The Destinations

Show Chapters


P1: Why bother? Because you are your own family business – and you’re in the business of getting to the peak stage of life

Convert your labor into financial assets.  That’s how you enable yourself to enjoy the peak phase of your life.

P2: Freedom to live a happy life after full-time work is a gift to ourselves, not a natural right

A happy life after work is a gift made in various ways to ourselves, and it’s up to us to use the freedom it gives us.

P3: You need to become an informed consumer of expertise rather than an expert

(This is Walk 3 in Life Two.)

You can get all the benefit of the expertise that you need if you’re an informed consumer. That means you understand what the expert is telling you, you’ve asked the expert what principles and assumptions his or her advice is based on, and you’ve explained to the expert what sort of outcome you’d consider successful and what sort of outcome you’d consider failure.

P4: Will you be rich someday?

If your assets are enough to support your lifestyle for as long as you live, with something to leave after you’re gone, you’re rich.

P5: Taxes: almost random, with no universal principles … and

P6: It’s similar with healthcare

(These are Walk 15 in Life Two.)

The subject of taxation is important. Don’t ignore it. You might want to seek advice on this issue even if you choose a do-it-yourself approach on other retirement issues. And as with taxation, the need for healthcare and long-term care can have a significant effect on your finances.

P7: Teachable moments and wake-up calls

Life provides natural teachable moments. If those are what prompted you to read this, that’s good. If your own curiosity prompts you to go further, and treat the tour itself as a series of teachable moments, so much the better.

P8: Per cent

Percentages and decimals are just ways of expressing portions of something bigger.

P9: Terminology  

We’re not at a destination. We’re at the starting point! It’s time to start the tour!



Getting to life after full-time work

Stage H 01: Overview: is retirement complicated – or is it scary?

(This is Walk 6 in Life Two.)

Being scared is natural. Once you understand why, and what you can do about it, the fear typically goes away. As I’ve said before: just take the first step.

Stage H 02: Why we feel happiest in our later years

It’s natural that these turn out to be the happiest years of your life.

Stage H 03: Pacing our lives as a five-act play

There are better ways to live your life than just learn-work-retire.

Stage H 11: Life’s abundance is not just about money

(This is Walk 4 in Life Two.)

There’s more to life and happiness than money. There’s a “life’s abundance portfolio.”

Stage H 12: How best to spend time and money

(This is Walk 5 in Life Two.)

Experts give us some unexpected insights into how to spend time and money to enhance our happiness.

The new you, in four parts

(a) Yes, it’s a change

Stage H 21: Reinventing yourself in a new land

(This is Walk 7 in Life Two.)

When you leave full-time work behind, it’s both scary and an opportunity. Our interview shows only that people are different and have different hopes and fears. But isn’t it nice to dream! And remember, you have probably made this type of transition before.

Stage H 22: Transitioning away from full-time work

Make sure you have some ideas about your post-work life; transitioning to a vacuum is depressing.

(b) Let’s identify some lessons and types

Stage H 31: Move beyond the workplace, explore life’s journey

Six lessons have enabled 70% of people in this survey make a smooth transition from full-time work. Follow them and you won’t be one of the other 30%.

Stage H 32: What type of retiree will you be?

Five behavior patterns, four spending patterns. If you recognize yourself … you’re not alone! 

(c) Possible action steps

Stage H 41: Answering the deep question: who am I?

(This is Walk 8 in Life Two.)

Defining yourself can be an emotional as well as a deep experience. But it’s worthwhile.

Stage H 42: Answering the important question: what will I do?

(This is Walk 9 in Life Two.)

Now you know how to create a plan, activities that you’ll enjoy that are consistent with who you are, and which also take your partner into account.

Stage H 43: Making a plan is important, even if you don’t follow it

It’s worth making a plan, even if it doesn’t work out the way you expected.

Stage H 44: Ever thought about a retirement dry run?

A retirement “dry run” is unusual, but it could be a great learning experience.

(d) Ways to get help

Stage H 51: What if you don’t have a financial professional to help you?

Access to an independent advisory service is useful and has lessons for us all.

Stage H 52: Your first conversation with a financial professional

(This is Walk 22 in Life Two.)

Interview prospective financial professionals to find out not only relevant information about their practice, but also their philosophy, how they propose to interact with you, whether they are prepared to act as a fiduciary, whether they communicate in their language or yours, and what fees you will be charged.

Stage H 53: Wedded to your current lifestyle and work identity?

For some people moving away from a way of life that has essentially defined them for many years is extremely difficult. If it results in depression, using a retirement coach may be something to consider.

Stage H 54: Some people use a “retirement coach”

A retirement coach can help you make a fulfilling transition to Life Two.

Aspects of this phase of life

Stage H 61: Three broad phases of life after full-time work

Post-work life often has three phases: the “autumn crescendo,” a downsized lifestyle, and possibly one involving health issues.

Stage H 62: Risk aversion increases after full-time work

As we age, we are naturally inclined to reduce the amount of risk we take.

Stage H 71: How healthy is your romantic Venn diagram?

(This is Walk 10 in Life Two.)

A couple is not just a couple; you’re also two different people.

Stage H 72: Love and sex in this phase of life

Sex is important, but there’s more to love than sex. Or, if you prefer to see it the other way around: there’s more to love than sex, but sex is important.

Stage H 73: Talking to your adult children about this phase of life

(This is Walk 23 in Life Two.)

Share information with your adult children: about your current finances, about your desires if you should become incapacitated, and about your will.

Stage H 81: Aging with dignity

It’s difficult to be dignified as the end nears, but these approaches help.

Stage H 91: What could be more important than happiness?

Morality, justice, religion, purpose – all of these could be more important than seeking happiness.



Fundamental investment concepts are simple, like common sense

Stage I 01: Overview of investments

(This is Walk 16 in Life Two.)

Investing means setting aside money today in the hope that it will produce more in the future. There are basically two kinds of investment: safety-oriented (where relative certainty of the outcome is more important than growth prospects) and growth-oriented (much more profit hoped for – but less certain). And some investments are liquid, and others less so.

Stage I 11: Four commonsense but profound investing principles

There’s no mystery to investment principles. People behave just the way you’d expect. They’ll play the investment game (many times) if they think they’re likely to win. They don’t like to lose, particularly not large amounts. Put a lot of people together figuring out the chances, and there won’t be any easy money to be made.

Stage I 12: How to think about different kinds of investments

Investment outcomes aren’t as predictable as tossing a coin or drawing a card, where the odds are known and the number of possible outcomes is limited. But there are still similarities. And the odds help us to decide whether an investment is oriented more towards safety or towards growth.

Stage I 21: Historical return patterns

Historically, equities have behaved like a good growth-oriented strategy, Treasury bills like a good safety-oriented strategy. But neither strategy is absolutely safe. And the past hasn’t been a good predictor of the near-term future.

Stage I 22: Sometimes bad things happen for long periods

To try to guess how we’ll feel if the future is like a bad outcome from the past, rather than just the average outcome, we should also make projections using much lower investment return assumptions than historical averages.

Stage I 31: Your fundamental investment choices: eat well or sleep well

(This is Walk 17 in Life Two.)

How much safety and how much growth should you seek? That depends on how you balance your goals of eating well and sleeping well.

Stage I 32: Your choice depends on psychological and financial factors

(This is Walk 19 in Life Two.)

Your risk tolerance depends partly on psychological and partly on financial factors. When considering your risk tolerance, think not in terms of how you react to a fall in market prices – which is likely to be highly emotional – but to how you react to the impact it has on your spending potential – which is a much more sober set of considerations, and which may not be as large a fall.

Stage I 33: Sometimes partners have different attitudes towards risk

It’s natural for partners to have different attitudes towards 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.

What are you paying for?

Stage I 41: Active or passive? Three separate issues

Whether to be an active or a passive investor is a discussion that typically confuses three separate questions: how much you pay, what you’re paying for, and whether the choice should be “active and passive” rather than “active or passive.”

Stage I 42: Unbundle the fees

It is reasonable to be charged for financial advice and assistance. You pay for these services in many possible ways, some direct and some indirect. Only if you are aware of exactly what you are being charged can you compare the charges with what others might charge.

Stage I 43: Is there investment skill? If so, what is it worth?

Yes, there is investment skill, but locating it is very difficult, and typically it isn’t worth paying for.

Stage I 44: Broaden the discussion framework

Three reasons to depart from passive investing are: (1) It isn’t available. (2) The passive set of investments isn’t consistent with your objective. (3) You really feel you have located active skill.



The basics

Stage L 01: What does life expectancy mean?

Life expectancy is not only uncertain, it’s also typically underestimated, particularly for a couple.

Stage L 02: Longevity is increasing

Longevity has been increasing, almost every year. It might be useful for you to check the latest estimates every five years or so.

Stage L 03: Healthy life expectancy

In most countries, the average person can expect to spend something up to 80% of our expected future lifespan after age 60 in reasonably good health.

Stage L 11: One particular longevity table

Now you understand and know how to find the 50%, 25% and 10% longevity estimates for you and your partner.

Stage L 12: What if you have a better estimate of your own longevity?

All you need to do is find the age at which your independent longevity estimate matches one in the table.

Thinking about longevity risk

Stage L 21: How long should you plan to make your money last?

Depending on how safe you want your plan to be, you might buy a lifetime income annuity, or use the 25% or 10% longevity point as your initial planning horizon, with a potential reassessment later.

Stage L 31: What longevity insurance is – and isn’t

Longevity insurance is a way to hedge the financial impact of survival to an unexpectedly high age. It ought to kick in at an age that we’re very unlikely to live past. But typically it’s only available from a much earlier age, in a bundle with other contracts that may be unnecessary, expensive or involve no insurance at all.



Save and invest

Stage F 01: Why save at all?

We need to save because otherwise we won’t have enough money to last the rest of our lives. Our retirement ambitions are typically such that we need not only to save, but also to take investment risk in the hope of adding to our savings. 

Stage F 02: 10-30-60: the huge multiplier effect of investing

Over time, investment returns multiply our savings greatly. And much of that effect takes place after retirement, so continuing to focus on our investments after retirement is vital.

Stage F 03: Investing is only a means to an end

Investment returns are only a means to an end, the goal being to replace as much pre-retirement income as we need.

Stage F 04: Facing the future (and older and happier) you

We can focus on saving in two ways. One is emotional, visualizing our future selves. The other is rational, calculating how much we need to save in order to retire comfortably.

Investing as you accumulate

Stage F 11: Glide from youth into life after work

(This is Walk 20 in Life Two.)

When should we take investment risk? Mostly when we’re young and have little financial capital at stake, less so when we mature and have much more financial capital at stake. So the shape of our risk-taking during our years of saving should follow a sort of glide path, from higher risk to lower risk.

Stage F 12: Target date funds and how to improve them

A typical glide path can be improved by customizing it to the investor’s circumstances and goals, recalibrating it periodically, and focusing on inexpensive investments.

Stage F 13: Two other considerations: buying a home, and life insurance

A home, if bought at a rational price, satisfies many potential needs: a roof over your head, emotional fulfillment, retirement savings. Decreasing term insurance can inexpensively hedge the chance that an early passing away deprives your dependents of the work income you would otherwise have earned.

How far have you come?

Stage F 21: What does spending money do for you?

We get three kinds of benefits when we spend money. There’s the utilitarian benefit that something is useful to us. There’s the emotional benefit that something makes us feel good. There’s the expressive benefit that our purchase says something we consider positive about ourselves to others. They’re all valid reasons for decision-making.

Stage F 22: A budget doesn’t have to be detailed to be useful

(This is Walk 12 in Life Two.)

Having even a single aggregate number as a spending target is very useful. You can change it and refine it over time, but without it there’s no financial goal to measure progress towards.

Stage F 23: Your personal funded ratio

Your personal funded ratio 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.

Stage F 24: Inheritances and bequests

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.

Stage F 25: How to use the personal funded ratio calculator

You should now be ready to use the calculator to help you find out what point you’ve reached, as far as retirement finances are concerned.

Stage F 26: An example of the use of the personal funded ratio calculator

Even without precision, using the calculator represents a psychological step forward, indicating areas that need further investigation. Having a framework is a big first step.

Stage F 27: Variations on a theme

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 really aren’t possible to implement.

Stage F 28: Wealth zones: essentials, lifestyle, bequests, endowed

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 have available to think about your choices.

Stage F 31: Financial stages in planning for life after full-time work

(This is Walk 11 in Life Two.)

Think of five stages in your financial life: the first goes up to 20 years before retirement, then the period taking you to 5 years before retirement, then the 5 years taking you to retirement, then the transition into a retirement lifestyle, and finally the point at which you downsize your lifestyle well in to retirement. There are different levels of preparedness mentioned for each stage.

Clear thinking about creating lifetime income from your assets   

Stage F 41: An overview of this section of the route

In this section of the tour we’ll see that retirees generally have three financial goals. They should identify and accept them all, and use at least three instruments to achieve them.

Stage F 42: Risk: the rubber meets the road

In practice you can estimate, reasonably objectively, how much risk you need to take in pursuit of a goal, and whether you have the financial capacity to withstand the consequences if things turn out badly. But you also need to think about how you’ll feel if things turn out badly, and remind yourself whether, in the past, your feelings were a good predictor of how you actually behaved when bad things happened. 

Stage F 43: Happiness comes from certainty about not outliving your assets

The biggest fear retirees have is outliving their income. And it’s a fear that’s virtually hard-wired into us. The safer your income and the higher the likelihood it’ll outlive you (rather than the other way around), the happier you’ll be.

Stage F 44: Safety and growth as investment goals

If we understand safety and growth as being at opposite ends of a spectrum, we can decide where on that spectrum to place ourselves.

Stage F 45: With two extreme philosophies, either/or is a bad way to frame the choice

Beware of finding yourself in a situation in which your financial professional only uses insurance instruments or only focuses on investments.

Stage F 46: Three goals, three instruments

Typically you’ll have three goals: investment safety, investment growth and some form of protection against the financial impact of a long life. This suggests the use of three different instruments, one for each goal.

A little reality

Stage F 51: A liquidity reservoir creates flexibility

A pool of cash can fulfill many purposes, from being a source of emergency funds to being a way to insulate your lifestyle spending plans to some extent from the inevitable fluctuations in the value of your pension pot.

Stage F 52: Three things that could derail your plan (long life, illness, cognitive decline)

Be aware of three things that could derail your plans: outliving your assets; becoming very sick; and dementia. The first one is dealt with throughout the tour; 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.

Stage F 53: When the time comes to make decisions

If you push crucial decisions into the future, you may well find it very difficult to face them when the time comes.

Investing as you decumulate

Stage F 61: Four ways to generate sustainable income

(This is Walk 21 in Life Two.)

There are four ways to generate retirement income from your accumulated assets: buy an immediate lifetime income annuity; draw down an amount each year that depends on your future life expectancy; buy longevity insurance and use the fixed period until it kicks in as the period over which you calculate a sustainable drawdown; calculate a sustainable drawdown until some fixed advanced age.

It’s important for you to choose between them because they have very different characteristics.

Stage F 62: Buy an immediate lifetime income annuity

Among the characteristics of an immediate annuity are that it is typically the cheapest way to guarantee an income for life, but it is inflexible and may feel like a gamble.

Stage F 63: Each year’s drawdown is based on your future longevity

The longevity drawdown guarantees some income for life, and permits flexibility in asset allocation. But the drawdown is uncertain and variable, and tends to decline later in life.

Stage F 64: A drawdown plus longevity insurance

With the drawdown-plus-longevity insurance approach, you pay relatively little for longevity protection, while preserving control, flexibility and liquidity in the rest of your pension pot. But implicitly you pay more for longevity protection than with an immediate annuity, and your drawdown until the deferred date will be variable.

Stage F 65: A sustainable drawdown until some advanced age

The drawdown-until-an-advanced-age approach preserves control, flexibility and liquidity in your pension pot. But it’s the most expensive way to deal with longevity uncertainty, and the drawdown is variable.

Stage F 71: A case study on the investment glide path after work

In this case study, a couple prefers a falling glide path, for purely psychological reasons. They’re willing to take their highest risk in the early retirement years (provided they have a ladder that enables them to climb to safety over the short term), and rely on safe investments as their lifestyles settle down and they become older.

Stage F 72: Is your home part of your portfolio for life after work?

There are four ways to use your home to generate income after you retire: sell, downsize, rent it out or take out a reverse mortgage.



T 01: Deep risk and shallow risk

There are really two different forms of risk. One is volatility in the investment path; the other is a poor long-term outcome. The first is bearable if you design your plan appropriately; there is no way to overcome the second, and all you can do is reduce your spending.

T 02: How reliable an income stream can you get from equity dividends?

The equity dividend stream has an important potential use as a source of investment safety.

T 03: Capital markets can’t possibly be efficient all the time

At best, capital markets are efficient most of the time. But because human beings are involved, emotion will sometimes trump logic, with prices departing from rationality. But you can only take advantage of these times if you are rational when others are being emotional.

T 04: Longevity risk compared with investment risk

Before age 65, typically longevity risk isn’t a significant factor. After age 75, longevity risk is typically bigger than investment risk. If you have any safety orientation in your investment portfolio, you should logically have at least some safety orientation in how you deal with longevity risk.

T 05: How a longevity pool would work

We could reduce the financial impact of uncertain longevity by joining a longevity pool.

T 06: How a lifetime income annuity works

If you want a longevity pool with a guarantee that the amount paid will never decrease, that costs more. And it’s called an annuity.

T 07: How much more does it cost to self-insure longevity?

Not surprisingly, it costs a lot to be able to make your income survive to some advanced age.

T 08: It’s a better world when annuities are available

Being able to purchase a lifetime income annuity enhances people’s utility, relative to living in a society where these annuities are not available.

T 09: Why a deferred annuity is usually preferable to an immediate annuity

If you want to maximise your guaranteed lifetime income, an immediate annuity is usually preferable. For any other goal, you might prefer to just buy guaranteed income after some advanced age.

T 10: Equities in the retirement glide path: a tough issue (increasing, decreasing or level exposure to growth assets?)

Experts don’t agree on whether the equity glide path in retirement should rise or fall or stay level.

T 11: The role of an annuity in a sensible retirement portfolio

Annuities should be considered purely in their capacity to provide longevity protection, not as investment instruments. The choices then become: immediate or deferred annuities; how you rate the goal of longevity protection relative to the goals of investment safety and investment growth; and when to buy an annuity.

T 12: Measuring what matters most

Professionals can help you by taking into account your future work income in the accumulation phase, by nudging your drawdowns to reflect investment returns, by using annuities, by using tax-efficient strategies, and by allocating post-retirement assets to reflect your desired spending.  Together these actions can add up to the equivalent of almost 2% a year in higher returns – that’s what matters, much more than attempting to “beat the market.”