1st November 2021
This week I share some interesting research and insights on how to prepare for the biggest surprises in Retirement, both financial and non-financial.
It’s not the Destination, It’s the journey.Ralph Waldo Emerson, Self-Reliance
We will mostly all agree that ‘Life’ is not about reaching some destination in a particular state, but rather a thing to be enjoyed along the way, right!? The same can be said of our financial lives; it’s not about reaching a particular age with a particular sum of wealth.
Having said that, a large focus for most of us during our financial lives tends to be reaching a point in the future where we have amassed sufficient financial resources to be able (if we choose) to be financial independent. Many of us are trying to accumulate and protect a large chunk of our wealth for that very purpose. This is generally how most people go about it:
Worry and fear are understandable and natural responses to have. Seeing your retirement pot / career savings go up and down in value by 10/20/30/40%+ in value is a scary sight. Your imagination will run wild, seeing yourself as a destitute pensioner shuffling to the grocers for your weekly ration of tinned goods and shuffling home to light a miserable cold and damp home. Unfortunately, that is indeed reality for some, but for others it is simply their mind playing dangerous tricks on them. It is natural to want to jump, to try to protect your pot and your future lifestyle but more often than not it has been the absolute worst thing to do provided you were invested prudently to begin with.
My point is; for much of our career, we are worried and consumed about the wrong things. We worry about markets, we worry about inflation, we worry about our portfolios in 5 years or 10 years’ time. Stephen Covey spoke about the Circle of Influence. No matter what you are doing, he encourages everyone to focus your energy and efforts on what you can control as opposed to focusing on things that might well concern you, but which you can’t control.
In the interest of helping you avoid misdirecting your energies and efforts; you can’t control the markets, no matter how much you worry or think about them!Me!
“So what Delaney; If we aren’t to focus on the portfolio and the markets; what pray tell should we be focusing on?!”
Well, here is my tuppence worth on what we might be best served focusing on, aside from the portfolio, when we think about retirement! This is based on:
a) My experiences working with people in this gradual transitioning from financial dependence on an employment to independence from an employment. As someone who is in their early 40’s and not yet financially independent to the point where I can (if I chose) step back from paid employment for the next 50years+, I certainly don’t have all the answers nor all the experience, but I do offer a fair degree of perspectives and insights through learning from others
b) Knowledge gleaned from article, books and podcasts from those who have done it, and those that have studied it, including Dr. David Eckert, Demetria Gallegos of WSJ (it was this article that prompted this piece!) and Karl Pillemer, author of 30 Lessons for Living. See also our podcast interviews with Derek Bell of Retirement Planning Council of Ireland where he shared his vast experience in supporting people through such transitions (Podcast 111 and Podcast 169).
According to all of the above, the aspects that we should be focused on and preparing for is the things we don’t tend to think of ourselves (usually because we are so emotionally invested in the markets!). We don’t generally hear them spoken about or given air-time on the national media or indeed on Blogs like this either. However, the key surprises that many retirees experience when transitioning/ed out of employment are the following, and therefore the aspects that we perhaps ought to be giving more air-time to are:
Firstly, I believe it important to wrap all of this with the message that people tend to have zero regrets about retiring! People who were previously very concerned about retiring most usually turn around a few months or more into it and say ‘hey, what was I so worried about, this is great!’. This appears to be the biggest surprise for many! Enjoying the next chapter of our lives is obviously important to us. What we are doing here in this piece is highlighting the things that surprise people, and are therefore worth focusing some effort on to make it less of a surprise when the time comes. Much like taking voluntary redundancy from a job you don’t love – you’ll unlikely regret it! Personally I’ve not do it but of the 20+ people I have known over the years who took such packages, and whom I subsequently met; many agonised over the decision to take it, but not a single one conveyed any degree of regret over getting out of dodge! Never.
Dr. David Eckert spent his career researching ageing and it’s impact on individuals from a personal perspective, and even he admits to being surprised by the next one on our list here; Our own identity and being perceived as ‘old’ by others. He speaks about the challenge of what you say when someone asks him ‘What do you do?’ Having been an accomplished academic through-out his career, he struggled with his response to that question. Instead of saying ‘Oh, I’m retired’ I have come across others who say that they are an investor (if they mentor/invest in companies) or a Consultant (if they do some flexi hours to suit themselves), a Stay-at-home-father (if have young family) etc etc. It’s all about framing it for yourself moreso than for others that politely enquire about your occupation
A big positive surprise is that sense of ‘my time is my own’. However, many felt, even after several years post retirement, that they still operated to the same daily rhythm as they had done through-out careers. Although they had greater control over what filled their time they moved in a similar way. Get to bed at a reasonable hour, get up early(ish!), be active till lunch, active after lunch and then wind-down for dinner and evening activities of whatever they do. It is well proven the value of having a routine and daily habits, and that same daily rhythm is obviously one that stays with you if you had been living it for decades
Another big surprise linked to that was the feeling of obligation to others. It was very easy to fall into the habit of saying yes to the requests of others, even if you did not really want to! Your time was your own, but you perhaps felt obligated to help others if asked to. You are asked to volunteer for a local charity, the head of which is your friend, you are asked to child-mind for a son or daughter certain days per week, you are asked to continue consulting for your old company x-days per month. What surprised many here was how easy it was to suddenly have lots of obligations, which you then begin to resent, causing strain or stress on relationships. What has been highlighted here is to protect your options, and not to take any commitments until such time as you have really gotten into the swing of your new surroundings!
Again, linked to that, is merely taking some really important time at the beginning of your new chapter to decompress and adjust. Some spoke about feeling the need to have every second of every day planned, activities and trips filling most of their schedule for the coming months. The research seems to suggest that while having certain things in your calendar will be exciting and meaningful, it’s OK and indeed optimal to simply be present in your new chapter, and take time to acclimatise. The real action can and perhaps should only happen then. As one person interviewed in a WSJ piece stated “I’m so busy now, how did I ever have time to go to work before!”
The impact of inflation on a fixed retirement income. This is both a surprise and indeed a concern for the future for respondents and interviewees. If one’s income is fixed (not increasing with inflation/CPI) over multiple decades of retirement, the amount of goods and services they can afford over those multiple decades will be reduced dramatically on average. Lets say you receive €3k fixed income per month now in retirement. Groceries, light and heat say might cost you €1,000 per month today or 33% of your disposable income. Assuming inflation of say 2.5% average every year over 20 years. that same groceries, light and heat will cost €1,638, 20 years from now, or over 50% of your income at that time. If your income is not increasing in line with inflation then this is a natural concern, particularly as you’ll have been seeing a lot of talk about inflation over recent months (having not heard of it at all in the past 10 years!). In our planning we must account for inflation. So if you have options for a Defined Benefit contract or an Annuity options which are fixed, be careful how you proceed
Another financial surprise for respondents is that of shifting our mindset around spending versus saving. As mentioned earlier, we might spend 20-40years savings and accumulating our retirement pots. And overnight we are expected to happily and confidently start spending and going on massive holidays and bucket-list stuff, drawing from those pots that we have sacrificed over for 20-40 years! It’s a big transition. You are no longer adding to that pot, you are suddenly drawing great big swathes of cash out of it! If that also coincides with a market decline we are understandably going to have concerns over that. However, provided we have planned prudently, built our financial assets appropriately and catered for such events, then we really should not worry. Instead we ought to focus on what we can control, which is to be flexible in our spending and to enjoy the money that we confidently draw from the retirement pots. But that mindset shift from ‘squirrel to splurge’ (I’m exaggerating here!) is one that can be massaged through clarity, education and some prudent on-going planning with an independent financial guide (I’m biased!)
Another aspect to transitioning that I came across and was really struck by was the concept of helping people. One respondent noted that through-out their career in ‘work’ they spent much of their time helping people. Depending on their roles in their career, they may have been paid to do that a lot, or it was an indirect activity they spent a lot of time on. Either way, when you think about it, a lot of what a lot of us do is helping people in a caring and positive way. It is ‘helping people’ meaningfully that gives me most satisfaction in what I do. For example, only last week a client told me that if it wasn’t for the work we have done together in their planning and streamlining of their schemes that they wouldn’t be in the process of delightedly selling their business so they can step back after 25 years of 60+ hour weeks. To hear that I helped them, in even a small way, to take that step with confidence was a highlight of my year so far. My point is, most of us great huge satisfaction and purpose from helping others, so when we are planning or are in our next chapter of life, there is usually tonnes of opportunities to continue helping people – it’s just a case of finding the environment we feel we can add most value and that gives us that same sense of satisfaction.
This topic of ‘transitioning’ is a huge one, and one I’m only scratching the surface of. But it’s so big a topic in our financial lives it deserves more attention and examination, so that what I’m going to be doing over the coming months – we’ll keep a clear focus on that very aspect of our financial planning through interviews and articles. If that is a topic you or a loved-one might benefit from please stay tuned and tell your loved-one about this wee blog.
In summary for today. The structures you use in the final 10 years of your accumulation are critical, as are the structures and process you use in the first 10 years of your draw-down. It’s important to get them right and avoid some terrible outcomes (see our Blog 187 on terrible Irish investment funds). Ensure you do detailed and prudent planning, and ensuring your portfolio matches your plan, that the fees are appropriate, and then you can confidently turn your focus away from your portfolio and towards the aspects of your transition that you can control and develop yourself:
And remember, it’s not the destination, it’s the journey!
Thanks for reading.
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