The Star Tribune headline on June 24 read: "Markets reel as world absorbs shock of UK vote for Brexit." The only fact in the preceding simple sentence is the Star Tribune headline. While stock markets fell, reeling is an opinion (granted, one held by many who looked at their portfolios that day) and the world absorbing shock is an inference (since many of the polls and betting lines had expected a different fate). The issue is that without a way to distinguish facts from inferences and opinions, we may take actions that don't serve us.
Only facts are objective, yet we often treat opinions and inferences as facts. There is nothing wrong with this as long as we understand the limits of our reasoning and the biases involved (my opinion).
When you are picturing your retirement, you should consider certain things — what you will spend when you no longer are working, the amount of your pension and Social Security, how much you will have in savings, how long you will live, how much of your assets you wish to leave to family or charity, what rates of return are possible for your portfolio. These items are all inferences until we actually retire and can turn a couple of those items into facts — my pension and Social Security are currently X and my savings is Y.
When advisers talk about the amount that you can safely spend from your portfolio in retirement, they are not talking facts. They may be using historical numbers as a way to infer that the future will look like the past, but predicting the future simply cannot be factual.
When you determine how much you need to spend when you retire, you are forming an opinion of what you want your life to look like, inferring this from how you live today. Not facts. I can guarantee (my inference) that things won't financially turn out the way you think they will.
Accepting these distinctions can be freeing. One of our clients had it in her mind that she should retire from her current position at 65. Why? Unless she worked for an employer with mandatory retirement, then she created a false finish line. Throw out the should and it becomes a choice — "I want to retire at 65 because it will allow me to pursue other interests, spend more time in relationships," or whatever we infer the result will be from no longer working.
If our opinion is that we will be happier without work (considering the financial and emotional implications), then retirement is reasonable; if our opinion is that we won't be happier, but we feel like we should be doing something else, then don't retire.
One of our clients has, in our opinion, more than enough money to retire comfortably, but she cannot get comfortable. She often wants us to rerun our retirement calculations in ways that will create results to support her discomfort (a false fact). We use 5,000 scenarios when we run our analysis, which creates a strong likelihood of outcomes, but not a guarantee. But this client is unlikely to ever feel secure because there is no way to objectively prove with 100 percent certainty that she will be fine.
One of the things that I often hear from clients is that they feel that they spoiled their children. This becomes a judgment on their parenting, their children's motivations, and an extrapolation to a level of unhappiness that these indulged children are destined to experience.
None of it is factual. We may infer that by giving people everything they could possibly want, they will lose their drive and it may be our opinion that this excess has made them somewhat intolerable, but this is subjective.
Again, the fact is that your adult child is spending more than they are earning because they have accrued debt. If you feel it is your place to talk with your child about this, then understand what your purpose is in having the conversation. If you are no longer going to provide financial support, then explain that through your preferences, not their behaviors. If you feel that you want to teach them responsibility, then understand your actions and how you are inferring that this will help them learn this lesson.
Remember, the child has inferred what you are going to do based on what has happened in the past. If you have always been there to financially rescue them, they will likely infer that this will continue. And if you are likely to keep bailing them out, why pretend differently?
If you talk through what you are willing and unwilling to do and adhere to those boundaries regardless of your discomfort, it is likely that the children will eventually change their inferences.
We often don't have the luxury of having all the facts before we act. We usually have incomplete information and must make choices that are based on our inferences or opinions. But if we understand that these are the basis of our decision, we may stop reacting to the headlines and be better able to change directions when facts appear.
Ross Levin is the founding principal of Accredited Investors Inc. in Edina.
