Retirement And Investing Consideration For Orthodox Jewish Families

Every community has social pressures that may cause an individual to make bad financial decisions. This is true regardless of religion, race, sexual orientation, citizenship and so forth. The Orthodox Jewish community is no different in this regard. A loose definition of Orthodox Judaism is Jews who observe a kosher diet and the Sabbath. This community has its own unique list of pressures that influence people’s decisions around both retirement and investing.

Investing pitfalls in the Orthodox Jewish community

Many of the investing challenges that arise for this demographic fall under the framework of “behavioral finance.” Behavioral finance explores how psychological influences can affect market outcomes. One of the key aspects of behavioral finance is the influence of psychological biases. In any tight knit community, the impacts of “groupthink” and peer pressure are very real. Groupthink is a psychological phenomenon that occurs within a group of people in which the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome.

I see the impact of groupthink frequently when working with clients. Too often, I’ll here the story that a friend from synagogue is investing in exciting real estate deals so my client feels the need to do the same even if it’s imprudent. Other asset classes and investment strategies that many clients chase due to their friends include hard money loans, cryptocurrency, IPOs, hedge funds, and private equity. There is not necessarily anything wrong with any of these asset classes for the right person. The challenge is folks who make investment decisions exclusively based on matching their friends and end up with a hodgepodge of risky investments that don’t help them achieve their personal goals.

Remember, just because your friend or brother-in-law suggests an investment to you, does not necessarily make it sensible.

Investing strategies to minimize groupthink

As any experienced investor knows, one of the core components to successful investing is minimizing one’s mistakes. In other words, if you avoid losing a lot of money and consistently have small wins, you increase your probability of success.

When it comes to investing, all the regular best practices apply to Orthodox Jews. This includes constructing a portfolio that meets one’s goals, focusing on risk management, tax efficiency, and getting the big picture asset allocation correct. Some specific examples include:

Keep things simple: Stock, bonds, and cash should be the only asset classes in 99% of investors’ portfolios. Mutual funds or ETFs should be the vehicles of choice to obtain this exposure.

Keep things boring: Investing should be more similar to watching paint dry than a day at the racetrack. If your approach seems to be moving more towards the racetrack analogy, then you are veering off course.

Get the big picture correct: Determine your time horizon and structure your portfolio accordingly. Focus on getting the proper weighting to different asset classes, such as stocks, bonds, and cash, correct. This big picture approach is the biggest contributor to an investor’s return.

Embrace Automation: The best way to overcome groupthink and any form of social pressure is to automate your investment process. This can seamlessly be set up within your 401(k) where money goes into your investments every paycheck without any effort. It can also be set up for your taxable accounts with the help of your financial advisor.

Hire a financial advisor: Hiring an advisor is helpful for guiding clients through all these nuances and for mitigating the influence of peer pressure on your money decisions. If a friend is trying to convince you of a particular investment, it’s easier to decline by blaming your advisor. Saying “Oh my advisor doesn’t permit that type of investment within my portfolio, and I adhere to his/her expertise” may avoid many frustrating conversations in the future.

Thankfully, the recipe for financial success does not necessitate exciting investments, double digit annualized returns, or your friend from synagogue’s input. The formula to build and maintain wealth is to spend less than you make, invest your savings in a prudent and sensible manner, and ignore the noise.

Common retirement themes for Orthodox Jewish families:

Similar to investing, the typical retirement planning considerations will also be relevant for Orthodox Jewish families. This includes planning for long-term care needs, mitigating sequence of returns risk, determining an optimal withdrawal strategy, social security claiming strategies, and others. However, there are some unique nuances that consistently arise when retirement planning with Orthodox Jews. Here are a few:

High expenses still remain: As I’ve discussed in a previous Forbes article, an Orthodox Jewish lifestyle can be quite expensive. While some of these relatively elevated expenses may reduce in retirement, many will still remain. For example, the cost of Yeshiva tuition may become less relevant in retirement with grown children, but the need to eat kosher, celebrate the sabbath and Jewish holidays, and live near a synagogue do not change. The combined impact is sustained high monthly expenses relative to the general population.

Living near children: Jewish life is very centered around family and community. When working with this demographic, I frequently encounter retirees who will move away from their longtime communities to be near their kids. Planning ahead for this change is prudent.

Moving to Israel: Many Jews have the dream of living in Israel. If not full time, then perhaps part time. Naturally, there is a lot of planning involved in such a move and it’s imperative to hire the proper tax attorney and CPAs to plan accordingly.

One thing to note is that Israel has nationalized healthcare, which may remove some stress associated with long-term care planning. Finding out the specifics on this, and other issues, is imperative, especially for retirees.

The issue of renting versus buying a home comes up often if a client wants to move to Israel. Many of the popular areas in Israel where retiring Americans want to live have a more attractive rental market compared to a buying market. Jumping to buy real estate in Israel with all its associated complications is not something that should be done on a whim.

Finally, many families who split their time between the US and Israel maintain their US checking and investment accounts. This may be done for a variety of reasons but should be discussed with an attorney who is familiar with the tax rules associated with such a strategy.

Retirement Planning strategies to consider

Proactively Downsizing: Large homes cost more to maintain than smaller ones. Aside from general upkeep costs, the property taxes, insurance, and utilities can all be incredibly burdensome for retirees who are living on a fixed income. The sooner one downsizes the better. The last thing anyone wants is to downsize during unfavorable circumstances.

Proactively relocating to a locale where the cost of living is lower: There are plenty of Jewish communities around the country. Not every area costs the same as Long Island, Westchester, or Los Angeles. Retirees should take advantage of this geographic arbitrage to find a living situation that is financially feasible. Deciding where to live in retirement may be the most important retirement planning decision most families make.

Working longer or part-time: Many soon-to-be retirees tell me that they want to retire, visit their grandkids, and spend the rest of their time attending religious lectures. The reality is none of these pursuits are full-time activities. For many people, continuing to work in some capacity, if possible, is worth considering. If it’s not for the money, it’s to keep folks socially engaged, mentally sharp, and provide structure to their day.

The most important aspect of financial planning is to understand that personal finance is “personal.” Therefore, even if you belong to a close-knit community and share many common values, you should not let what your friend is doing influence your own financial decisions. It’s important to sit down with your family, assess your goals and desires, and determine a sensible strategy to achieve the lifestyle you want.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Shenkman Wealth Management is not affiliated with Kestra IS or Kestra AS. Investor Disclosures:

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