'Leisure is a beautiful garment for a day, but it will not do for constant wear.' Bishop Fulton Sheen
'Retirement is the filthiest word in the language.' Ernest Hemingway
The concept of retirement - a brief period of leisure following four decades of hard work before we shuffle off this mortal coil - is dead. First introduced by German Chancellor Bismarck in the late 19th century, and very much a product of the Industrial Age, retirement has run its course. It's time to call time on this outdated notion. Retirement has retired.
You're excited, right? You've dreamt of this moment for over a decade; no more pointless office meetings, no more stupid emails from your over-promoted boss, no more ridiculous team-building events, no more 6am alarm calls, no more strategic opportunities to leverage our agile, holistic, evidence-driven sustainable blah blah whatever. Soon, it will be just the two of you and endless days spent playing with grandkids who appreciate you for exactly who you are, sunny mornings on the golf course and leisurely walks on the beach, arm in arm with your loved one – your very own Utopian idyll.
But what if it isn't? What if those things you have looked forward to all these years are not enough to sustain you, to fulfil you, to energise you? Was the good bishop right? Can leisure survive 'constant wear'?
Work is more than just a source of income. It is a social life, a sense of utility and purpose, it provides dignity and pride, and self-esteem within a community. Prospective retirees list financial worries as their biggest concern. However, actual retirees rate alienation as their biggest disappointment. It includes loneliness, being cut off from former colleagues, missing their jobs and feeling behind the times (Mitch Anthony, The New Retirementality). How will you replace all this?
The questions we ask ourselves become much more profound with age. In our 20s, we obsess over what people think of us; in our 40s we stop caring; in our 60s we realise no one was actually thinking of us anyway. With time fast becoming that most precious of commodities, 'am I living the life I want to live?' becomes the most profound of all. Retirees focus more on their legacy; not just 'what do I want to leave behind?', but 'how do I wish to be remembered?'
Australian palliative care nurse, Bronnie Ware, chronicled the regrets of dying patients in her care in an eclectic and intriguing book, Top Five Regrets of the Dying. She found five recurring themes:
- I wish I'd had the courage to live a life true to myself, not the life others expected of me
- I wish I hadn't worked so hard
- I wish I had stayed in touch with my friends
- I wish that I had let myself be happier
- I wish I'd had the courage to express my feelings.
At Stanford Brown, working with our clients to help them enjoy a rich and rewarding retirement is our area of expertise. It’s also our passion. The following 10 strategies are the cumulative knowledge of three decades of advising retiring Australians on the pursuit of life, liberty and happiness after full-time work. We hope you find something here of value.
Strategy 1 - Start planning long before you retire
Many people work furiously all their lives and then stop. This is not a plan. Far better is to start thinking and planning at least ten years prior to retirement. Ask yourself these questions. What do I love doing? What inspires me? What am I good at? What knowledge have I accumulated that I wish to use or to pass on? A good place to start is to reduce your hours or even work in a consulting capacity before leaving for good. This buys you time to experiment. Seek out internships, part-time jobs, volunteering or start studying.
Strategy 2 - Create a list of the things to do in your retirement
Do your homework! Not just those bucket list places you'd like to visit, but experiences you'd like to have, skills to acquire, languages to learn, hobbies to pursue and relationships to rebuild. The following is a list of some of our favourite books and websites to peruse for ideas and inspiration:
- encore.org - a website packed full of ideas for second act (or encore) careers
- The Big Shift by Marc Freedman, CEO of encore.org
- How Will You Measure Your Life by Karen Dillon
- The New Retirementality by Mitch Anthony
- What Color is Your Parachute by Richard Bolle
- Too Young to Retire by Marika and Howard Stone
Strategy 3 - Take a personal inventory check
Before evaluating your Economic Capital, check your Human Capital. What are your skills, your passions, your experiences, your knowledge? Increasingly, our identity is wrapped up in our work. What will you miss the most? What are your key strengths? Start with Gallup's excellent Strengths Finder. It costs just $20 and will produce a detailed report on your strengths.
Then, take the National Seniors Retirement Quiz. This quiz assesses your retirement preparedness in terms of three resource types - health and finance; social; and emotional, cognitive and motivational.
Strategy 4 - Figure out exactly how much income you will need
'I'm living so far beyond my income that we may almost be said to be living apart.' EE Cummings
Sounds simple but it's fiendishly difficult. So it's time to apply the first of our Rules of Thumb. Planning is an art not a science, hence Rules of Thumb are often far more useful than the 30-year projections the financial planning industry insists on. First, determine exactly how much you spend today. Monitor your spending over a 12-month period and do not exclude 'one-offs' as they have a nasty habit of repeating themselves. A really good budgeting tool is Moneysoft.
Then apply the 'Retirement Smile'. Most retirees assume they will spend less in the retirement years but this rarely happens. In fact, you are more likely to increase spending during the first decade, a time when you have energy and health. This is the time for travel, for exploration, for doing different things. Assume your spending will increase by at least 10%. Then the next decade will likely see a significant drop in spending (how many times can you visit the Pyramids?), followed by a surge in health-related expenses in the final decade. Assume the superannuation rules will gradually become less favourable and don't forget the spectre of inflation, which will erode your standard of living over time. Allow plenty room for error.
Strategy 5 – Estimate if you have enough
'I advise you to go on living solely to enrage those who are paying your annuities. It is the only pleasure I have left.' Voltaire
Another Rule of Thumb. Assume you will require investable capital of at least 20 times your annual spending if you wish to retire from age 65. This will vary according to your age, your risk tolerance, whether your capital resides in a tax-free environment like super and whether you wish to preserve the real value of your capital or gradually run it down (do the kids really need to inherit it all?).
Over the past 40 years, a relatively conservative, well-diversified portfolio of stocks and bonds has delivered strong investment returns. However, past performance is most definitely no guide to the future as interest rates are so much lower today and are likely to remain low. Stepping up your risk profile is not the optimal solution as it will lead to more volatile outcomes than you seek.
What to do if there is a shortfall? You can either work longer, work part-time, spend less or take more risk. There is no magic bullet. However, you can be more creative, for example, by using your existing assets harder by renting your house on Airbnb. You could downsize your home or you could take out a reverse mortgage and remain where you are. These products are safer than in the past and better regulated. In our view, they are the most underused yet value-added products available to retirees.
Strategy 6 - Spend your money wisely
''Money can't buy happiness' is a lovely sentiment, popular and almost certainly wrong.' Harvard psychologist, Daniel Gilbert.
In a research paper intriguingly entitled 'If money doesn't make you happy then you probably aren't spending it right', Professor Gilbert recommends the following spending principles.
- Buy experiences instead of things. We like experiences more because we get to anticipate and remember them, whereas the delight of that shiny new BMW quickly fades.
- Spend money to help others instead of yourself. Our happiness is enriched from our social connections and nurturing these friendships is a fruitful way to spend our money.
- Buy many small pleasures instead of few big ones. The ‘power of adaptation’ is that we get used to the things we have around us all the time. Treating ourselves to many inexpensive indulgences is a neat way to provide regular bursts of happiness.
- Pay now, consume later. Delayed gratification gives the benefits of anticipation.
Strategy 7 - Know your behavioural biases
We are innately dreadful investors. We panic sell during market sell-offs, we buy during the good times, we anchor ourselves to prices paid for stocks rather than future outlooks, we develop an irrational aversion to losses and we overestimate our ability to beat the market. In their landmark study of risk taking behaviour, Daniel Kahneman and Amos Tversky, established that losses loom far greater than gains. More recent research by Professor Eric Johnson of Columbia University has shown that retirees display hyper-loss aversion. They were up to five times more loss averse than the average person.
Homer's Odyssey describes the adventures of Odysseus on his return from the Trojan War. One challenge was navigating his ships past the Sirens. These were dangerous yet beautiful creatures who lured nearby sailors with songs so haunting that they would throw themselves overboard just to get closer to them. Odysseus was aware of his behavioural biases and planned accordingly. He wanted to hear the Sirens but knew that their songs would be too much even for him. So he ordered his men to put bees wax in their ears and tie him to the ship's mast. As they passed the Sirens, he could hear their beautiful songs and tried desperately to untie himself. But the men ignored his pleas for help as he had forbade them to untie him. By knowing how you will react when markets get tough, you can avoid making costly mistakes.
Strategy 8 - Seek professional help
Working with a good financial adviser will provide you with a retirement framework and the discipline to stick with the plan. Index manager Vanguard, in this research paper entitled Quantifying Vanguard’s Adviser’ Alpha, argues that good financial advice will add as much as 3% to investment returns through effective asset allocation, behavioural coaching and wealth management advice. This excellent article, Seven questions to ask when picking a financial adviser provides a comprehensive checklist.
Strategy 9 - Set clear goals
'You know you are getting old when you stoop to tie your shoelaces and wonder what else you could do while you're down there.' George Burns
At Stanford Brown, we send many of our clients to specialist retirement coaches who work with the individual and their spouse to map out every aspect of their Retirement Plan. Start with the Retirement Goal Heptathlon: Health, Family, Work, Legacy, Giving, Home and Self. Prioritise these goals and when you want them to happen. How will you measure a successful retirement?
Strategy 10 - Commence an encore career
According to encore.org, nearly nine million people aged 44 to 70 are engaged in second-act careers. Says Mark Freeman in The Big Shift, 'There is the financial question of how you will support yourself, and then there is the existential question of who are you going to be.' Some retirement trends in the US include retirees venturing back to college and 'retiring' to university towns; people choosing to retire in their own communities rather than escape to the Sunbelt; retirees are becoming entrepreneurs, reviving shelved passions; and phasing out work rather than stopping overnight.
It's a time to live the dream
Say bah humbug to that old curmudgeon, Mr. Hemingway, and tell him to stick to fishing trips in Cuba. For one brief moment, reflect on your enthusiastic yet naive 18-year-old self, leaving school and entering the big wide world for the first time. What regrets do you have now? What did you not get to be? What is still left to do? Life is not a dress rehearsal. You still have time. Good luck!
Jonathan Hoyle is Chief Executive Officer and Chief Investment Officer at Stanford Brown. This article is general information and does not address the circumstances of any individual.