So often in our work as financial advisors, we are asked the question, “How do we make the right decision about this?” This question can pertain to many different areas of a person’s life, but it often centers around the use of money to fulfill their dreams and desires. Sometimes that question is about something immediate, like if they should pay off their mortgage with extra money. Sometimes that question is about the future that they are working towards, like paying for children’s college or retiring from their career. How do you make the “right” decision? Good question…and we prefer to take the question a layer deeper. How do you make a wise decision?
What is the difference between trying to make the “right” decision and making a wise decision? Nobody knows what the right decision will be because the future is uncertain and unpredictable. Attempting to be right assumes that there is only one answer for your situation. And, more importantly, financial decisions involve much more than money. Your confidence, dreams and sometimes relational well-being may rest in the balance of the decision.
One of the ways we believe you can be wise is to apply the decision to your financial plan to model the range of potential financial outcomes. Then we use those outcomes to evaluate how it may affect the other non-financial areas of your life. Let me give you an example.
When to take social security is a perennial conundrum for many pre-retirement couples. The inherent issue with this decision is that you only know the “right” decision after the fact. Wringing the top dollar out of social security hinges on knowing how long you will live…which, of course, nobody knows. When we start asking, “what is the wise decision?” it often leads us to investigate what social security payment will give our client the best chance at retiring when they want to, even if it is not the most they could possibly get from the program. This often leads to a decision that we can both feel good about. The right decision is impossible to make, but the wise decision often leads to confidence in their plans.
Next time you come up against a decision that is thorny and difficult to make, be thinking about how you can inject some wisdom in the process. As always, we will be here to help you explore your options and think through the ramifications. Thank you for your trust.
Guy Leman, Compass Advisor