Where The Route Takes Us

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

You may wonder why you should bother with retirement-related stuff at all.  Here’s why. (This has a lot of overlap with Walk 1 in Life Two.)

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

“Human rights” are really civil and political rights that societies choose to adopt from time to time, rather than rights that have existed for all time in nature.

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

You don’t need any knowledge before we start. You don’t have to be an expert to enjoy Life Two. Sure, some expertise is needed, but you can get that from others. You’ll be a consumer of expertise – an informed consumer. That makes a big difference. (This is Walk 3 in Life Two.)

P4: Will you be rich someday?

I’ve come across all sorts of rules about how much money you’ll need for a happy, comfortable retirement. And all sorts of numbers, and all sorts of ways to calculate them. When I saw what colleagues of mine came up with, about what it really means to be rich, I loved the simplicity of their concept.

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

P6: It’s similar with healthcare

There are two other extremely important aspects of Life Two that vary greatly across countries. One is the way in which taxation changes, either in Life Two generally or after a certain age. The other is how the country’s systems for healthcare and long-term care operate. These are very important aspects, because they potentially involve large amounts of money, so you need to know how they work in your country. (These are Walk 15 in Life Two.)

P7: Teachable moments and wake-up calls

Life is so busy, there never seems to be enough time or even a good time to think about this stuff. And then suddenly something happens and triggers a connection. Let’s examine teachable moments – and their scarier companions, wake-up calls.

P8: Per cent

If you’re one of the many who don’t understand the meaning of “percent” or what decimals are, don’t be embarrassed, just read on …

P9: Terminology  

Odds and ends about the phrases I use in specific instances.



Getting to life after full-time work

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

You’ll see that you’re not alone in thinking that transitioning to Life Two is scary. Once you understand that, the fear typically goes away. You just need to take the first step. Let me show you how to confront and overcome your fear. (This is Walk 6 in Life Two.)

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

Our happiness varies through life. You may not know that typically the way happiness varies with age is predictable.

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

Our lives seem to divide into learn-work-retire (or, as it’s sometimes referred to, learn-earn-burn!). It might be more productive if instead we divide it into five stages, as Dr Laura Carstensen has suggested. We’ll explore her idea in this stage.

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

Of course we focus a lot on money, because it’s easily interchanged into sources of happiness. But we know intuitively that it isn’t everything. In addition to a financial portfolio, we have a “life’s abundance portfolio.” Let’s recognize it. (This is Walk 4 in Life Two.)

Stage H 12: How best to spend time and money

Here’s what experts say about spending to enhance happiness, recognizing that we actually have two things we can spend: not just money, but also time. Here’s how to make the most of both of them, rather than waste them. (This is Walk 5 in Life Two.)

The new you, in four parts

(a) Yes, it’s a change

Stage H 21: Reinventing yourself in a new land

Entering Life Two is scary, particularly because we don’t think about it until it gets near, and then there’s little time to adjust. But it’s also an opportunity to reinvent yourself. Learn from the dreams and hopes and fears of others – and from your own experience, because you may actually have done something similar before. (This is Walk 7 in Life Two.)

Stage H 22: Transitioning away from full-time work

When we retire, we know what we’re leaving. But we don’t often know what we’re going to. In this stage we’ll see why it’s unhealthy to contemplate a blank future, and why it’s important to recognize that we’ll probably transition gradually, not jump instantly, into a new lifestyle.

(b) Let’s identify some lessons and types

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

You’re not the first to embark on this stage of the journey. Learn from the experience of others.

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

Expert observers have categorized retirees into broad patterns. Do you fit any of them?

(c) Possible action steps

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

Some of us feel defined by our work. Life Two cuts us off from that definition, and it can be disorienting. Defining yourself is a challenge at any time, one that few of us have ever needed to undertake. Here are some questions to ask yourself, the answers to which will give you the necessary insights into who you are. (This is Walk 8 in Life Two.)

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

The other important (indeed, almost a perennial) question is: what will I do with my time? You need leisure activities as well as activities related to your mission or purpose. Also remember that if you have a partner, there are two of you involved, not just you. (This is Walk 9 in Life Two.)

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

Some of us are good at planning, others are more spontaneous. We need both qualities to enjoy our lives. The thing about planning is that it helps even when the plan doesn’t work out.

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

At the opposite extreme from those unwilling to change is a couple who actually did a “dry run” to test how their retirement might work. In this stage we’ll explore the why and the how with them.

(d) Ways to get help

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

Not everybody has, or finds, a financial professional to help them. This stage looks at the kinds of attitudes and issues people typically have in connection with pensions, through the eyes of a rare national advisory agency.

Stage H 52: Your first conversation with a financial professional

If you do search for and find a financial professional, what sorts of skills are relevant? What kinds of attitudes might you seek in the relationship? What might you talk about? We’ll look at those questions in this stage. (This is Walk 22 in Life Two.)

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

In this stage, let’s look at why some people are so closely wedded to their current lifestyle that change becomes impossible to contemplate.

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

We recognize expertise in medicine, investing, and all kinds of areas in life. But in living life itself – really? What can a “retirement coach” do? Let’s find out, in this stage.

Aspects of this phase of life

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

Before we get there, retirement often just means “no more work.” Observation suggests that what we do once we no longer work isn’t uniform, but goes through phases.

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

Life is uncertain, and the choices we make expose us to risk, that is, the chance of an unfavorable outcome. But hey, we often have time to make good again, if things go wrong. However, as the available time shortens, how does that affect our attitude to risk-taking? That’s what this stage focuses on.

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

Let’s expand on the reminder that we’re all different, we’re all individuals. Even in marriage, we still retain our own personalities. This stage focuses on times when it’s important to recognize those differences. (This is Walk 10 in Life Two.)

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

Love is something we do at any and every age. Sex is fundamental to procreation as well as pleasure. The two are not the same thing.

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

When things are in order for you, you might want to ensure that they’re also in order if anything happens to you. There are many reasons why parents are uncomfortable to talk to their adult children about personal matters. This stage identifies some of the benefits of that kind of conversation. (This is Walk 23 in Life Two.)

Stage H 81: Aging with dignity

Among the things we particularly dislike even thinking about, letting alone talking about and planning for, is the potential indignity of aging. And if we have no advance thoughts about it, we may become just medical “cases” to doctors rather than human beings with feelings. In this stage we explore approaches that help maintain dignity.

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

It’s strange – or maybe it isn’t – that sometimes we do things even when we know they’ll make us unhappy. This stage explains why.



Fundamental investment concepts are simple, like common sense

Stage I 01: Overview of investments

Understanding investments seems impossible. Who knows where to start? And there are so many kinds of investment. Yet it’s absolutely unnecessary to think in those terms. All that’s necessary is to understand a couple of very basic things: why people invest, and what sort of general goals they have for their investments. (This is Walk 16 in Life Two.)

Stage I 11: Four commonsense but profound investing principles

Have you ever been to a casino? Wouldn’t it be nice if the odds were in your favor, so that you’re more likely to win than to lose? How would you behave, if you were in that position? Aha, hold that thought, because it can teach a lot about investing, as this stage shows. 

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

If you think about playing cards or tossing a coin, you can learn a lot about fundamental investment principles, and how to think about different kinds of investments.

Stage I 21: Historical return patterns

How have different kinds of investments performed in the past? Let’s take a look, because history, even though it doesn’t predict the future, is still a good basis for adding to our understanding of investments.

Stage I 22: Sometimes bad things happen for long periods

Of course we hope for good outcomes when we invest. But we must consider the possibility that outcomes will be bad, perhaps even over long periods. That’s what risk means. Let’s take a look at history again, this time looking at bad news.

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

You have two fundamental investment options: seek safety, or seek growth. Most of us want some of each, rather just choosing one and rejecting the other. What mixture do you want? On this Walk we’ll see that the mixture that best suits you depends on how much you want to eat well and how much you want to sleep well. It really is as basic as that. (This is Walk 17 in Life Two.)

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

How do you decide between the ends of the risk spectrum? Well, your choice depends on both psychological and financial considerations. The financial considerations are to calculate (have an expert calculate?) what effect it has on your lifestyle if your assets fall by 10%, 20%, whatever. The psychological factors have to do with how you’d react to that sort of lifestyle impact. Together, the answers enable you to make a decision on your attitude to risk. (This is Walk 19 in Life Two.)

Stage I 33: Sometimes partners have different attitudes towards risk

What happens when partners find that they have different attitudes to risk? This stage shows that there are many sensible ways to proceed.

What are you paying for?

Stage I 41: Active or passive? Three separate issues

One of the most heated (and therefore potentially confusing) topics in investing is whether to be active (try to choose winners) or passive (just “go with the flow”). In this stage we’ll see that one reason for the confusion is that “active versus passive” really encompasses many different questions.

Stage I 42: Unbundle the fees

What do we pay for the privilege of asking someone else to manage our investments? This stage lists many forms of payment.

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

If we make enough choices, some will work out and some won’t. How do we distinguish luck from skill? Is there skill? What is it worth? This stage looks at those questions.

Stage I 44: Broaden the discussion framework

After all the analysis, you still have to decide: active or passive. This stage lays out precise reasons that tilt you in one direction or the other – or both.



The basics

Stage L 01: What does life expectancy mean?

Why do so many people misunderstand life expectancy? Is it the math or the concept? Let’s take a look. (Spoiler alert: the math is simple.)

Stage L 02: Longevity is increasing

Longevity is just an estimated average, right? Yes. The strange thing is that the average itself keeps moving.

Stage L 03: Healthy life expectancy

It isn’t just how long we might live that’s of interest. It also matters a lot how healthy our future years are. We’ll see in this stage that health is a tough thing to measure.

Stage L 11: One particular longevity table

There’s a particularly useful table available online. Here I’ll show you how to use it. (This is included in Walk 13 in Life Two.)

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

If you have an independent way of getting your own longevity estimate, you can adapt that online table to fit your own circumstances.

Thinking about longevity risk

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

Since you don’t know how long you’ll live, what is a sensible planning horizon for the length of your retirement? (This is included in Walk 13 in Life Two.)

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

Just as we consider buying insurance if an early death hurts our family financially, so too we might consider buying insurance against living far longer than our money can support.



Save and invest

Stage F 01: Why save at all?

Remember that we saw in the Prologue that we need to set aside money while we’re working if we want to draw on it later so that we don’t have to work forever. This stage picks up on that idea, and explores how much we need to save, as well as what our choices are if we don’t save as much as we need to.

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

People don’t realize what a huge impact it has when we add investment returns to our savings over a lifetime, or how important it is to keep the investment effort going after retirement. In this stage we’ll look at some numbers and come up with a simple rule of thumb – even if it’s just a very approximate one.

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

OK, we know that investing is important. But let’s place it in perspective. This stage explains that money is important if it helps us to achieve something that makes us happy.

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

Still not convinced that you want to save? Some behavioral economists have experimented and found an emotional approach that people find convincing.

Investing as you accumulate

Stage F 11: Glide from youth into life after work

Through the story of how the global financial crisis and market crash of 2008 affected different members of a family in different ways, this stage draws lessons for how the goals of growth and safety typically change as we age. (This is Walk 20 in Life Two.)

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

A glide path that is based on assumptions about the average saver is a great start as a default option. That doesn’t mean it can’t be improved. This stage describes ways in which it can be customized to better fit each saver’s characteristics.

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

We’ve discussed retirement saving at some length. But when we’re young, we have other long-term financial goals too. Where do buying a home and insuring one’s life fit in?

How far have you come?

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

In the same way that we observed that there’s more to life than money, so too there’s more to spending money than obtaining something that’s useful to us. Here are some emotional benefits.

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

To plan for or evaluate your needs, you must first define them. Financially, this is called budgeting. Sometimes we think that making a budget is a long, complicated process. But for the purpose of setting a financial target, it doesn’t have to be. (This is Walk 12 in Life Two.)

Stage F 23: Your personal funded ratio

There’s a simple concept that is extremely useful. Just compare how much you’ve got with how much you need! Here’s how to apply that concept to see how far you’ve come. (This is included in Walk 18 in Life Two, but is nevertheless reproduced in full in FTH.)

Stage F 24: Inheritances and bequests

In practice we may add to our savings if we receive an inheritance, and we may want to leave bequests in addition to providing for life after full-time work. In this stage we look at how to accommodate those aspects.

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

In this stage I explain how to use the Personal Funded Ratio calculator that’s on the website: the principles it’s based on, the questions it can answer, the information you need to provide, where and how I’ve imposed limitations on its flexibility – that sort of thing. (This is included in Walk 18 in Life Two, but is nevertheless reproduced in full in FTH.)

Stage F 26: 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. Here’s how one couple did their best, even though it was far from perfect.

Stage F 27: Variations on a theme

Our exemplary couple decide that they want to play with the numbers a little bit.

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

So now, through the personal funded ratio calculation, you have an idea of where you are, relative to your target. What if you’re above your target? Or below? How does that affect your lifestyle options?

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

Are there any guideposts as to what you should be doing and what you should be thinking about, at different stages in your financial life? Let’s look at minimum, successful and exceptional standards at five stages. (This is Walk 11 in Life Two.)

Clear thinking about creating lifetime income from your assets   

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

Let’s pause, take a breath, and start to focus on using the accumulated assets to generate income for the rest of our lives. We’ll start by identifying clearly the principles involved.

Stage F 42: Risk: the rubber meets the road

We’ve talked a lot about risk, particularly the impact of uncertainty in investment returns, all the way through. Here we’ll gather together a lot of those thoughts, give them names, and set them out in a way that gives you a framework for the sequence in which you can make risk decisions.

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

What’s the relationship between happiness and money? When we understand that, we can understand what retirees say scares them the most.

Stage F 44: Safety and growth as investment goals

Here’s a clarification of the goals of safety and growth.

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

This stage expands on the notion of philosophies that embrace only the safety or only the growth end of the spectrum along which goals are placed.

Stage F 46: Three goals, three instruments

This stage looks at the main kinds of financial goals we have for retirement, and why each goal needs its own financial instrument.

A little reality

Stage F 51: A liquidity reservoir creates flexibility

If it’s possible, it helps a lot to have some money set aside for emergencies. In fact, as we’ll see in this stage, a bit of cash also helps enormously to smooth out the impact of investment fluctuations.

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

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.

Stage F 53: When the time comes to make decisions

This tale by a master story-teller is scary. It reminds us that we should think about those potential disruptive things before they’re upon us. This stage also explains why we prefer to postpone tough decisions.

Investing as you decumulate

Stage F 61: Four ways to generate sustainable income

So here we are, we’ve saved and invested, and we’re ready to stop working and convert our assets from a lump sum into a flow of retirement income that can be sustained for the rest of our lives. How can we do that? (This is Walk 21 in Life Two.)

Stage F 62: Buy an immediate lifetime income annuity

Let’s examine the mechanics of generating income via an immediate annuity, and look at its pros and cons.

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

Here’s an approach that’s used in the US to calculate the minimum drawdown required for tax purposes each year. Regardless of whether or not you use this approach (particularly if you don’t live in the US), it’s instructive to consider its pros and cons.

Stage F 64: A drawdown plus longevity insurance

Here we buy, not an immediate annuity, but a deferred annuity, and we have to make the rest of our money last until the contract’s income kicks in. Again, let’s consider the pros and cons of this approach.

Stage F 65: A sustainable drawdown until some advanced age

Here we’re self-insuring our longevity, by aiming to make our assets last until a ripe old age. Like the other approaches, this one too has pros and cons.

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

The experts make assumptions about our attitude to financial risk in our retirement years. Here’s a case study that suggests that psychology plays a considerable role, regardless of finances.

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

Wouldn’t it be great if we had enough money to create a lifetime income stream, and could live forever in the home we own? Sure! But all too often we need to use our home to help generate that income stream. This stage explains four ways to do so.



T 01: Deep risk and shallow risk

We can talk about risk as the possibility of a bad outcome, but it really matters whether we’re thinking about the short term or the long term. Here we’ll see why one form of risk is unavoidable.

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

We’ve looked at equities as an embodiment of seeking growth. But equity returns come in two parts, one part being the dividends paid out and the other part being changes in the value of the investments. Here we’ll look more closely at the dividends, because many people hope that they can use the dividends as a component of their safety-oriented investments.

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

When there’s lots of information available to lots of very intelligent people, why do markets still sometimes swing so wildly? Let’s look at human behavior in general for the answer, and see what it implies for our own desired behavior.

T 04: Longevity risk compared with investment risk

When we invest money, the outcome is uncertain. We can measure the financial impact of that uncertainty. But our future lifespan is also uncertain. That too creates financial uncertainty. Can we compare investment uncertainty and longevity uncertainty? Which is more significant? Does the answer vary with age? So many questions! Let’s answer them all.

T 05: How a longevity pool would work

When a risk affects many people and we know that only some of them will be affected by it in a given time period (but we can’t tell in advance who will be affected), sometimes it’s helpful to “pool” the risk by having all the people contribute to it and then use the pooled money to pay those who turned out to be affected. Doing that with longevity risk creates a “longevity pool.” Here’s how it would work, in principle.

T 06: How a lifetime income annuity works

What we customarily call an “annuity” is a form of longevity pool to which is added a guarantee. Here I explain how the pool and the guarantee work together, and how much we typically have to pay for the guarantee feature.

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

We know that pooling our longevity risk with others is the least expensive way to generate lifetime income. I wanted to test that statement with numbers that applied to my wife and me. Here’s what I found.

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

Annuities tend to have a bad reputation. Yet, whether or not we use them, just having them available is a good thing. Here’s why.

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

Two of the four decumulation approaches in Stage F 61 involve buying some form of annuity. Is there anything we can say to compare their respective merits? Yes – and that’s what we examine in this stage.

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

Unlike with the glide path approach while we’re accumulating assets, where the typical saver’s exposure to growth-oriented assets ought to decline as retirement approaches, there’s no consensus as to the shape of the glide path once we start withdrawing money. In this Trail we’ll examine what the experts tell us.

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

We’ve looked at the annuity from many perspectives. Let’s gather them together here and identify the essence of what its role should be.

T 12: Measuring what matters most

There are all kinds of technical investment results that professionals like to measure and to report to you. They may be useful as background, but they miss the point, which is to inform you about the extent to which their advice and decisions have improved your standard of living in this phase of life. Here are five often unappreciated ways in which they can help you.