Money, in our world, is a very important asset. Could money be defined as something other than paper bills and coins? Join us in discussion with financial advisor Allan Roth, who shares great insight on managing our money past the age of 60. Enjoy the show! 

 

 
 

Margaret Manning:

My guest today is Allan Roth, who is the founder of Wealth Logic. He has been in the investing world and corporate finance for years. He is a man who knows a lot about money, which is a topic of interest for a lot of women in our community. Welcome, Allan.

Allan Roth:

Thank you for having me.

Margaret:

Thank you for being here. You are an expert in money matters, and I’d like to mention that you have been quoted, and you write for, the Wall Street Journal, AARP and Next Avenue. You have got a lot of experience in the money world.

Allan:

Yeah. I’ve been concentrating on it for a long time.

Margaret:

We would like to know some of your insights because a lot of women in our community find themselves in retirement, or through the other side of retirement, with very little money to spend. Somehow they end up thinking, “I’ve got to get money in order to be happy.”

There is an emotional challenge when going through the phase of “I’m not earning anymore.” I know you’ve got a really interesting view of just what money is and how it works. It would be wonderful if you can help our women to get the right perspective.

Allan:

I think money is stored energy which gives us choices later in life. As we work, our paycheck creates that energy. Then spending the money uses that energy, but what we don’t spend saves energy. It is that stored energy that we try to grow.

Over our working years, ideally, we’re saving some money up. We’re building that stored energy, known as our portfolio, that later on in life is going to give us financial freedom. Those are the choices that allow us to do stuff.

Margaret:

Theoretically.

Allan:

Yes, and depending upon how much money, a.k.a. energy, you need in order to lead a happy life, regardless of whether you have saved enough to pursue your wants.

Margaret:

So it’s not the money that makes you happy. Happiness is based on whether your expectations of what money can do for you would give you freedom to do what you want with your life.

Allan:

Money doesn’t buy happiness, but lack of money will buy misery. For instance, when you are getting the foreclosure notice on your bank, and the credit card companies are telling you, “You better pay now, or we’re cancelling your credit,” that will buy misery. If you hate your job, and you know you can’t retire, that would buy misery.

I’ve seen money buy misery as well. It sometimes creates conflicts in family relationships, etc. So, if you have developed that money in stored energy, and if you can use it wisely, it will help enable you to have happiness.

Margaret:

When you talk about energy, do you think about something that is dynamic and can empower you? Then if you haven’t got a lot of money, should you learn how to live on less energy or lower expenditure? How does your strategy work?

Allan:

If you could be happy living on 30, 40, 50 thousand dollars, or euros, per year, then that’s wonderful. You don’t need that much energy, and maybe even your pension covers your needs. Then you might be able to pursue whatever gives your life happiness and meaning. However, if you need a hundred thousand, you are going to need more stored energy.

Margaret:

It seems like it’s the relationship between you and money that defines your happiness. If you didn’t save up, and you haven’t got a lot of money to spend in retirement, you’ve got to change your relationship with money. It’s not going to empower you to buy a car, or a house, or a boat; it’s going to just buy your food. That, then, is your relationship with money.

Allan:

Studies actually show that if you have to cut back on your spending habits, it creates a lot of initial pain, but then you get used to it fairly quickly. The nice thing is, if you can build up that portfolio so that when you hit retirement you can keep your lifestyle the same, that’s the perfect scenario.

Margaret:

I read somewhere that the amount of money you need to be happy is $73 000 a year. That was the number that someone came up with as being the ideal amount of money. They said that if you have more than that you won’t get happier.

Allan:

Research shows that the relationship between money and happiness is a curve that flattens out. It still increases, but minimally. For instance, if Bill Gates makes an extra billion dollars he’ll be happier, but not much. If you and I make an extra $10 000 we will be a lot happier.

Margaret:

This is almost like brain psychology, isn’t it?

Allan:

Yeah. Once you get enough to meet your Maslow hierarchy of needs, then the additional money provides less and less happiness.

Margaret:

I think there’s one important change that happens to people of both genders as they age. Maybe it’s part of the way we deal with aging, maybe it’s in our DNA, but as you get older, you start to want stuff less. You really do start to value experiences rather than stuff.

Allan:

Yeah. I ought to be brilliant from the mistakes I made in my life. I remember, even as a kid, thinking if I went to a concert, or a movie, that would make me completely happy. If I bought something, I could have that stuff forever and ever, and that would make me happier. I had it completely opposite.

Margaret:

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When did you realize you had it completely opposite? What was the turning point?

Allan:

It was probably in the last six or seven years. I would always get the nosebleed seats at a concert, etc. However, research shows that it’s the experiences and memories you create with your family, like treating yourself to the nice vacations, that brings that happiness.

There is a great book called, “Stumbling on Happiness,” by Daniel Gilbert from Harvard University. He talks about what makes us happy, and a lot of it has to do with our experiences versus our expectations. If our expectations are modest, we would be happier.

Margaret:

The series of interviews we did on the topic of money management cover the various stages of retirement. One thing you mentioned concerning the very first stage was to start saving really early in your fifties, way before you leave your job.

You said that it’s important to bring your costs down. You can achieve this by buying an inexpensive car and driving it for a longer period of time. Another advice is to buy those nosebleed seats, rather than the front row seats when you go to a concert. The sooner you start saving, the better the retirement outcome would be, and so you would be happier.

Allan:

Exactly. I’ve been reasonably frugal my whole life, though my wife calls me cheap. I like my choice of words better.

Margaret:

Frugal is nice. Obviously, you’ve got a head for money and for understanding the value of investing. A lot of women, however, may find themselves in the midst of dealing with financial matters for the first time.

In our generation, it was customary that husbands took care of these matters. So, now, women who have lost their husband or partner, would have to deal with money, retirement plans and investing for the first time. It can be really difficult.

Allan:

Personally, I’m a believer that both spouses need to be involved in money management. Number one, so there is buy in-between the unit, and number two, if one spouse passes away, the other spouse won’t be left with a mess they don’t know how to deal with.

Margaret:

If you have clients come in, who talk about investing money in their 60’s, and they are saying, “This is driving us crazy. We are not happy. We just have to get a handle on our money.” What would be some of the advice you would give them?

Allan:

My typical clientele is wealthier. I can only help people with larger portfolios. Quite frankly, I don’t have a solution for people who are in their 60s and have never saved a penny. That has to do with changing behavior. I think they need to see a psychologist, though changing behavior late in life is not a very easy thing to do.

Margaret:

That’s a solution. It’s not an easy solution, but it is good, sound advice. With persistence, we can learn to change our behavior even in our 60s.

Allan:

That’s easy to say, but we end up breaking most of our New Year’s resolutions.

Margaret:

In terms of money being stored energy though, if you have a little amount of money, you are going to have a little bit of stored energy. You are going to have little to work with, but that’s not going to stop you from being happy. What’s important is the relationship you have to money.

Allan:

It’s about how much energy you need to be happy versus how much of that stored energy you have. Many such relationships go in two directions. I’ve got clients who have tens of millions of dollars but choose to live on $50 000 a year. They can’t take the money with them once that day comes. So, our relationship with money can go both directions.

Margaret:

Do you think that having money motivates people to do more with their lives? Do you think that changing your behavior to have a different relationship with money is going to motivate you more to strive for success?

Allan:

A great book just came out a few weeks ago by Dan Ariely at Duke University, who is a behavior economist. It’s called “Pay Off: The Hidden Logic That Shapes Our Motivations.” Dan says that money is a really lousy motivator.

I thought about paying my son a certain amount for each A that he makes in college, but what tends to give us far more motivation is acknowledgement that we are appreciated. Acknowledging our efforts tends to push us to achieve more.

In other words, telling my son that I appreciate how hard he’s working, that he’s overcome such difficulties, etc., and then taking him to a symbolic dinner, is a lot more important than saying, “Wow, I’m just thrilled you’ve got straight A’s.” Mentioning those straight A’s also puts a lot of pressure that next semester he should better get straight A’s. That demotivates a person.

Margaret:

So, money is important. It gives us freedom and choices. However, it’s not the end of the world if you don’t have a ton of it. You can always shift your relationship with it to where you currently are. On the topic of motivation, I think the person who won the Nobel price on economics contracts theory said that giving bonuses at work doesn’t motivate people to do better.

Allan:

Actually, it’s the other way around. You get the bonus, and you are more likely to be more motivated for a short period of time. This boosts your productivity for a little while, but then, it goes below where it would have been had you not gotten that bonus.

If you don’t get that bonus the next year, it’s going to really demotivate you. In that book I mentioned, “Payoff”, research shows that the best motivation is appreciation from the boss.

Margaret:

This is a good place to close. Money can bring us potential happiness, should we have enough stored energy. However, what keeps us really happy, no matter our age, is social engagement. That is the real value of communities like ours.

We can all share our burdens, receive great advice and support one another. This is where we get encouragement and motivation. It’s a positive reassurance. We can’t pay people’s bills, but we can let them know we care about them.

Allan:

Social network is far more correlated to happiness than money is.

Margaret:

Whether we have little or much money, we can celebrate our lives with it. We can adjust our life styles to fit what we’ve got. You’ve been great to talk with, Allan. Thank you so much for your time.

What makes you happy? If you had a fat amount of money in your bank account, do you think you would be happier? What would you wish for instead? Please join the conversation!

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