Life After Full-time Work Blog

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

#54 Au Revoir! (Read This First, Before You Catch Up)

As always, here’s a review of the ground we’ve covered in the last quarter — plus (importantly) a thought on how to catch up if you’ve fallen behind.

 

We’ve come to the end of another calendar quarter, and now, at least in the northern hemisphere, it’s the traditional time for a summer break.  Many of you have told me that you’ve created a folder for my blog posts and you place them there as they appear in your Inbox, so that you can read them when you have a little more time to do them justice.  I appreciate this, and hope that you can get to them this summer.

Remember, though, that the purpose isn’t for you to read them all.  Just check the headline excerpts in the Blog section to see which ones are of interest, and ignore the rest, or at most go to the Takeaway at the end of each post to make sure you haven’t missed anything of significance to you.  It’s very unlikely that every post will be of interest to everyone.  Don’t feel guilty if you skip several.  If later they turn out to be relevant, they’ll still be there on the website.

I’ll resume normal service on September 7, after Labor Day.  And probably upload one new post every few weeks, so as not to overwhelm you.  You’ll get your email informing you when there’s a new post.

For those of you in the southern hemisphere, I’ll continue to send the occasional piece to https://cuffelinks.com.au as I have been doing for some months.  By the way: my special thanks to Australian readers.  Throughout my career, Australians have been the most eager group to hear about new angles I think of, and the most open-minded about new ideas — implying also that they’re not hesitant to challenge them!  I’m very grateful for your encouragement over the years.

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Meanwhile I’ll be trying something new.

You, and the readers of my more recent set of identical posts on LinkedIn, have become my focus group of interested individuals.  Thank you!  I’ve adapted some of the posts in response to your comments, as I rewrite them for the book that will eventually contain them all (and more that are probably too advanced to make good website posts).  But now I’m looking for a second focus group.  This second one, I hope, will represent employers and unions who sponsor Defined Contribution (DC) pension plans.  I know from my experience as a consultant that sponsors have their own angles that are different from those of their participants, and I want to make sure that I understand those sponsor angles and reflect them in the book.

So, to comment on the state of the art of DC and to appeal to sponsors to join my second focus group, I am returning to the conference circuit.  Thanks to the conference organizers who have already welcomed me back.

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I receive more private emails than comments on the website or on LinkedIn.  I’m delighted to hear from you privately, if you’re too shy to make a comment for the public to see.  I won’t ever name you, if you tell me something privately – you can be sure of that.  Every private comment I’ve received would have enhanced the relevant post, if it had appeared on the website.  Feel free to use an alias.  Your thoughts in the comments area below each post could be of great help to fellow readers.

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Before signing off for the summer, my thanks also to my friends at Out:think.  They built the website from a vague idea of mine, and maintain it continuously.  They built the calculator from a spreadsheet I sent them.  If you’ve ever run a conference or been involved in amateur dramatics, you’ll know how much goes wrong behind the scenes, even if all that the audience sees is a smooth performance.  That’s the case here, no question about it.  My grateful thanks!

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The Quarterly Summary

As has become a regular quarterly feature, here’s a summary of the posts in the second quarter of 2018.

Topic #2: Investment

We had four posts, all concerned with our attitudes towards risk.

In Post #42 (https://donezra.com/42-your-fundamental-investment-choices-eat-well-or-sleep-well/) we started with the fact that investments can be focused on safety or on growth.  But how much safety and how much growth should we seek?  The key is to consider the extent to which good and bad outcomes affect our lifestyle.  And then our risk attitude comes down to how we balance the goals of eating well and sleeping well.

We explored this further in Post #43 (https://donezra.com/43-your-risk-tolerance-depends-on-psychological-and-financial-factors/).  Once we’ve made a calculation of the effect of good and bad investment outcomes, we need to think about how we’d react to these outcomes.  That depends partly on psychological and partly on financial factors. So we should think not of how we’d react to a fall in market prices (which is likely to be highly emotional), but to how we’d react to the impact it has on our spending potential (which is a much more sober set of considerations).

That said, the fact is that we’re different human beings, and so sometimes partners find that they have different attitudes to risk, as we found from the many examples in Post #44 (https://donezra.com/44-sometimes-partners-have-different-attitudes-towards-risk/).  We have different views on life and what’s important and what’s risky; some of us are more tolerant of risk and some more fearful.  It can be tough to reconcile our differences – particularly if we’ve never shared them.

So in Post #45 (https://donezra.com/45-can-partners-reconcile-different-attitudes-towards-risk/) we explored the many sensible ways to proceed when partners find that they have different attitudes to risk.  It may be difficult to find a single approach that leaves both reasonably comfortable.  But remember that this difference is a personal issue, not an issue requiring investment expertise.

Topic #4: Retirement Finance

In Post #46 (https://donezra.com/46-your-personal-funded-ratio/) we looked at a simple concept, the Personal Funded Ratio.  It compares how much money you’ve got with how much you need.  Specifically, it measures how much money you already have, and are likely to have after your future savings, relative to the amount you’ll need to support your post-retirement ambitions.  Over 100% is good, under 100% suggests that you ought to think about doing something about it.

In Post #47 (https://donezra.com/47-inheritances-and-bequests/), we considered how inheritances and bequests affect the calculations.  Inheritances are likely to play an important part in every generation’s retirement funding. But they come from other people’s desires, so it’s difficult, if not unwise, to take them into account explicitly in planning for your retirement.  Bequests, on the other hand, arise from your own desires, and there are ways of accommodating them in your financial planning.

In Post #48 (https://donezra.com/48-how-to-use-the-personal-funded-ratio-calculator/) I explained how to use the Personal Funded Ratio calculator that’s now on the website, to help you find out what point you’ve reached, as far as retirement finances are concerned.  I explain the principles it’s based on, the questions it can answer, the information you need to provide, where and how I’ve imposed limits on its flexibility – that sort of thing.

In Post #49 (https://donezra.com/49-an-example-of-the-use-of-the-personal-funded-ratio-calculator/), it’s time to assemble the facts required for a funded ratio calculation. If you’ve never done it before, gathering the information is not always easy.  I show how one couple did their best, even though it was far from perfect. Even without precision, using the calculator represented a big psychological step forward, indicating areas that needed further investigation.  Having a framework is a big first step.

In Post #50 (https://donezra.com/50-variations-on-a-theme/), our exemplary couple decided that they wanted to play with the numbers, a little bit.  They found that using all the possible calculators allows you to see which changes have a big impact and which ones a small impact, as well as which changes might be feasible and which ones aren’t really possible to implement.

In Post #51 ( https://donezra.com/51-wealth-zones-essentials-lifestyle-bequest-endowed/) we went a step further.  Suppose, through the personal funded ratio calculation, you now have an idea of where you are, relative to your target.  How does that affect your lifestyle options?  We defined a series of “wealth zones,” based on the calculation; and it’s useful to find out which wealth zone you’re in, because your practical choices vary a lot from one zone to another.  So the earlier you know, the more time you’ll have available to think about your choices.

Topic #3: Longevity

We ended the quarter with two posts on longevity, designed to help you personalize your use of the calculator.

In Post #52 (https://donezra.com/52-one-particular-longevity-table/ ), I referred to a particularly useful table available online, and showed how to use it.  In particular, you can now understand and know how to find the 50%, 25% and 10% longevity estimates for you and your partner.

In Post #53 (https://donezra.com/53-what-if-you-have-a-better-estimate-of-your-own-longevity/), I focused on the fact that you may have an independent way of getting your own longevity estimate.  In that case, you need to adapt that online Actuaries table by finding the age at which your independent longevity estimate matches one in the table; then continue with the table as if you are an American of that age.

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This month’s comments

This month the only post to draw a new comment was Post #51 (https://donezra.com/51-wealth-zones-essentials-lifestyle-bequest-endowed/).

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Thank you for the support and affection you have shown – you have no idea what that means to me, and how very rewarding I find it!

Until September 7 … have a healthy, happy and relaxed time!

Best regards from me,

Don

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Takeaway

Thanks for staying with me.  I’ll give you a chance to catch up, and will resume at a slower pace in September.  Enjoy the next couple of months!

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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.


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