by Joe Hearn | Nov 16, 2017 | Happiness, Lifestyle Design
I just finished watching the new Ken Burns documentary on Vietnam. During the war, Secretary of Defense Robert McNamara had commanders and soldiers in the field collecting vast amounts of data each day that was then put onto punch cards and fed into a mainframe computer for analysis. The hope was that by measuring hundreds of different variables—casualties, villages pacified, roads cleared—they could gauge progress and prove that we were winning the war.
In hindsight, there were many problems with this strategy, not the least of which was that the things they really needed to know—the state of Vietnamese politics, the loyalty of the people, the intentions of Hanoi—were almost impossible to quantify and thus weren’t being factored into the equation. An Army adviser summarized it this way:
“If you can’t count what’s important, you make what you can count important.”
When I heard him say that, it struck me that you and I do something similar when it comes to life in general and retirement specifically. There are things that really matter and that have a huge impact on our happiness and fulfillment. Things like our sense of purpose, the quality of our relationships and the depth of our experiences. Unfortunately, those things are nuanced and hard to both measure and manage, so instead we tend to focus on things that are easier to quantify like the size of our bank accounts, square footage of our houses or the number of friends we have on Facebook. There’s nothing necessarily wrong with those things, but they don’t form the complete picture obviously.
This morning I spent time reflecting on the types of metrics I use in my own life and how I can do a better job measuring the things that are important and not just the things that are easy to count. As a part of that process, I went back and re-read some of my past articles. If you’d like to do something similar, I’ll post links to those that were particularly helpful to me.
Perspective
Metrics
Application
by Joe Hearn | Nov 3, 2017 | Happiness, Hobbies, Lifestyle Design
Jeff Bezos became the richest person in the world last week. In a little over 20 years, the founder of Amazon.com went from no money (or very little) to more money than anyone. Warren Buffett once called him “the most remarkable business person of our age.” That’s like Michael Jordan calling you the best basketball player or the Dos Equis guy crowning you “world’s most interesting person.” I’ve followed Bezos over the years and thought I’d share a few things we can learn from him about life and retirement.
You can accomplish a lot in a short amount of time. Someone once said that we tend to overestimate what we can accomplish in a year and underestimate what we can accomplish in ten years. Bezos started Amazon in 1995. That’s not that long ago. I remember what I was doing in 1995. I’m guessing you do too. In that short span he’s built a revolutionary company with hundreds of thousands of employees and transformed giant swaths of the economy. Most people spend about 20 years in retirement. I just went to the funeral of a friend who died at 102. He was retired for 40 years. That’s plenty of time to do some interesting things. No one expects you to start a billion-dollar company, but you don’t just need to ride off into the sunset either. Yes, you can relax and enjoy life, but you also have plenty of runway to take on projects or challenges that give fulfillment, meaning and purpose.
Be stubborn on vision, but flexible on details. That’s how Bezos describes the leadership team of Amazon. They have an uncompromising vision for the company, but they are flexible and willing to try new things to make that vision a reality. That same strategy works great when planning for and living in retirement. Know what you want out of life. Stay true to your vision and values, but when opportunities present themselves take advantage of them. Or when things don’t develop exactly how you anticipated they would, don’t be afraid to change up your tactics.
Experiment. Amazon Prime, Amazon Web Services, the Kindle, Echo and Alexa all started out as small experiments. Bezos and his team are constantly experimenting and making small bets. Some of those fail, but some are wildly successful. The more things they try, the greater the odds that they’ll hit on something big.
Take a page from that playbook. Don’t be afraid to experiment. I have a client who took up golf when he retired, but quickly realized it wasn’t for him. Rather than getting down when things didn’t come together as anticipated, he started experimenting with a bunch of different activities. What did he settle on? Beekeeping. That’s right, he now keeps thousands of bees, rents them out to farmers for pollination and packages and sells their honey. It’s now a huge part of his days in retirement and he would have never discovered it without a willingness to experiment. And while we’re on the topic of experimenting…
Be inventive. All of those experiments usually lead to inventions and innovations. The Amazon of today looks very different than it did at the beginning. The same should be true of your retirement. Don’t spend 20 years in a rut. Iterate, create, grow and evolve. That growth and change won’t happen automatically. You need to experiment and invent. As I said recently: You don’t find yourself. You create yourself.
Invest in yourself. The knock against Amazon from day one has been that it doesn’t show a profit. But the reason it doesn’t show a profit is because a) it charges low prices so it can gain new customers and grow the business and b) it reinvests every dime it makes back into the company to help it grow faster. All of those experiments, inventions and innovations cost money. The payoff has been huge, but it wouldn’t have happened without a willingness to invest in them. Warren Buffett once said that the most important investment you can make is in yourself. In retirement, you have time and money. How can you invest those in ways that enrich and improve you and your life?
Keep a “Day 1” mindset. Bezos works in a building named “Day 1.” It’s a reminder to him and his team that they always want to act with the same energy, focus and willingness to try new things that they had on Day 1 of the company. Someone recently asked him what Day 2 looks like and he said “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
We’re all going to die, so it will eventually be Day 2, but a life that has purpose and meaning is generally incumbent on keeping a Day 1 mindset as long as possible. It’s characterized by a willingness to take risks, try new things, build relationships, invest, act and work towards some greater purpose. In retirement, it’s tempting to ease off the throttle and orient your life around comfort and security rather than purpose and meaning. There’s nothing wrong with a little R&R, but keep your Day 1 mindset as long as possible.
Use a “regret minimization framework.” Before starting Amazon, Bezos had a great job at a wall street firm. All he had to do was keep showing up for work each day and he’d be set. But he saw how quickly the internet was growing and felt a pull to get involved. As he pondered the decision he wondered which course would result in the fewest regrets when he was 80. He called this his regret minimization framework (You can tell he is a computer science grad). He didn’t think he’d regret leaving a job, because he could always find another job. Leaving mid-year meant giving up his annual bonus, which was a big deal to him at the time, but he didn’t think his 80-year-old self would be concerned about it. He didn’t think he’d regret trying the internet business and failing because then he’d just get another job. The one thing he felt he’d really regret would be not trying and always wondering what could have been. It’s the old Mark Twain quote. We don’t regret the things we do as much as the things we don’t do.
So as you think about your life and how you want to spend it, use a regret minimization framework. What actions and decisions will result in the least amount of regret for your future self? Pursue those things. Yes, it might be scary, but it will ultimately result in the greatest level of happiness and fulfillment.
~ Joe
by Joe Hearn | Oct 10, 2017 | Estate Planning, Retirement
Note: For help accomplishing the things discussed in this article, you might be interested in my book and organization kit If Something Happens to Me.
It’s been a rough couple of months in the U.S. Devastating hurricanes. Wildfires. Nuclear tensions with North Korea. Charlottesville. Las Vegas. It’s all a vivid reminder that life is uncertain. Have you ever wondered what you would do if you suddenly became the victim of a natural disaster, terrorist attack or other unexpected event like a fire or earthquake? Would you know what to grab if you only had seconds to escape your house? Would your loved ones know what to do if they had to step in and manage your affairs? A little planning now can make a big difference later. Here are 5 key actions you can take to prepare for the unexpected.
Meet with Your Advisers: Having 6 feet of water in your living room is not the time to discover that you don’t have flood insurance. The emergency room is not the place to learn that you need a medical power of attorney. Your funeral is not the ideal time for your spouse to discover that you didn’t have adequate life insurance. Schedule meetings with each of your advisers and let them know that you are trying to disaster-proof your affairs. Ask them to help fill any gaps that exist in your current planning.
Prepare a Grab-and-Go Case: You should organize all your important legal, financial, and insurance paperwork into a file that you can grab quickly if you need to flee your house or your city. Consider including birth certificates, estate planning documents, financial statements, insurance policies (homeowner’s, auto, life, health), Social Security cards, contact information for all of your advisers (program it into your cell phone as well), a list of prescriptions you take, a copy of your driver’s license and some emergency cash. I’ll include a more comprehensive list at the end of this article.
Keep in mind that you may not be able to escape with your important paperwork. Many fires, for example, happen while the homeowners are away. To protect yourself, store backup copies of important documents in a safe-deposit box or with a trusted friend, relative, or adviser. As a general rule, don’t keep anything in your safe deposit box that you may need in an emergency, such as a power of attorney, because boxes are not usually accessible 24-7 and may be sealed temporarily after the box owner dies. It’s a good idea to keep copies in the box, but have readily accessible copies as well.
Prepare a Household Inventory: Recent hurricanes destroyed thousands of homes. Most homeowners will not be able to remember everything that was in their home when filing insurance claims. A simple household inventory listing your home’s contents, or a video walk through of your home, will help avoid this problem. Just remember to store the inventory somewhere other than your home.
Write a letter of instruction: Your will and powers of attorney are formal legal documents designed to put certain people in charge and give them instructions for handling your affairs. There are plenty of things those documents don’t cover, however. For those things, you should write an informal letter of instruction to your spouse or other heirs. The letter can contain things like your funeral preferences, passwords, a “To-do” list, recommendations on how to invest life insurance proceeds, how to disperse certain personal property or heirlooms not accounted for in the will, what to do with pets, or any other explanations or instructions that would help ease the transition through an obviously difficult time. It’s an informal document, so add anything you think might be helpful and periodically update it so it stays current.
Update Your Plan Annually: Change is the one constant in life. Make sure to review your affairs at least annually in order to make necessary updates. Some questions to ask include: 1) Has your marital status changed? 2) Has the value of your assets changed significantly? 3) Have you made any changes to your insurance policies? 4) Have you changed jobs? If you answer “yes” to any of those questions, you should meet with your advisors to update your planning.
Life can change suddenly. By investing a small amount of time and energy into organizing your affairs, you can gain the peace of mind and protection that comes from being prepared.
Document Storage Checklist
Grab-and-Go Case
- Contact list
- List of checking/savings account numbers
- List of credit card numbers
- Recent statements for all investment accounts
- Insurance policies (life, homeowner’s, renter’s, auto, etc.)
- Will and/or trust documents
- Durable power of attorney for health care
- Durable power of attorney for finance
- Social Security cards
- Copies of birth and marriage certificates
- Passports and copies of driver’s license
- Computer and online user names and passwords
- Safe combination
- Safe deposit box keys
- List of prescriptions you take
- Emergency cash
Safe Deposit Box
- Copies of will or estate plan
- Copies of your powers of attorney
- A list of your insurance policies
- A list of your financial account numbers
- Originals of birth and marriage certificates
- Adoption papers
- Citizenship records
- Military service records
- Vehicle titles
- Real estate deeds
- Mortgage paperwork
- Loan agreements
- Stock and bond certificates
- Certificates of deposit
- Precious metals
- Valuable collectables
- Jewelry
- Photographs, video and/or a written inventor of your home’s contents
With a Friend, Relative or Trusted Adviser
- Paper or digital copies of the documents in your grab and go case
- Contact information for you (email, cell phone, etc.)
- Instructions on keeping the data secure
- Contact list for your advisers and heirs should something happen to you.
“Having a secure shelter doesn’t make storms any less dangerous, but it does make them less dangerous to you.”
~ John Mauldin
by Joe Hearn | Sep 14, 2017 | Distribution Planning, Income
A few weeks ago, I gave you six ways to make your nest egg last. It’s an important topic, so here’s a seventh: Dynamic Spending. There’s a growing body of research that shows it can significantly extend the life of your portfolio. What is it and how does it work?
In retirement, like in your working years, your budget will include both fixed and discretionary expenses. Fixed expenses are things like food and your mortgage. Discretionary expenses include things like travel. In retirement, many of your fixed expenses are gone. Your house and cars are likely paid off. The kids are out of college. You’re no longer saving. Fixed expenses make up a smaller portion of your budget than ever. Your discretionary expenses are another story. Most retirees have a long list of travel, hobbies and other things they want to do.
That type of budget—low fixed, high discretionary—is ideal for dynamic spending rules. As the name implies, dynamic spending is simply adjusting your spending each year based on how your portfolio is doing. You establish rules that give you a raise when times are good and cut back a little when times are tough. The adjustments don’t need to be large to be effective and, as we saw earlier, spending adjustments are easier in retirement because a larger portion of your budget is discretionary.
How it works.
Vanguard did some research in this area and found evidence that dynamic spending rules can greatly improve success. What they tested was a hybrid distribution strategy that was basically a percentage withdrawal of the previous year’s portfolio value with adjustments based on certain rules. They would allow the spending to adjust each year based on year-end value, but would limit it to a ceiling and a floor. This allows your spending to rise as high as the ceiling when times are good and adjust downward as far as the floor when times are bad.
Let’s look at a quick example. Assume a $1 million portfolio and a 4% withdrawal rate, so the first-year distribution is $40,000. Now for next year, they would calculate a ceiling and a floor 5% above and 2.5% below that $40,000. So the ceiling is $42,000 and the floor is $39,000. Now let’s assume we have a big up market and the portfolio value is $1.1 million. 4% of that would now be $44,000. That’s above the ceiling, so you limit your withdrawals to $42,000. What if instead the portfolio had a bad year and it dropped to $900,000. 4% of that is $36,000. That’s below the floor, so you take the floor amount of $39,000. Basically, you’re giving yourself a raise during good times or taking a pay cut during bad times, but you are limiting each by predetermined amounts. This strategy had a 92% success rate vs. the 78% success rate of just taking a dollar amount grown by inflation. That’s a huge jump, all because you set a few simple rules that help ensure you don’t overspend (and risk running out of money) or underspend (and risk not living to the full).
~ Joe
by Joe Hearn | Sep 1, 2017 | Lifestyle Design
“Life isn’t about finding yourself. Life is about creating yourself.” – George Bernard Shaw.
When I was in college a friend of mine dropped out and said, “I’m going to move to Colorado for a year and try to find myself.” This totally made sense at the time. None of us had an overarching vision for our life or, for that matter, had the slightest idea what the future held beyond the current semester. If my friend could find the answer on a ski lift, more power to him.
The older I get however, the more I realize that George Bernard Shaw was right. You don’t find yourself. You create yourself. Nowhere is this more true than with retirement. Finding yourself implies a certain level of randomness and passivity. Be patient. Keep your eyes open. Wait for the puzzle pieces to fall into place. Maybe the life you want is just around the corner. Not only does that almost never work, but in retirement the clock is ticking. You don’t have the luxury of waiting to allow your dream life to gradually materialize.
If it’s up to you to create yourself, then you need to be proactive. As Teddy Roosevelt was fond of saying, you need to “get action.” You need to think like a designer or a builder. You need to test, experiment, iterate, be curious and try things. The goal is a well-designed life. A well-designed retirement. You take pieces like friends, activities, skills, wants, relationships and locations and you mold them into the life you want. Whatever you come up with won’t be perfect. There’s no “right” answer. But you’ll learn and grow from each iteration and gradually move closer to the life that feels like your true self. Not because you found it, but because you built it.
My U.S. readers have a chance to put this into practice right away. You have a long holiday weekend, starting today. How can you make the most of it?
“Get action. Do things; be sane; don’t fritter away your time; create, act, take a place wherever you are and be somebody; get action.” – Theodore Roosevelt
Have a great weekend!
~ Joe
