Some areas to consider in the context of new year’s resolutions, plus an anecdote of an unexpected benefit
I hope you do incorporate something about life after full-time work in your resolutions. Let me do two things in this post. First, I’ll tell you a personal story about the unexpected importance of taking that first step. And second, I’ll suggest a few areas to which it might pay you to devote some attention next year.
My personal story started with an email, late in 2015. It ended with happiness and an awareness of a big risk I was taking that hadn’t occurred to me.
The email was from Claer Barrett, the personal finance editor at the London-based Financial Times. I had recently become a columnist in the weekend Money section, and she said she was asking all her columnists and staff: “If you do one thing with your money in 2016, what will it be?” She explained that the idea behind this was that everyone puts off attending to their own finances, so inertia wins the day — and her anecdotal evidence was that those in financial services are the worst at looking after themselves.
Oh gosh, this resonated with me! My circumstances had changed dramatically twice in recent years: in 2010 when I graduated from full-time work, and again in 2013 when I moved from New York to Toronto. In 2010 I calculated our “personal funded ratio” for my wife and me, and it was … let’s just say, substantially below 100%. In fact, one of the reasons for moving to Toronto was that property prices were lower in Toronto (despite it having a reputation for very high prices), and releasing some of our New York property value would enable the ratio to get a bit closer to 100%.
Nevertheless, I was not just anxious, but totally fearful of re-examining our spending pattern and our funded ratio. And of course the anxiety compounded and turned into a huge weight that became progressively more frightening.
Claer’s email was the call to action that I needed. It would have been humiliating to confess in public that I was still running away from reality. (As it turned out, there would have been no humiliation. Only two of us, as I recall, answered Claer’s question. The others avoided the personal angle that was her focus and responded with advice that they’d give others. Hah! But I didn’t know that, at the time.)
So I decided that I would re-calibrate. I would re-examine our financial position and commit to spending no more than is sustainable over the rest of our lives.
Next year I’ll describe how to make the calculations, so you can apply them to your own situation. For this post, all that’s relevant is my astonishment to find that our personal funded ratio had risen to 100%. How on earth had that happened?
Eventually I figured it out. Our assets were mostly in a global equity index fund. This was still held in the US, as I hadn’t bothered to move anything when I moved to Toronto. The asset value was therefore expressed in US dollars. At the end of 2010, a US dollar was worth $1.03 Canadian. At the end of 2015 a US dollar was worth $1.28 Canadian. Our assets, expressed in Canadian dollars, had essentially gone up by roughly one-quarter (25%) while I had done nothing. And that’s why our funded ratio suddenly looked so much better.
First reaction: what good luck! Second reaction: happiness! Third reaction: oh xxxx, now I realize we’re exposed to the risk of adverse currency fluctuations, not just fluctuating equity market prices. Unless I locked in the new low value of the Canadian dollar, the gain in funded ratio would evaporate if the Canadian dollar rose relative to the US dollar. So I took action. But that’s not my point. My point is that moving to Canada seemed so easy, given my work history, that I never thought about the huge currency risk that our retirement assets were now newly exposed to. If I hadn’t been prodded into re-examining our situation by the potential for public humiliation arising from Claer’s innocent email, I wouldn’t have discovered our risk exposure.
Isn’t that so often the way? You’re afraid to confront your fears; your fears grow, the fact that their dimensions are unknown making them seem much worse than they ought to be; and when something triggers the eventual confrontation, reality is much less bad than you imagined (and might even bring new things to light). Neuroscientists know the explanation. The brain’s amygdala is the focal point of our emotions. It’s what generates the “fight or flight” reaction (preceded by a temporary freeze) when we sense we’re in danger. For me it was: freeze and then fly. It required a bigger conscious effort to confront and fight the danger. But that vanquished the fear — and the resulting surge of adrenaline brought happiness (and an inability to sleep that night until very late).
One other consequence is that I now adopt a new year’s resolution related to retirement every year. Updating our wills, for 2017. Updating our records and the conversation with our adult children, for 2018. Both long overdue.
Here are some thoughts that occurred to me as I went through the 24 posts, to see what referred to possible new year’s resolutions.
Did any of those posts cause a teachable (“aha”, as one reader termed it) moment? (Maybe the 10-30-60 one?) If so, go back to it and resolve to do something relevant next year
Are there other natural teachable moments in your life? Perhaps your year-end retirement asset statement, filing your income tax statement, perhaps just the turn of the year, a round number birthday or anniversary in the family? If so, identify one that you’ll use, and do something relevant.
Have you started saving for retirement? Or increasing your retirement saving? If you don’t have access to a collective retirement savings plan, can you talk to co-workers about post #20?
Have you evaluated your life’s abundance portfolio?
Have you checked your (joint) life expectancy?
Have you painted your mental pictures of what future success and failure might look like, to help you identify your future goals?
Do you need to consult a tax expert?
Have you constructed a rough (or perhaps a precise!) budget for the year, with any overriding goals identified and prioritized?
Have you found out about your country’s Pillar 1 pension?
Which of my five identified stages of retirement planning are you in? What strand are have you reached? What changes should you undertake, as you consider this line of thinking? This one is really important to get started on.
Depending on your personal situation and preferences, there are many areas in which you can identify a possible new year’s resolution related to life after full-time work.
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.