Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 351

Life after retirement doesn’t need to be scary

An interview for the Saskatchewan Pension Plan

Earlier this year I was interviewed by Martin Biefer, a veteran reporter on pensions, for the Saskatchewan Pension Plan, the formation of which (in 1986) I remember with great pleasure. Martin set me some questions, and I responded. I liked the questions very much: thoughtful, insightful, practical. Fortunately, Martin liked the responses too! And so the interview was published on their website on January 30, 2020.

We all spend a lot of time worrying about retirement – can we afford it, will we enjoy it, will we feel like we’re on the sidelines of life – but very little is written about what that phase of life is actually like.

Q. You talk about the “u-curve” and how 70-year-olds are as happy as 20-year-olds, which is a great analogy. What are some of the reasons why retired folks are so happy?

Yes, retirement (which I prefer to think of as Life Two) really is the best time of life. Happiness studies in every country say the same thing: that this is the time when we tend to rate our happiness highest. There are so many reasons.

The neurological reason is that our brain chemistry changes, and we’re less stressed and less driven, and more inclined to be content, and see the glass as half full rather than half empty. Our measuring stick changes.

Even without the science, think of it this way. When we’re kids, we have no money. We have lots of time. When we work and raise a family, we start to accumulate money. But we’re very stressed for time, during Life One, our working life. It’s not until we retire, or at least stop working full-time, that we have both the time and the money to truly enjoy all of life. That gives us freedom!

So think of Life Two as a full life; a mature life rather than an immature one; a happy life rather than a stressful one.

That’s how we ought to reframe retirement.

Q. We love the casino analogy and the advice about investing (safety and growth). Why do you think so many people think they know enough about investing to do it by themselves without professional advice? Is there anything that could be done to help improve general investing knowledge?

It’s strange, really, isn’t it? We don’t think of ourselves as knowing enough about medicine or the law to practise it ourselves. And yet, as you say, so many people think they can do investing by themselves. It’s a field of study, a discipline that requires expertise, that’s all I can say. And I’m not convinced that general education can help the cause much, just as it wouldn’t with medicine or the law.

We do need to understand some fundamental aspects of medicine and the law – what it’s about, how it operates, how to explain our own circumstances to the professionals so that they can help us. (Because, yes, we are the experts on ourselves!) I think it’s the same with investing.

That’s what I tried to do with the analogy of the casino, because that’s something that most people can associate with: uncertain outcomes, with chances of making money and losing money. And then, very importantly, we should understand the ways in which investing differs from a casino. All of that leads to the general notion that there are two main financial goals. To some extent we’d like safety and predictability, and to some extent we’d like long-term growth. Typically the two are fundamentally opposed, and the more we want of one, the less scope there is for the other. So, the most important decisions regarding our financial selves are the ones that say how much safety we want and how much growth we want. The rest, the implementation to deliver our goals, can be left to the experts.

Q. We get more research, like the recent research carried out by the Healthcare of Ontario Pension Plan and Abacus Data that suggests that folks are afraid to retire, largely because they fear they can’t afford it. Is this because everyone has so much debt they can’t imagine living on less money. Are there other reasons driving this?

There are lots of reasons for the fear. In fact there are three main questions that people fear thinking about, and two are not financial at all.

The first is psychological: Without my work to define me, how do I define myself? A sort of: what would I put on my new business card? “Retired” is so negative. So … you need to learn how to find new motivation and redefine yourself.

Second: How will I fill my time? Linked to this: I have a partner, and we’re frankly not used to spending that much time together.

And third (and this is what surveys say is the biggest fear): Will I outlive my money? This is the one you’ve asked about, so let’s deal with it.

One reason is that most people have little idea about longevity. And to the extent they’ve ever thought about it, they tend to remember a number for life expectancy at birth. They don’t realize that life expectancy for the average retiree takes you much further than life expectancy at birth, because some people pass away before they retire. And they don’t realise that life expectancy is simply an average, not the limit of life.

For example … Suppose there’s a country for which life expectancy at birth is 80. That means it’s the average age at death. But some people pass away before they get to 65. They are the ones who keep the average as low as 80. Those who survive past 65 are, in general, a longer-lived group, and their average age at death may be more like 85. And in addition, that’s an average: half of them will outlive that age. But typically people in this hypothetical country, to the extent they think about lifespan at all, will believe they’ll be gone by 80.

Even if people realised this, it still wouldn’t tell them how to calculate an annual drawdown from their assets that ought to be sustainable over their future lifetimes. Most people tend to grossly overestimate how much they can draw down each year: they guess something like 10 per cent every year instead of a much lower number.

These are all technical reasons, of course, and they say nothing about one’s personal circumstances, like ongoing debt. Even without debt and a mortgage, people are still afraid of thinking about these things.

That’s why I wrote my book Life Two, first to reassure them that they’re not alone in their fear. In fact, even the experts have those three fears! And second, to show them how they can think through some of the issues and answer those questions for themselves. I can’t tell them, “Don’t worry, everything will be all right” – because that simply isn’t credible. What I try to do is show them how to relate the expertise to their own circumstances. And that should give them a feeling of control. It’s like driving a car. They’ll still have their own decisions to make – direction, speed – but at least it’ll put them in the driver’s seat.

Q. What’s the best thing you have experienced – maybe the nicest change – now that you are in Life 2?

Oh gosh, so many things! And that’s even though at first I felt totally discombobulated, like a tree that had been uprooted, and I didn’t know what kind of new tree I wanted to be, nor where I should plant my new roots. The long (for me) transition between Life One and a good Life Two is what caused me to start doing the research (hey, let’s learn from what others have experienced) that led to my Life Two book.

If I had to pick out just one thing, it would be very personal. It’s the totally unexpected gratification of hearing from readers of the book and the accompanying website that something I wrote or identified caused them to change their thinking or to take action that made life better for them. And they come from countries around the world – because of course the three fears are not country-specific. Every personal note makes my day, my week, my month – and together they make my life.

I suppose I could generalise and say that the discovery that, in your own Life Two, you realise things about yourself that you were unaware of, and which please you, is a very nice unexpected aspect.

Q. Why do you think it is so hard for working folks to visualize what it will be like to be retired?

I think it’s that we become so used to the routine of our Life One. And then we’re forced to change it. It’s that tree analogy. I experienced this myself.

For over 40 years I had planted my roots deep into soil that nurtured growth.  I loved the experience of life and work. It had a pattern, a rhythm, that I grew deeply attached to. Then that changed, when I retired. Harry Levinson, a pioneering professor of psychology at Harvard, had this piece of wisdom in one of his books; he said: “All change is loss, and all loss must be mourned.” Retirement was a big change. And mourning isn’t something we look forward to.

I needed to plant a new tree. But, as I said earlier, I didn’t know what kind of tree I wanted it to be, nor where exactly I wanted to plant it, nor if I would change my mind. The freedom to choose, freedom that I’d dreamed about, freedom that was the first word in our family Christmas letter that year … it was still new. And it took time – more than three years, in my case – before I had some idea about my personal answers to those questions. And even then, I remember thinking: some roots are growing in new soil, but they’re new roots and not yet deep; and only time will give them traction.

That’s why the questions “Who am I?” and “How will I fill my time?” are so scary, for many of us. As you can guess, the conferences that I speak at are attended by geeky types (like me!), and it’s terrific to see how pleased they are that someone actually talks about these touchy-feely issues.

Q. What’s the most surprising thing you’ve learned about retirement?

How much I like it. I’ve been flattered to be asked, many times, if I would take something on as a part-time role. No! Anything that imposes an ongoing obligation will send me back to a condition that I’m thrilled to have solely in my past, and I don’t want it in my future. Now I’m free and I’m happy. I had always thought that part-time work (yes, I really loved my work) would be something I’d love to do forever. And for a few years that was great. Now … my family says I work as hard as ever, but the difference is that it isn’t a job, it’s pursuing a passion.  Makes all the difference in the world. Freedom.

 

Don Ezra has an extensive background in investing and consulting and is also a widely published author. His current writing project, blog posts at www.donezra.com, is focused on helping people prepare for a happy, financially secure life after they finish full-time work.

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario.

 


 

Leave a Comment:

     
banner

Most viewed in recent weeks

Too many retirees miss out on this valuable super fund benefit

With 700 Australians retiring every day, retirement income solutions are more important than ever. Why do millions of retirees eligible for a more tax-efficient pension account hold money in accumulation?

Is the fossil fuel narrative simply too convenient?

A fund manager argues it is immoral to deny poor countries access to relatively cheap energy from fossil fuels. Wealthy countries must recognise the transition is a multi-decade challenge and continue to invest.

Reece Birtles on selecting stocks for income in retirement

Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Latest Updates

SMSF strategies

30 years on, five charts show SMSF progress

On 1 July 1992, the Superannuation Guarantee created mandatory 3% contributions into super for employees. SMSFs were an after-thought but they are now the second-largest segment. How have they changed?

Investment strategies

Anton in 2006 v 2022, it's deja vu (all over again)

What was bothering markets in 2006? Try the end of cheap money, bond yields rising, high energy prices and record high commodity prices feeding inflation. Who says these are 'unprecedented' times? It's 2006 v 2022.

Taxation

Tips and traps: a final check for your tax return this year

The end of the 2022 financial year is fast approaching and there are choices available to ensure you pay the right amount of tax. Watch for some pandemic-related changes worth understanding.

Financial planning

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.

Infrastructure

Listed infrastructure: finding a port in a storm of rising prices

Given the current environment it’s easy to wonder if there are any safe ports in the investment storm. Investments in infrastructure assets show their worth in such times.

Financial planning

Power of attorney: six things you need to know

Whether you are appointing an attorney or have been appointed as an attorney, the full extent of this legal framework should be understood as more people will need to act in this capacity in future.

Interest rates

Rising interest rates and the impact on banks

One of the major questions confronting investors is the portfolio weighting towards Australian banks in an environment of rising rates. Do the recent price falls represent value or are too many bad debts coming?

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.