You’re probably still easing into the year, so this week I won’t post anything that’s meant to teach. Instead, permit me to look forward to the next few months.
I’m trying to guess what are the characteristics of my readers, so that I can post stuff that’s useful to you. And while I’m pretty sure you share some characteristics, I also guess that in another respect you fall into two broad types.
I think the shared characteristics are a desire to be proactive, curiosity, and not being scared by numbers.
Proactive? I’m guessing that you’d love to have the time and money to indulge yourself. You may enjoy many aspects of your life today, but if you could be self-indulgent, you’d change at least some of it. Well, that’s what the ideal way to spend this phase of life is all about! It’s about personal freedom. It’s a wonderful goal. And you’d enjoy getting closer to it. I hope my blog posts will enable you to be proactive about this phase of life.
Curious? You know there are things that are outside your everyday life, but you want to learn about them, partly for the pleasure of learning, and partly because some of these things might turn out to be important to you. And when you learn, sometimes the new knowledge changes the way you think about the world, and you grow as a person. You’re not only open-minded, you’re eagerly open-minded.
And third, you’re not scared of numbers. You may even love numbers, but that’s not what I’m saying. When you see a bunch of numbers, it’s instinctive to you that some are bigger than others, that some are close together and others far apart. Numbers are a way to describe some things. They’re a language, just like words. Big, small, close, far — that’s all the number sense you need, for the most part.
Then the separation starts. Of course there are all kinds of characteristics on which you differ. But the one I’m focused on now is your degree of technical knowledge. Some of you are non-technical, as far as investment and finance go. And others are techies, and some of the language of finance and investing is an everyday part of your lives. So as an overall group, you come at these posts with different backgrounds and different levels of initial knowledge, and different levels of expectation about what you want from them. Some of you techies have contacted me in private and said, in essence: “Get on with it! Give me something that will help me with the numbers, as I prepare for retirement.” I hear you.
So I’ll continue with some posts on Topic 1 (relating to happiness and the psychology of retiring – that’s something that’s relevant for all of us), while also giving you more meaty, numerical stuff. The techies should understand this numerical stuff right away. The non-techies should understand the purpose and the approach; if the calculations seem a bit abstract, check with your favorite techie expert.
In particular, I’ll have a major focus on your personal funded ratio, in this coming quarter. This is a measure that compares the amount you’ll have, taking into account your existing and future savings, and compares that with the amount you’ll need to support your planned lifestyle for the rest of your life. Of course this isn’t a prediction, it’s an early estimate. But I’ll show you four ways to compare the two amounts, so that you’ll get a lot of insight into where you already are and what kinds of things you may need to do to get you to your goal.
Ideally, what I have in mind is to create a sort of app on the website, where you create inputs and the app will give you outputs that you can print out. Once you erase your inputs, the record will be gone; the website will keep nothing. That’ll ensure your privacy. I think that’s how the website http://www.longevityillustrator.org operates (the one I used to find life expectancy numbers in Post #12). Anyway, that’s my goal. I’m not there yet. Give me a little time to get there.
Other than that, there’s nothing fixed about the contents of the posts in the next few months. Of course I have a number of ideas, but I’d prefer to have your input, and so I’m setting out some possible topics below. I’d really like you to tell me which ones are most appealing or important to you. Or add topics that aren’t listed, if that’s what you’d prefer. Send them to me via the Comments section — I won’t post them (nobody else will know what you’ve asked for), I’ll just add them up and use them to determine what exactly the content will be. You can do this at any time — your input is always important to me.
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OK, then, here are some ideas:
- Pacing our lives as a five-act play
- How best to spend time and money
- Retire to a lifestyle, not just from one
- What are your goals for the future?
- What if you don’t have a financial professional?
- Using a “life coach”
- How healthy is your romantic Venn diagram? (OK, that tells you nothing! — but those who have heard me on the subject tell me it’s surprisingly memorable, about being a couple as well as two individual people)
- Historical investment return patterns
- Your fundamental investment choices are to eat well or sleep well, and they depend on psychological as well as financial factors
- Your home as part of your retirement portfolio
- Invest actively or passively? They’re really three separate issues
- More detail about how to use different longevity tables
- Glide paths and how to improve them
- Risk: what happens when the rubber hits the road
- Three broad phases of life after work
- Three retirement goals ideally need three separate instruments
- Three things that could derail your plan
- Four ways to convert assets into a sustainable income stream
- The role of an annuity in a sensible retirement portfolio
- Good advisers will speak our language
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That’s more than enough! Over to you …
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Takeaway
A list of possible ideas to discuss in the future
4 Comments
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.
Don, thanks again. I do like the term: “personal funded ratio”. Quite easy to explain to even someone not familiar with finance. I would add to your “shared characteristics” the following: understanding, conviction, discipline and patience. My daughter and her husband sit down between Xmas and New Year every year to formulate a 5-year financial plan — what they will spend (and on what), how much they will save (pensions, paying down their mortgage, etc.), how much to place in an education account for their kids, etc. They treat this as a “family meeting” — there would have to be a very important reason why the “meeting” would not be held. This is the discipline. It takes time; however, when you figure, as you have stated, that you need to plan now for the 25-or-so years after you “graduate”, it does not seem unreasonable to take a day out of your life at the end of each year to work on a plan, and then during the year to gather the information you will require to make you plan even better next year.
As far as numbers go, when I get to this topic in speeches, I start with: a recent survey shows that 92.183% of the people will believe any statistic that is taken out three decimal places.
You asked about your audience and their characteristics. For me, private wealth individuals (does not matter what their net worth is) fall into three demograghic segments: the baby-boomers (born between 1946 and 1964), Gereration X (1965 to 1976) and the Millenials (1977 to 1995). Each will have a different mindset when it comes to planning for retirement. I believe the majority of baby-boomers have been the least successful generation in providing for the future. Their only hope is to inherit well. As a result, the segment of the population that is increasing their debt level the most is the segment over 65. The Millenials have so much student debt that it will be awhile before they start to actually save — entering jobs that are likely below their education level. Student debt in the U.S. is at about the same level as our GDP.
Looking forward to more.
Thanks, JJ. Some great perspectives here. I particularly like the idea that one day a year is surely not unreasonable to set aside for long-term planning.
Don, I have fallen behind my blog reading in the past few weeks but am now diligently working to catch up. And enjoying the experience and the learning that comes with it! One of the topics that worries me relates to levels of future expenditures. We will budget for retirement. What I am concerned about is knowing how to account for items such as having to move into a nursing home. The expenses of some form of assisted leaving in future could exceed our budgeted amounts and not just by a little bit, so that amounts we had planned to leave to the children would not be available for those purposes. I am not sure that this is an appropriate topic for the blog, but it is a concern to me. I also thought J.J. Woolverton’s comments at blog 25 were very good, in forcing a focus on issues that, at some point, we will all need to be thinking about, i.e. it may be macabre but, inevitably, there are a series of decisions that need to be made. That is probably not appropriate for the LAFTWO blog, but if there are sites that deal with this or easily accessible resources, a reference would be good.
Thanks — yes, these are sobering considerations. If readers know of websites or other publications that are of relevant interest, I’d be happy to publish references.