Feb 27, 2024
Rachel, 51, panics at the thought of her 56-year-old husband, Brian, retiring in the next few years. This is despite the fact they’re both lawyers with an annual combined household income of $270,000 and a total net worth of more than $2.3 million.
Yet, a negative experience with a former financial advisor, in which she lost thousands of dollars, and nearly losing her home when she was younger, has left her in fear of losing her home and her lifestyle.
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“Our money psychology shrinks our view to only consider one or two options,” Ramit Sethi explained in an episode of his “I Will Teach You To Be Rich” podcast.
In other words, the problem isn’t always money (or lack thereof), but sorting through our psychological issues that prevent us from living our best life.
By expanding your vision of what’s possible, “you’ll often find creative ways to live a rich life,” he said.
Mortgage fears
Rachel told Sethi that recently she feels frozen, paralyzed and unable to breathe.
“Up until now money has been representative of fun and freedom, but recently Brian has talked about retiring early — within the next year and a half — and that has completely paralyzed me,” she said.
If Brian is no longer working, Rachel is worried they won’t be able to live off her salary and his retirement income.
“The fear of not being able to afford a mortgage just terrifies me, which is actually ridiculous because we have a second home that’s completely paid off,” she added.
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While on some level she may know this fear is “ridiculous,” there’s a reason for it. When she was younger, she lost her job, almost lost her house and had to accept work and rent an apartment in another city to make her mortgage payments. The man she was dating at the time was living in her house rent-free and expense-free.
“I know that creates a lot of my fear,” she said.
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Bad investment
Another formative money experience had to do with a former financial adviser, who told her she should invest in a Roth IRA. When she asked him about his fees, he was dismissive and told her “not to worry about it” because she didn’t have to write him a check.
Rachel invested $5,000 a year for 12 years for a total of $60,000.
While each statement had a positive return, she hadn’t looked at exactly how much she was making. Eventually, she decided to do the math herself, and while her returns were technically positive, the percentage she was making was “unbelievably low,” she said.
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“Some of them were like $1.07, or something like that, and I was, like, ‘Oh my God, what is happening to my money?’”
She also realized there were new investment funds listed on every statement.
Sethi told her a lot of these funds are “complete dog [doo-doo].” Unscrupulous advisers can see underperforming funds get shut down “and through a process called survivorship bias they only leave the good funds and then they introduce new ones.” So, to the investor, all they see are well-performing funds.
“It’s a very subtle trick that the average investor would not know about,” he said.
A way out
Fortunately, Rachel got smart to it — and got out. But by that point, her $60,000 contribution had decreased to $56,000.
“I not only lost any money that I would have gained in that account, I actually lost part of my full contribution,” she said.
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She moved her money into a Vanguard account and “never put another dime” in it. After about a decade, she says her contribution is now worth more than $230,000.
“She took control of her money, she analyzed those statements and she had the courage to call her adviser on his BS and move away to a low-cost brokerage,” Sethi said.
Yet, Rachel continues to panic over Brian’s retirement.
That’s because the numbers on the page are “totally uncorrelated with how you feel about your money,” Sethi said. “Here we have a couple worth $2.3 million still cutting coupons.”
Going forward, Rachel and Brian say they will look more closely at their combined finances and fixed costs, so they can “move forward together.” Perhaps more importantly, Rachel recognizes the need to “let go of those experiences from the past that no longer serve me.”
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Vawn Himmelsbach is a veteran journalist who has been covering tech, business, finance and travel for the past three decades. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, Metro News, Canadian Geographic, Zoomer, CAA Magazine, Travelweek, Explore Magazine, Flare and Consumer Reports, to name a few.
