I’m asking for your help in prioritizing topics for me to research
I seek your input, please and thank you.
Here’s the background.
I’ve been working for some years on researching retirement from the perspective of the individual. This led to the creation of this website and the writing of Freedom, Time, Happiness, from which Life Two (about a quarter of the original FTH) was extracted; now Life Two has been published and FTH uploaded to this website. That’s a lot of research, a lot of assimilation and organization of information, and a lot of writing. Along the way there have also been almost 100 blog posts, as you see. And, thanks to Common Wealth, we’re also uploading a number of podcasts that add the views of global experts on aspects of retirement.
It has been a wonderful time for me, and has brought me enormous pleasure as you send me comments and emails that sometimes guide my perspective and at other times bring gratification when you say you’ve benefited from some aspect of what I’ve written. Thank you!
While all of that represents a sort of completion, my love of the subject and of researching it remains as eager as ever. And I find myself with a number of possible future avenues to explore. They result from my ongoing dialogue with experts and my attendance and participation in conferences and seminars.
Quite simply, this is still a subject in its infancy. There is a lot to learn, even for the experts, about the way in which people think about the psychological, practical and financial implications of retirement. In fact, surveys suggest that few people think about it until it’s upon them, even though retirement itself is already changing so much from its traditional “end of life” to just being a new and happier phase of life. And those who are researching retirement tend to have two angles that they focus on. One is that they tend to concentrate on the financial aspects. The other is that they have a sort of top-down, societal perspective rather than a bottom-up, individual perspective.
Of course those are very useful perspectives. But there’s so much more! And the notion of focusing on the individual person rather than on society is (at least to me) so much more important, given that individuals have to manage their lives right now, in today’s circumstances; and they do not appear to be receiving adequate education (perhaps because the education isn’t available) about Life Two, unlike the education they receive before commencing Life One.
That’s why I’ll keep researching the subject. There are numerous angles to pursue. But in fact there are so many that I need to prioritize my focus, and that’s where I’d greatly appreciate your input. Permit me, in this blog post and the next one, to outline some of those angles briefly. And then, if you’re willing, let me know (either directly on this website or by emailing me at email@example.com) which ones you would place at the top of my list.
It would be even more helpful if you could tell me why you’ve made your choices, and/or what are your own views on the subject matter of your choices. But you don’t have to go that far, unless you want to. And I’ll keep the communications private unless you tell me it’s OK with you to publish them.
Right, here are the first choices (to be added to in the next blog post). And remember, you’re helping me decide which areas to do research into. I haven’t done that research yet, so I don’t have answers!
1) Individual financial dilemmas
I subscribe to a lot of newspapers and online publications that carry questions from readers, and then print possible approaches to resolving the questions, either from a columnist or from experts consulted by the columnist. I really enjoy these. (For example, there’s Rob Carrick’s column in the Toronto Globe and Mail: https://www.theglobeandmail.com/investing/personal-finance/carrick-on-money/ ). Typically the solutions offered are pretty good, though inevitably they reflect the retirement systems and tax regimes current in the country under consideration. What I’ve wondered about is whether it’s possible to generalize from one country to universal principles, and whether the responses would still be valid if the financial parameters in the question change.
For example, Catey Hill published a question in MarketWatch recently (https://www.marketwatch.com/story/im-38-with-315000-saved-for-retirement-but-have-30000-in-debt-should-i-lower-my-401k-contributions-to-get-rid-of-that-debt-2020-01-22) about a 38-year-old who has been saving 15% of pay into a US 401(k) plan (personal tax-favored retirement savings), but also has $30,000 in consumer debt of various kinds, and is wondering if it makes sense to lower the retirement contribution from 15% to 5% for 2020 and pay down debt.
The response is excellent. But what if this person was in a different country, with a different tax regime for retirement? What if the interest rate on the consumer debt were lower? What if the debt was for a mortgage rather than on credit cards? And so on.
Do issues of this sort appeal to you? And do you care about universal principles, or are you satisfied with in-country responses? Are there specific issues you’re interested in focusing on?
2) Emergency savings
I understand that in many countries (probably most countries, I suspect, because it’s certainly true in the US and UK), most people wouldn’t be able to come up with $1,000 or £1,000 if they had an emergency that required that amount of cash. So some retirement systems are experimenting with so-called “sidecar funds” (for example, the UK’s National Employment Savings Trust: https://www.nestinsight.org.uk/nest-insight-launches-sidecar-trial/) that permit the diversion of a portion of retirement savings for emergency purposes.
How widespread are these approaches? And what has been the experience, both of getting participants to contribute and of the use of these sidecar assets?
3) Increasing participant engagement in connection with retirement issues
Most participants in retirement savings plans are in them by default rather than positive choice (meaning that they have the option not to participate, if they explicitly choose to exercise that option). And their investment choices are typically default choices too. It’s good that typically these choices are very sensible, so a lack of knowledge or individual engagement does not prevent beneficial outcomes.
But the lack of engagement goes further. Participants tend not to read the statements they’re given periodically. And they might even abandon their savings when they change jobs and no longer participate in the former job’s plan.
And so on. As the old saying goes, you can lead a horse to water, but you can’t make it drink.
How can one improve engagement? Obviously not to the extent of making every participant fascinated by retirement (ha!), but at least making more of them consciously aware of where they stand and what are their choices.
This is a huge topic with employers and unions and plan sponsors of all kinds, and with record-keepers – and (selfishly) with me too, as Life Two is aimed at Defined Contribution participants, but I have no way of contacting them.
I’ll add the improvement of financial literacy under this engagement heading.
Saving for retirement (in other words, accumulation) has, over the last decade or so, received a lot of attention and there are now general principles promulgated, such as the so-called “investment glide path.” Perhaps it’ll take another decade before decumulation principles are promulgated; meaning … drawing down periodic amounts – like weekly or monthly or yearly – from accumulated savings, at a rate that is unlikely to exhaust the savings while the retirees are still alive. Surveys suggest that there’s a strong fear of outliving one’s savings.
What might these decumulation principles look like? How might an employer or union implement them, given the differences in circumstances of the retired participants? (Or a financial planner?) How might individuals decide if their circumstances merit departure from default options?
This is a very broad subject, of course. Linked to it is research on the so-called “spending smile,” implying that spending tends to start high after retirement, decline in a later phase of life, then possibly increase if health starts to fail near the end of life. How common is this pattern? Research suggests that it applies to society as a whole, but what proportion of individuals experience this pattern?
Enough for today! I’ll set out more choices next time. But don’t wait for next time before you respond, because those next choices are generally broader in their scope than these ones, which still relate pretty much to the individual.
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.