Life After Full-time Work Blog

Learn about preparing for life after full-time work through posts from Don's upcoming book.

#32: Three Things That Could Derail Your Plan

There are things that we should be aware of, that could upset our post-work lives from evolving as we hope. Here’s what we can consider, in case one of them appears in our path.

 

I came across this Irish blessing on a greeting card: “As you slide down the banister of life, may the splinters never point the wrong way.”   And it occurred to me that, at least as far as the post-work years are concerned, there are three splinters to be feared: outliving our assets; the expense of becoming very sick; and dementia, or some other form of cognitive impairment, meaning we’ve outlived our ability to think clearly.

There’ll be a number of posts, over time, discussing how not to outlive our pension pot. Indeed, that’s the main focus of this website’s Topic #4. So I’ll say no more about it here, but will focus on it exclusively very soon.

As far as the expense of becoming very sick is concerned, I’ll look at some numbers in a future post. But all I can show you are averages; they’re far from conclusive evidence of needs. Averages disguise the fact that some retirees never reach the stage of having very large medical expenses, while others do – and the average covers both groups, and therefore won’t be indicative of the cost for those who face those expenses. That’s why that hasn’t been an early website post.

Different countries have very different healthcare systems. Some cover most expenses, some cover some expenses, some cover none. Because of these significant differences, I have nothing generic to say except that it’s probably worthwhile to find out (from a financial professional if necessary) the answers to a number of questions. It may still be difficult to decide which approach suits you best, but at least it’ll be an informed decision, whatever you choose.

In Post #24 (https://donezra.com/24-talking-to-your-adult-children-or-other-close-family-members-about-this-phase-of-life/) we discussed talking to your adult children about this phase of life. It’s best to do it, of course, before cognitive decline sets in.

My insights into this aspect come partly from reading and partly from life.

The reading started with a paper co-authored by one of my favorite economists, Harvard’s David Laibson, called “The age of reason.” Cut a long story short. The authors investigated how the way average people deal with simple financial tasks, like home equity loans and credit cards, varies with their age. They found that experience gained with ageing helps people to make more sensible decisions – but only up to a point. Beyond that point, a gradual loss of cognitive capability (at least as far as financial issues are concerned) starts to outweigh experience. What’s the age at which that happens? Looking at the evidence, they said: roughly age 53. (Except that, as these are economists using regression techniques, they couldn’t resist quantifying it as 53.3!)

You’re doing your own calculations? For me that was many, many years ago. I remember thinking, when I first read the paper, that when I was 53 I was on a three-year ex-pat assignment in London at the time, so none of my North American colleagues knew me at my peak! (Just kidding, of course. They probably thought I was already long past my peak.)

When I recounted this episode to the clients of my firm, I told them that I was sure that the peak age was likely to be higher for all present, because their experience and wisdom come in a more complex field, where they keep learning for much longer. That’s why I thought their learning peak would come later, and so my guess was that their performance decline would start later. Regardless of that, I told them, we will decline, if we haven’t already started.

In my family, my dad showed signs of losing it as he approached his 90s. My mother had Alzheimer’s for many years before she passed away. My wife’s dad died of Alzheimer’s. And both of us come from long-lived families. I think there’s a fair chance that one or both of us will start a cognitive decline some time before our estate events.

That’s what prompted us to write the “Goals and Plans” document mentioned in Post #24.

It was partly so that our children will know about things in much more detail than in Dad’s Decumulation Talk, and partly an appeal to them that, as we update it periodically, as soon as they see incipient signs of my losing it in particular, they’ll feel confident enough to say, “You know, Mom, Dad doesn’t sound right; he’s always said … etc.”

I want them to be confident that they know the plans well enough to quote them at me, when the time comes, and carry them out. I am totally confident that they’ll recognize when the time comes, because they have already warned me about it, although in the past I think it has been in jest. I’m the slow one in the family, the figure of fun there, so I expect that. But the Goals and Plans document is serious.

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Takeaway

Be aware of three things that could derail your plans: outliving your assets; becoming very sick; and dementia. The first one will be dealt with in future posts; the second one has a cost that varies with a country’s healthcare systems; the third one suggests that you should make decisions early in your retirement and inform your adult children about them.

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.


4 Responses to “#32: Three Things That Could Derail Your Plan”

  1. Stephen says:

    Does elder abuse come under this topic or may be a separate article in its own right.

    • Don Ezra says:

      Thanks very much for raising this issue. I’m not planning anything separate on it, and all I had in mind in this post was to mention things that aging itself can do to us, rather than going further and mentioning what other people can do to us when our physical and cognitive abilities decline. Can you help our readers with thoughts on what they can do to avoid or mitigate the dangers, or direct them to websites that do that?

  2. J. J. Woolverton says:

    Don, good stuff. In checking with retired individuals before I retired, I found a few, and heard of others, that ended up in divorces after they retired — seems like for two reasons: first, the wives were happier when the husbands were at work; and, secondly, work-at-home moms decided to go back to work when the kids became independent. As a result, they were more financially secure. This significantly “derailed” their retirement plans. Don’t know if there are any statistics that might show the number of divorces that occur after the age of, say, 60 — and how this might have changed over time.

    One other point as to medical costs. I read, in the U.S., that something like 90% of all medical costs for an individual occur in the last year of life.

    • Don Ezra says:

      All that you say is true. I don’t have stats for divorces after 60, but this piece in the New York Times (https://www.nytimes.com/2015/10/31/your-money/after-full-lives-together-more-older-couples-are-divorcing.html) confirms your perspective. My next post (ironically, right after Valentine’s Day) deals with this issue, at least partially. As regards late medical costs, I recall, in doing research for one chapter in The Retirement Plan Solution, discovering US statistics (now some years old, of course) to the effect that medical expenses in the final year of an individual’s life are, on average, five times as high as in a nonterminal post-retirement year, and 30 percent of the final year’s expenses occur in the very last month.

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