How to Overcome Financial Behavioral Errors in Retirement

We all understand the importance of creating a personal financial plan and then living within that structure to obtain a secure and stress-free retirement. But “understanding” and “implementing” are two very different things.

There is a new field of economics devoted to the study of behavioral finance, which “combines research and thinking from leaders in finance, economics, and behavioral and cognitive psychology.” The goal is to identify the influence of psychology on our financial behavior in the hopes of understanding how our financial decision-making errors can be avoided.

For example, one extensive scientific study published in the academic journal Frontiers in Psychology found that “procrastination is related to unhealthy personal financial behaviors, such as postponing retirement savings, last-minute shopping, and not paying bills on time.”

“While lack of financial knowledge can compromise financial behavior, a lack of rationality itself can potentially contribute as well,” wrote the authors of the study report. “It is not surprising procrastination and impulsiveness have been linked to unhealthy financial behavior.”

Another scientific study published in the Journal of Neuroscience Psychology and Economics stated that “procrastination has a negative effect on goal-setting and then when they have finally been set, it has a negative effect on the expression of goals in actual behavior.”

And a Forbes columnist notes that “procrastination can cost you time, money, and opportunity” in personal finances, particularly when it comes to saving for retirement.

The point is that we may have a clear financial plan for retirement that involves setting aside a certain amount of money, which is logical, prudent, and within our ability to execute, but our brains must comply with that plan for it to work. Procrastination is a financial behavioral error that undermines many goals for seniors and often causes a funding shortfall in retirement.

Another common mistake by seniors is selling off all of their stock holdings out of fear or panic during unsettling economic times, such as the bear market we have experienced in the past year. A study published by the American Association of Individual Investors found that failing to adhere to an appropriate long-term investing strategy has a significant damaging impact on retirement wealth.

“A common dangerous action is panicking and pulling out of stocks during a bear market,” wrote the author. “Such an action limits the immediate damage to a portfolio but can cause an investor to miss out on the big rebound that follows a large drop by not jumping back into stocks soon enough.”But exercising patience is easier said than done..

“Whether it is panic selling, hiding out in cash or trading frantically during volatile markets, investors tend to make several mistakes that can hurt them long-term,” according to Morgan Stanley’s Wealth Management blog. “Overconfident investors tend to think they know better than even professional investors what’s going on in markets. They can drive themselves to distraction and end up with a portfolio in disarray and even deeper losses.”

If you find yourself in a situation where financial behavioral errors have created a shortfall in your retirement funding plan, don’t despair. There are several things that you can do to stabilize your finances and close the gap between your income and your expenses.

Identifying New Sources of Liquidity: Life Insurance

One strategy is to identify new sources of liquidity. Of course, the idea of building a cash bridge to fund day-to-day expenses and support a retirement lifestyle is not a new challenge for seniors. But it might be time to get more creative identifying cash flow-producing assets.

For example, if you own a life insurance policy that is no longer needed or affordable — or perhaps is no longer serving its original purpose — then there’s a financial strategy that demands consideration before canceling, surrendering, or lapsing the policy.

Life insurance is legally considered property and can therefore be bought and sold just like any other personal item – like a home or a car - in a portfolio. There is a viable, highly regulated market to sell a life insurance policy to a third party through a transaction called a life settlement.

A life settlement enables qualified policy owners to sell their coverage to a “life settlement provider” — a licensed financial entity that purchases policies on the regulated secondary market for life insurance — in exchange for a lump sum cash payment. If you sell your policy in a life settlement transaction, then the funds obtained can be used in any manner whatsoever — to help pay for retirement expenses, offset expensive health care bills or even provide gifts to family members or charities.

According to a 2022 industry report, consumers received, on average, 7.8 times more money and approximately $660 million more from life settlement transactions than the cash surrender value that they would have been paid by the life insurance carriers.

Contact Welcome Funds Today

To find out whether or not a life settlement can help you overcome any financial behavioral errors or simply an unbalanced retirement portfolio, then contact an experienced life settlement broker at Welcome Funds. Our team will conduct a no-cost, no-obligation assessment of the market value of your life insurance policy and provide you with a list of your potential options.

Call us at 877.227.4484 or visit our website at www.welcomefunds.com