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Why Maslow’s Theory Contradicts Traditional Retirement Planning

Written By: Cal Burgess, Retirement Servicing Group PLLC

For many, the approach to retirement planning is in direct conflict to Maslow’s hierarchy of needs. The approach to retirement is working counter intuitive to the traditional planning approach. For the first time since the 1920’s, the American employee is approaching retirement without the basic core needs being addressed. We have never approached an epidemic of this magnitude before. Those who have the majority of their retirement income, or deferred compensation plans, at risk without addressing proper income planning are likely to become a burden within their retirement. The good news is it’s not too late to protect your retirement with a guaranteed income stream for life.

Maslow’s hierarchy of needs was introduced in 1943 by Abraham Maslow, which identifies the core roots of developmental psychology. The ideology of this concept shows how basic human needs must be met in order for decisions to be formed with success. The point being you can’t formulate a sound financial decision without addressing basic needs, such as establishing where you live and how you plan to pay the bills. So in theory, you shouldn’t be subjecting all your retirement funds to risk when you have failed to provide an income stream.

Maslow’s hierarchy has five basic platforms. The first level of this 5 step model is the physiological stage, which identifies the basic needs of the human body: food, water, shelter, etc. The second level is safety, third is love/belonging, fourth is esteem/confidence, and finally self – actualization; the ability to make a sound decision once all your basic needs (in that order) are met. Only when the first level of needs is satisfied can the next stage be approached, and so on. The second level of Maslow’s hierarchy is putting many retirement dreams at risk. The safety level requires that the needs of employment (income), resources, and property should be adequately addressed before you can proceed to the next level of love/belonging (third level). Without the security of income during retirement, the basic financial needs of housing, health, and consumption fail to exist. This is the equivalent of hiring an interior decorator when you don’t have an income stream to pay for the mortgage. In other words, once again, it is counter intuitive to subject your retirement funds to market risk when you haven’t established an income stream to meet your basic needs.

The foundation of the traditional financial planning model is failing to address the need for income in retirement. This is going to cause severe problems moving forward. It is no secret that the last decade has commonly been referred to as the lost decade. Most retirement savings plans, such as deferred compensation plans, are totally exposed to market risk causing most retirement plans to be delayed by 10 plus years accordingly. When you take into account that most employees from Generation X, and many baby boomers not yet retired, do not have a pension to meet their basic safety needs; it isn’t difficult to figure out we are approaching a dire situation.

Today, the congressional approval ratings are at the lowest they have been in US history; and the faith in our financial sector is not too far behind. Investors are fleeing securities, causing the 10 year US Treasury to reach record lows below 1.5%. So when you take into account that the Federal Reserve is getting closer to another round of “quantitative easing”, any entry level financial professional can tell you these actions are working in direct conflict with the norm and are not without consequence. Many experts believe that these actions are likely to cause a bond bubble that would in turn throw the market into panic mode by driving the value of bonds south when interest rates are forced to rise in hyperinflation.

The actions of our country dealing with this financial crisis are short term solutions designed to buy time in hopes that a contingency plan presents itself. There is no history of Federal spending of this magnitude to help form a logical end result; so in essence we are approaching this blind. All one can do is protect, or ensure, their basic needs during retirement with contractual agreements in order to have the best chance to make sound decisions. Insurance repositories have identified the need for an income stream within retirement, which acts as a replacement to the pension, and have delivered accordingly. There is no other industry on the planet that offers lifetime guarantees that are unaffected by future market conditions.

Without meeting the basic needs of Maslow’s hierarchy, panic and desperation set in and can lead to unsound financial decisions. Investors who fail to have an income stream are likely to participate in bigger risks in order to “catch up” their retirement goals, exposing themselves to more volatility. There is no way to know how the crisis will play out; however, when you protect your future needs with a guaranteed income, you will be well equipped to handle any turbulent times ahead. Those who fail to have an income stream, or pension, in place will regret not doing so; especially once entering retirement.

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