thoughts became an ingrained habit that continues to this day.
Fear, worry, anxiety - these are not bugs or viruses we catch. These are our thoughts and we’re responsible for our thoughts. Our thoughts determine our feelings. So back to Mary, when she gets emotionally hijacked with thoughts of being a bag lady, rational thought get tossed aside and all she can think and imagine is the worst happening to her.
This pattern of going into a dark, spooky place when thinking about your money and your future becomes a dominant thought and easily overrides your ability to think clearly and rationally. It follows you around like a dark cloud and zaps your happiness whenever you begin to feel all will be well.
Fear around your money and your future will only grow stronger if you allow it to grow stronger. The enemy of fear is faith. Having faith in your future, shining a light on the darkness that fear thrives in is the path forward. You have the power to change the way you look at things and the things you look at will change.
Seeking professional help may also be in order. Our recommended financial coach is Pat Chambers, Ph.D. She provides group coaching for women using ‘Money Salons’ and she’s also available for individual sessions as well as working together virtually.
Liberating yourself from the fear around money is one of the greatest gifts you can offer your divine self. We all deserve to lead a fearless life.
What’s stopping you from being fearless?