Here’s a convenient summary of what the first 24 posts have covered. I’m sure that not everything was of personal relevance to you, so this post is a way to see where the stuff you are interested in fits into the big picture.
This website has become my focal point each day. I hope you benefit from it, because that’s the intent. Do let me know what you’ve liked (also what you haven’t liked, to be honest), and where you’d like our tour of the land of Life After Full-Time Work to take you. (I’m thinking of shortening the name of our destination to LAFTWO, to save time! It sounds to me a bit like “Life Two,” the next and best part of our life.)
This isn’t a time of year to get into new stuff. That’s typically left to our new year’s resolutions. So for this post let me simply remind you of how far we’ve come, from the time when this website was launched at the end of September, just over a couple of months ago. I’ll look forward next week to what we will cover in the future, to help you with those resolutions. And I’ll say it again: please tell me what you’d like me to cover.
Also, tell me if this summary is a useful idea. If it is, I’ll do it every quarter, and then you’ll have a convenient record and interpretation of everything that has been posted.
Topic #1: Happiness and the psychology of retirement
We started at the start. Why bother with retirement-related stuff at all (Post #1)? Because you start your life with labor, and your goal is to convert that labor into financial assets. That’s how you enable yourself to retire. One reader expanded on this idea. You really don’t want to work forever, and retirement isn’t free. What’s more, you may not actually be able to work as long as you’d like, so the sooner you start the process of converting work into assets, the better. Sound, practical, valuable advice that every young person should read on their first day of work! – said another reader. Good start!
It can be discouraging, if you think you’ll need to become an expert on the subject. But we saw that that isn’t a necessary goal at all (Post #2). You don’t ever need to be an expert about this stuff. You’re a consumer of expertise. All you need is to be an informed consumer – and that’s what I’m aiming to make you. In fact there’s one subject on which you’re already an expert – on yourself. And you can have fun educating the technical experts about yourself.
You want to reach retirement, for another very positive reason. There’s a connection between happiness and age (Post #3). As human beings, we’re hard-wired for these to be the happiest years of our life.
And happiness isn’t just about money (Post #4). Life is about so much more: family and friends, work and play, mental health (including spirituality) and physical health – not just money. All of that is what constitutes life’s abundance.
Typically we don’t think about life after full-time work (LAFTWO, anyone?!) until it gets really near. I asked some people to think about it now, while they’re still working (Post #8). I interviewed them and shared their dreams in one post. People have different dreams and different fears – but it’s always nice to dream!
For some people, though, retirement is a scary thought. Sometimes they choose to call it complicated, to avoid confessing that they’re scared (Post #11). It’s nothing to be ashamed of. Being scared is natural. Once you understand why, and what you can do about it (and I explained all that, in a single post), the fear typically goes away. Just take the first step.
There’s another thing you ought to do. Parents are often uncomfortable to talk to their adult children or other family members about personal matters, as they approach and live in retirement. Post #24 identified some of the benefits of that kind of conversation. Share information about your current finances, about your desires if you should become incapacitated, and about your will.
General background (a sort of Topic #0)
All of that was about happiness and the psychology of retirement. As an introduction to LAFTWO (hey, it’s beginning to sound natural …) I also posted some stuff on general background that it’s nice to be aware of, before starting the tour.
One aspect is about being able to say “I’m rich!” (That was Post #9.) I’ve come across lots of rules about how much money you’ll need for a happy, comfortable retirement. And all sorts of numbers, and all sorts of ways to calculate them. When I saw what colleagues of mine came up with, about what it really means to be rich, I loved the simplicity of their concept. If your assets are enough to support your lifestyle for as long as you live, with something to leave after you’re gone, you’re rich. Easy to remember, and intuitive, right?
I know there are many who don’t understand the meaning of “percent” or what decimals are (Post #16). That’s nothing to be embarrassed about. Percentages and decimals, as I explained, with examples, are just ways of expressing fractions, portions, of something bigger.
I also know that life is so busy, there never seems to be enough time or even a good time to think about this stuff. And then suddenly something happens and triggers a connection. That’s called a teachable moment (Post #13). Sometimes it comes in a scarier version, called a wake-up call. Life provides natural teachable moments. I hope your weekly notifications become teachable moments. And that the turn of the year will cause you to resolve to think about LAFTWO once a week.
And I mentioned taxes (Post #7). Think of them as what you pay for a civilized society. But we all would like to pay less. Unfortunately, I can’t point you to any universal principles on the subject. But this is a very important subject, and you might want to seek advice on the issue even if you choose a do-it-yourself approach on other retirement issues.
Finally, there was a bit of self-indulgence, as I reported from behind the scenes at the World Pension Summit (Post #19). I just wanted to convey something of the atmosphere at a global conference, and to confirm how much I love attending and speaking at conferences, even all these years into my graduation from work. Stopping work does not mean stopping thinking!
Topic #2: Investment
Again, we started at the start. Investment is often considered a very complicated subject. But you can leave the complications to the experts. All that’s necessary for you to understand is a couple of basic things: why people invest, and what sort of general goals they have for their investments. (That was Post #6.)
Investing means setting aside money today in the hope that it will produce more in the future. There are basically two kinds of investment: safety-oriented (where relative certainty of the outcome is more important than growth prospects) and growth-oriented (much more profit hoped for – but less certain).
And then we went on an imaginary trip to a casino. And indirectly, that taught us that there’s no mystery to investment principles (Post #14). In making investments, people behave just the way you’d expect. They’ll play a game (many times) if they think they’re likely to win. They don’t like to lose, particularly not large amounts. If you put a lot of people together figuring out the chances in any particular game, there won’t be any easy money to be made.
In fact, those principles can be extended from the coin-tossing and card games from which we derived them, and applied to investing more generally (Post #15). Investment outcomes aren’t as predictable as tossing a coin or drawing a card, where the odds are known and the number of possible outcomes is limited. But there are still similarities. And the odds help us to decide whether an investment is oriented more towards safety or towards growth.
Topic #3: Longevity
Guess what? We started at the start here too, with an explanation of “life expectancy,” a concept misunderstood by many people (Post #5). It’s not the arithmetic of the calculations that’s the problem, it’s understanding the concept: that it’s the average number of future years expected to be lived by an identified group of people. Half of that group will live longer than their expectancy, half will live shorter. So your specific future lifetime is uncertain (of course, you knew that). But I also explained why life expectancy is typically underestimated, particularly for a couple.
And that leads to a natural question. Since you don’t know how long you’ll live, what is a sensible planning horizon for the length of your retirement (Post #12)? Approach the question by using a life expectancy table, like I one I showed you, to see what proportion of people or couples similar to you survive for what length of time.
Topic #4: Retirement Finance
We know that we need to save because otherwise we won’t have enough money to last the rest of our lives, if we don’t want to work forever. Our retirement ambitions are typically such that we need not only to save, but also to take investment risk in the hope of adding to our savings. (That was Post #17.)
Fortunately, over time, investment returns multiply our savings enormously (Post #18). Lots of animated discussion here from readers, rightly pointing out that my so-called 10-30-60 rule ignores the effect of inflation. But there was agreement that investing over a long period creates a multiplier effect, and that much of that effect takes place after retirement, so continuing to focus on our investments after retirement is vital.
Before you can make any financial plans for the long term, you need to have some idea of how much income you need, to support your current lifestyle (Post #10). As with all the other aspects of LAFTWO, we get scared by the complexity. Sometimes we think that making a budget is a long, complicated process. But for the purpose of setting a financial target, it doesn’t have to be. It’s surprising how simple it can be, while still being useful. In fact, having even a single aggregate number as a spending target is very useful. You can change it and refine it over time, but without it there’s no financial goal to measure progress towards.
We checked in with Dan (Post #21) to look at his family’s approach to saving for retirement and getting their next generation thinking along those lines. While Dan is much better off than average, it’s not his finances but his attitude that’s the learning point, and he used Sesame Street to teach his children – and then found that Sesame Street applied to him too. Two other lessons. One is that paying off a mortgage is itself a form of saving for retirement. The other is that it’s possible to find ways to save money via curtailing unnecessary everyday expenditures that we incur without thinking.
We generalized, after that, and identified five stages in your financial life (Post #22). The first goes up to 20 years before retirement, then there’s the period taking you to 5 years before retirement, then the 5 years taking you to retirement, then the transition into a retirement lifestyle, and finally the point at which you downsize your lifestyle well into retirement. For each stage I identified minimum, successful and exceptional standards as guideposts, not to money, but to what you should be doing and what you should be thinking about.
It’s all very well to talk about retirement savings, but when we’re young, we have other long-term financial goals too. Where do buying a home and insuring one’s life fit in (Post #23)? Quite simply, a home satisfies many potential needs: a roof over your head, emotional fulfillment, retirement savings. Decreasing term insurance can inexpensively hedge the chance that an early passing away deprives your dependents of the work income you would otherwise have earned.
Finally, in Post #20 I changed the audience a little bit and addressed your employer or other groups that your work may enable you to belong to. That’s because these days the retirement scene is changing, and more and more the onus is placed on individuals rather than on pooled arrangements. But it’s possible for new forms of pooling to be made available by employers, associations and unions, helping members to reduce the risk caused by uncertain longevity and to benefit from lower cost and greater expertise in pooled investment arrangements.
Did you realize you had covered that much ground? In just a few weeks?
Are you proud of yourself? Was it less scary than you feared? (OK, the answers I hope you give are “yes” and “yes.”)
You don’t have to remember everything I’ve put down here. That’s not the point. You can always refer to it, rather than sticking it in your mind for all time. The important thing is not memorization, it’s understanding. If there was something relevant to you (or maybe a couple of things) that you didn’t get the gist of, take another look. And remember that the point I’m hoping you get is what’s contained in the takeaway at the end of each post.
If you still don’t get it, let me know. It may be that I’m simply not being clear enough, and that you’re not the only one who didn’t get it. Let me know – or I won’t be aware of my explanatory shortcomings. Your feedback is all-important to me.
Thanks for reading!
Just a summary of the first 24 posts, organized by topic.
I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.