What Is Values Based Retirement Planning?
What is Values-Based Retirement Planning?
Values-based retirement planning is a process that seeks to align your money with your values. It starts with exploring your values so that you may gain greater recognition and understanding of what is most important to you and why. It helps to clarify your attitudes and behaviors regarding money so that you can focus on how money can support your values.
The discovery process starts with a simple question that has complicated answers; “What is important about money to you?” The exercise is built to dive deeper into the answers to that question to move up the hierarchy of needs, ideally moving into self-actualization. This is the “why” that is the motivation to move toward a state of living that satisfies your expression of these values.
Once the values have been articulated, then identifying financial goals can begin. The human brain is an interpretive instrument and is constantly bombarded with information from all five senses. It selects the information that is relevant at the moment. The brain needs prompting to focus on what is relevant, since there are so many competing priorities it has to reconcile, least of which is to stay alive! Naming goals is a way to create relevance.
The act of naming will help the brain seek relevant information, and the more specific the better. For example, a person states they want to travel more as a goal in retirement. If left at that, the brain does not have enough to seek relevant information in order to create the possibility. A follow up question is necessary. What is important about traveling to you? What is important about visiting those places to you? This can drive toward a more specific goal, such as; “Climb Machu Picchu.” The brain can then focus on relevant information about Machu Picchu and it becomes easier to search for relevant information.
After the goal has a specific name, it needs a specific point in time. This is done by setting a day, month and year to accomplish that goal. This specificity also helps with relevance and for the mind to picture accomplishing the goal so it can become more real. Saying, “I’ll see you later” is much different than saying, “I’ll see you Tuesday, at 2pm at the coffee shop.” The former is open ended with no clear action step, the latter is a closed ended commitment that requires being at the coffee shop at a specific time, on a specific day.
This commitment to act is important because the next step is visualizing accomplishing the named goal and in a few words describing what the thoughts and feelings are once the goal is accomplished. This creates an emotional connection that supports the commitment. Humans are emotional animals that think, and almost all our decisions are driven by emotions. How we feel about our choices and decisions will determine the commitment to our actions. This is the cornerstone of values-based retirement planning. Once we know what we want to accomplish, and why we want to, the decision to commit to move forward becomes easier.
Notice there has been no mention of facts, figures, markets, returns or products. No real planning can begin if no consideration is first given to your values, attitudes and behaviors. In order to create an actionable plan, you first must plan to understand how you process your emotions, and by extension, make decisions. Values-based retirement planning starts with relevance to lay the foundation for understanding how to take action. It is at this point that facts and figures enter the process. An assessment of the current financial reality is needed to determine if what currently exists is properly aligned with your values and goals.
At this stage, education is required to create familiarity with the tools currently in place, how they operate, what their purpose is and what can reasonably be expected of them. Understanding promotes confidence by offering clarity. Knowing what to reasonably expect heading into an unknown situation goes a long way to helping take the first steps. Having a guide that understands what truly matters to you, the basis of your concerns and your likelihood to act gives the guide a better way to show you which stones to step on as you walk on the path.
This is where the functionality of financial planning is employed. This section of the process is about how to use the proper tools and techniques to align your money toward your goals in a way that you feel confident in. This involves all the numbers and figures. Most firms start their process here, as there is a strong tendency in the industry to attempt differentiation in the technical skills of crunching numbers.Functional expertise is vital, but if applied before knowing the what and why it can lead to a lack of true understanding on behalf of the advisor and the client. Morningstar conducted a study to find out what factors lead clients to leave their financial advisors. The top two reasons stated in the study were quality of advice and quality of the relationship. This represented over 50% of the respondents feeling that their advisor did not understand their needs sufficiently. That’s a breakdown in effective communication most likely due to the advisor focusing more on the functional versus the emotional aspects of their client. How can an advisor know which services and products to suggest if they don’t know the emotional motivation of their client?
The financial services industry is geared toward selling products. Period. Your author has been through various firms “training” programs and they all boil down to sales techniques. Their businesses rely on the sale of products, so the motivation of the person sitting in the seat is to increase the amount of sales in those products. Their livelihood depends on it. The titles like VP, SVP Executive Director, Managing Director etc. do not imply expertise. They simply are sales milestones marking how much revenue that person has brought to their firm in the time they have been there.
Much lip service is done about “planning”, especially at the big brand name financial firms. These firms figured out long ago that taking an indirect approach to selling products was much more effective. The technique to do so is “planning”. As a person that sat in the seat, I’ve seen how the sausage is made and planning at those firms starts with examining the person's investment mixture of stocks and bonds because the objective is to manage those assets for a fee. The pitch sounds like this:
“Mrs. Client, you came to me to gain a better understanding of how you may be able to retire. You currently have a mixture of x% stocks, y% bonds, if you were to re-allocate to a% stock and b% bonds, you would increase your chance of reaching your retirement goal by c%. We noticed that your current portfolio is lacking x and y. We offer an investment management system that employs x & y that we can do for you for 1% of the value of your investments going forward.”
It is no surprise that the person, even if they hire that advisor, may feel as though that advisor does not really know them because the analysis focuses on only the numbers in her retirement savings portfolio. It is likely that the level of confidence will be low if that advisor does nothing to more fully understand her as a human, with needs, wants, fears, hopes and aspirations.
Let’s see how it may go for this woman under a values-based retirement planning scenario.
“Mrs. Client, you shared with us that money is important to you so that you can feel accepted, loved, alive and close to your family and friends. Money offers you the freedom of choice and the ability to be fully invested in the time you spend with those that matter most. Although the anxiety of money scarcity was a result of money being tight during your childhood, you want to be confident that you will not feel that way again.
You indicated that your top priority after you decide to leave your career is to travel with your children to the land of your ancestors so that you and your family can feel the connection to those ancestors and you all can learn more about how they lived their lives. You named this goal, “Visiting The Ancestors” and you wish to do this on July 15, 2026. Doing this will give you the feeling of connection with both your children and your ancestors and a feeling of accomplishment as this is something you have wanted to do for a long time, but did not believe was possible.
You indicated that your secondary priority is “To Live My Best Life” in retirement, which also has the date of July 15, 2026. You want to feel relieved to get off the treadmill of a career you have thoroughly enjoyed, but have lost the passion for as things in your industry have changed over the years. You indicated that you will miss the friendships with colleagues and intellectual stimulation the work provided you. To fill this gap once you retire, you wish to begin retirement with the Visiting The Ancestors” goal and once you return, you are taking on a larger role in a mentorship program where you will share your considerable experience in your industry with those who are starting out so that they may learn from you to improve their lives.
Mrs. Client, we analyzed your current financial reality and observed that, despite your initial doubt, you are on track toward achieving these goals. Today’s discussion will involve how your existing tools, along with some suggestions on how to improve your chances going forward, can be aligned with your goals in a way that you feel highly confident so that you can be fully invested in your retirement. How does that sound?"
Which one do you think has a better chance of Mrs. Client following through with, even if the suggestions are identical?
Values-based retirement planning is a method to help people openly think about their emotional state toward money. Money is a taboo subject, and is woefully neglected in our educational system. This can lead to someone feeling isolated due to a fear of judgment or lack of a good resource to turn to. When uncertain about something, humans tend to stay with the status quo, despite the potential outcome. Change involves risk and risk could cause harm. The pain of a loss is twice that of a win. Gaining relevance and understanding through values-based planning promotes confidence that leads to positive actions and the potential for better outcomes. It is instrumental in helping people give themselves the permission to live the lives they envision by coming to terms with how they have treated money in the past.