by Joe Hearn | Oct 8, 2015 | Investing, Retirement
To a large degree, happiness is being able to do what you want when you want. To get to that point, however (and here’s the paradox), you often have to do what you don’t want when you don’t want. Case in point: Retirement.
You’ve heard me say many times that:
All of that is still true, but I want to give you a quick reminder.
You still need money.
I didn’t say that retirement was not a math problem or that money had no role to play. (see this, this and this for articles on preparing financially). Instead, I said “more than.” In other words, it’s money plus something else. Money plus meaning.
Why the reminder? I got an email from a reader named Patricia recently that discussed this very topic. Here’s a brief excerpt:
“I am one of those people who deferred. I worked really hard for 30+ years, saved like hell, deferred life in many ways so we would be able to retire early. And according to you, I totally screwed up.”
First off, there are many things that fall under the category of “screwing up” in my opinion, but working hard and saving so you can retire early is not one of them. Hat tip to Patricia (she and I had a nice conversation via email) and anyone else out there who is doing what it takes to build a nest egg and achieve financial independence.
Second, I took Patricia’s email seriously, because if she felt that I was somehow disparaging the savers and deferrers (is that a word?), then others of you may have had that feeling too. Nothing could be further from the truth. Hard work and disciplined saving is absolutely critical if you’re going to meet your retirement goals. That said, the money without the meaning is pointless just like the meaning without the money is often unrealistically out of reach. It’s up to each of you to balance those competing interests in a way that works for your life and goals.
In 8 Habits of Successful Retirees, I told you to live with a sense of urgency (#1), retire to something, not from something (#4) and choose yes over no (#6). Just don’t forget Habit #5: Retire based on your bank account, not your birthday. Run after the meaning, just don’t forget about the money.
~ Joe
by Joe Hearn | Aug 27, 2015 | Asset Allocation, Investing, Retirement, Risk
On Monday morning my friend texted me: “Holy cow! Don’t jump!” He was referring, of course, to the 1000+ point drop in the Dow. Thankfully, after more than 20 years in this business, I’ve gotten used to wild swings, so I wasn’t on the ledge (although in 2008 I was glad I work in a one story building). That said, volatility in the market can produce much fear and anxiety, especially if you’re at or near retirement. There is a 100% chance that market volatility will continue, so here are 5 things I’ve learned after two decades of bulls and bears that can help you keep your retirement plans on track.
Markets have recovered from every single downturn in history. Every. Single. One. The Panics of 1893, 1896, 1901 and 1907 (Seriously, calm down already!). The Crash of 1929. The recession of 1937-1938. The Flash Crash of 1962. Black Monday in 1987. The crash after Iraq invaded Kuwait. The 1997 crash caused by the Asian currency crisis. The Dot-com bubble in 2000. The crash after the September 11 attacks. The selloff in 2002. The financial crisis of 2007-2009. The Flash Crash in 2010. The markets are higher now than after every panic, bubble, crash and crisis in history, but be careful because…
You are not the market. Your personal experience with market volatility will largely be impacted by the actions you take before and during a crisis. Were you poorly diversified? Was your asset allocation totally inappropriate? Were you taking too much risk? Did you sell in a panic? Did you wait to get back in until the markets had already recovered? Did you stop making 401(k) contributions when things went south? Investment returns are not investor returns. Each year Dalbar does a study to see how well the average investor does compared to the markets. In short, the average investor only captures a fraction of the market return, largely because of poor behavior, so…
Sometimes it’s good to have help (especially if you’re near retirement). There are some people with the time, temperament, knowledge and discipline to handle their investments on their own. Others could benefit from a little help. This is especially true the closer you get to retirement because the issues you’ll be confronted with are different. Before retirement the major issue is saving. Most of us are at least familiar with the concept of saving (regardless of whether or not we’re doing it). We’re less familiar with the many moving parts that make up the typical retirement plan: calculating how much is enough, settling on an appropriate asset allocation, risk management, cash flow management, pension payouts, periodic rebalancing, retirement plan distributions, estate planning, Medicare, Social Security and the tax consequences of certain distribution strategies. You don’t want to mess those things up because…
Your runway is shorter now than it was during the last crisis. On average, stocks experience a 10% selloff about once every year and 20% pullback every 3.5 years. The average time of recovery for the former is about 4 months. For the latter it takes about 22 months. So while my earlier point is absolutely true—markets have always recovered—you may not have enough time to wait it out. The closer you are to retirement, the closer you are to withdrawing money from your accounts. And if you’re taking distributions while the markets are down, your money won’t last as long. So use the current crisis as a not-so-friendly reminder to…
Focus on what you can control. John Wooden once said: “The more concerned we become over the things we can’t control, the less we will do with the things we can control.” It’s easy to focus on headlines, markets and political uncertainty, but we can’t really do anything about them so it’s an exercise in frustration. We can control things like saving, debt reduction, asset allocation, and risk management, however. Focusing on those actually produces results. Unfortunately, the bull market of the last six years has lulled many into a false sense of security. Use the current volatility to make sure that your portfolio is appropriate and your plans are on track.
~ Joe
by Joe Hearn | Jun 26, 2015 | Happiness, Health, Lifestyle Design, Retirement
I just finished reading Zen and the Art of Motorcycle Maintenance. It’s a bestselling classic, but I must confess that I wasn’t a huge fan. It did have a few great nuggets that made me think, however, and today I’d like to share a short passage from the book that could have a profound impact on how you approach retirement. Consider it Zen and the Art of Retirement.
In the passage, the main character is talking about the problem of value rigidity, which refers to our tendency to cling to certain preconceived ideas of what’s important and what’s not, even when events or circumstances change. To make matters worse, we sometimes put a high value on things that we shouldn’t and then stubbornly cling to our error. Here’s the text followed by a few takeaways for your life and retirement.
“All kinds of examples from cycle maintenance could be given, but the most striking example of value rigidity I can think of is the old South Indian Monkey Trap, which depends on value rigidity for its effectiveness. The trap consists of a hollowed-out coconut chained to a stake. The coconut has some rice inside which can be grabbed through a small hole. The hole is big enough so that the monkey’s hand can go in, but too small for his fist with rice in it to come out. The monkey reaches in and is suddenly trapped…by nothing more than his own value rigidity. He can’t revalue the rice. He cannot see that freedom without rice is more valuable than capture with it. The villagers are coming to get him and take him away. They’re coming closer — closer! — now! What general advice…not specific advice…but what general advice would you give the poor monkey in circumstances like this?
Well, I think you might say exactly what I’ve been saying about value rigidity, with perhaps a little extra urgency. There is a fact this monkey should know: if he opens his hand he’s free. But how is he going to discover this fact? By removing the value rigidity that rates rice above freedom. How is he going to do that? Well, he should somehow try to slow down deliberately and go over ground that he has been over before and see if things he thought were important really were important and, well, stop yanking and just stare at the coconut for a while. Before long he should get a nibble from a little fact wondering if he is interested in it. He should try to understand this fact not so much in terms of his big problem as for its own sake. That problem may not be as big as he thinks it is. That fact may not be as small as he thinks it is either. That’s about all the general information you can give him.”
Here are three important takeaways from this story:
Sometimes, especially during times of change or major life transitions (e.g. retirement), we need to revalue things so that we can realign our actions and beliefs with our new life. Said another way, the types of things that are important to us in the new life stage are likely different from the things that were important to us during the previous life stage. We need to decide what those new things are and elevate them to their proper position. If we don’t, we’ll cling to things that used to be important to us (e.g. work, certain relationships, houses, how we spend our free time, hometowns, etc.) and our tight grip on those keeps us stuck in the monkey trap, unable to pursue our new plans.
Sometimes holding the tangible thing can cause you to lose the intangible. There’s nothing wrong with having nice things, but everything we own takes some of our time and some of our money. If we focus too much on the tangible (houses, cars, gadgets, etc.), that leaves little time and money left over for the intangible (travel, experiences, hobbies, relationships, pursuits, etc.).
Sometimes we don’t understand how much we value the intangibles until we lose them. I was reading a study recently that listed out the types of things that were important to retirees. Number 1 was financial security (no surprise there). Number 2 was health. In the story above, the monkey got the rice, but it cost him his freedom. I don’t know about you, but I’ve definitely made sacrifices to my health as I pursued wealth (a.k.a. career). I’m sure you have too. We work hard. We’re busy. No time for a healthy lunch. No time to exercise. No time to get enough sleep. We take our health for granted. In our own way, we’re grabbing for the rice, but if we’re not careful it could cost us a major intangible like our health, and consequently our freedom to pursue many of our retirement plans. We may take it for granted now, but it will be sorely missed when it’s gone.
How can we avoid monkey traps?
What that question is really asking is this: How can we tell if we’re hanging on to something trivial at the expense of something important? How can we tell the genuine from the counterfeit? To answer that, let’s look at an example from the Secret Service. In addition to protecting the President, the Secret Service is in charge of protecting against counterfeit currency. When they’re training new agents to recognize counterfeits, they don’t sit them down in a room with a bunch of counterfeit bills and point out the flaws.
Instead they sit them down in a room with currency experts and pristine examples of genuine bills. They go through every detail. Why it’s there. What it represents. How it deters counterfeiters. How difficult it is to reproduce. How to look for it. They learn what the ink looks like. They learn what the paper feels like. They learn what the bill smells like.
By studying what makes a bill genuine, a funny thing happens. Without ever studying the counterfeits, agents can spot them from a mile away because they know what the genuine bills look like. We can do something similar. If we sit down and decide what’s genuinely important to us—what we value above all else—then when imposter opportunities come along, we will be able to recognize them for what they are. Then rather than shoving our hand inside and grabbing for the rice, we’ll keep right on walking because we have a clear idea of what we really want out of life and we’re taking those plans very seriously. If we can all do that, then we’ll be well on our way to an intentional, meaningful retirement.
~ Joe
by Joe Hearn | May 22, 2015 | Lifestyle Design, Pursuits, Retirement
I think it’s fair to say that most of us believe we are rational beings and we make rational decisions. I just finished reading a book, however, that calls that premise into question.
In Predictably Irrational, professor Dan Ariely uses cleverly designed experiments to show time and again that many of the daily decisions we make—from the mundane to the monumental—are completely irrational. His point is that these irrationalities are so systematic and predictable, that we can understand them and then compensate for them so we can make better decisions.
The section of the book that really caught my eye related to the concept of anchoring. Anchoring is our tendency to rely on the first piece of information we are presented with (the “anchor”) when making decisions. As the name implies, the anchor influences all of the related decisions that come after it. If you examine your life—how you spend your money, how you spend your day, where you buy coffee, who you hang out with, how much television you watch—you can likely trace those habits or repetitive behaviors back to some sort of anchor.
What does this have to do with making retirement decisions? Again, our first decisions on a particular matter tend to act as anchors for the subsequent decisions we make in that area. When you enter retirement you make a whole bunch of new decisions. Those decisions—the who, what, where, when and why of retirement—will resonate for years to come. You should be very intentional as you make them. Professor Ariely:
“We should also pay particular attention to the first decision we make in what is going to be a long stream of decisions. When we face such a decision, it might seem to us that this is just one decision, without large consequences; but in fact the power of the first decision can have such a long-lasting effect that it will percolate into our future decisions for years to come. Given this effect, the first decision is crucial, and we should give it an appropriate amount of attention.”
In other words, the first weeks and months of retirement are critical. Many people enter retirement with the best of intentions, but because they don’t understand this concept of anchoring, one of two things happens. First, they are so deeply anchored to previous decisions that when they are confronted with the new paradigm of retirement, they talk themselves out of things, even if it is something that they have been dreaming about for years. For example, “I’d love to travel, but that’s just not me.”
Second, they transition into retirement without a lot of intention or urgency and they assume that they will have plenty of time to figure things out as they go. But while they’re waiting for the dust to settle, they make decisions early on—the first 30 days, 60 days, a year—that end up acting as anchors for years to come and that prevent them from pursuing their ideal retirement. So what are some ways that we can avoid this fate?
Stop. I’ve talked many times before about a “stop doing” list. Never is that list more critical than when you transition into retirement. By cutting out old obligations that are no longer relevant to your new phase of life, you allow yourself space and breathing room to focus on your new pursuits, activities, obligations and commitments and give them the time and attention they deserve.
Shake things up. If you find yourself in a rut and anchored to decades of old habits and routines, it’s helpful to have big, new plans—like moving, traveling, or volunteering—that will force you to steer off the well-worn path you’ve become accustomed to and proactively pursue your new goals. If you don’t have specific new plans, it’s easy to fall into a routine that doesn’t look much different from your working years, save for sleeping in a little bit and having more time to run errands.
Keep a journal. As you transition into retirement, spend a little time at the end of each day journaling. Write about the emotions, feelings, experiences and changes related to the transition. Most of all, write about the decisions you’re confronted with. If you take time at the end of each day to think and write about those decisions in the context of what you want the next 20 or 30 years of your life to look like, then you’ll likely make decisions that put you on the path to where you want to go.
Have a response ready. When you retire, you will be confronted with a number of people and organizations that will want a piece of your newfound time and freedom. Rather than hastily committing to something you might later regret, have a ready response that defers any decision. Here’s the one I suggest: “Thanks for asking. You know, I’m new to this whole retirement thing and I’m still trying to figure out what my schedule will look like, so let me think about it and then I’ll get back to you.” If it isn’t something that fits with your plans, follow up later with a quick call or email to decline.
Remember, the decisions you make in the first weeks and months of retirement will resonate for years. Therefore:
- Have specific plans.
- Be intentional.
- Have a sense of urgency.
- Understand the resistance you’ll feel if your new plans conflict with your old anchors and be prepared to push through it.
- Keep a journal to help you think through your daily decisions
- Cut old commitments that aren’t a fit for your new phase of life
- Be slow to make new commitments.
To all of my readers in the U.S., have a great Memorial Day Weekend! And to those outside the U.S., just have a great weekend. 🙂
~ Joe
by Joe Hearn | Apr 16, 2015 | Income, Lifestyle Design, Retirement
This week is National Retirement Planning Week, so I thought it would be good to give everyone a quick reminder of what it takes to get ready to retire. Sure, saving enough money is important, but retirement is more than just a math problem. There are plenty of other things involved as well. With that in mind, I made a handy retirement readiness flow chart that will give you an idea if you’re ready to retire or if you still have some work to do. To see the chart, just click on the image below.
If you find yourself on the “No” side of the chart and you’ve still got some work to do, visit the Archives Page where you’ll find dozens of articles on every topic mentioned in the flow chart. A few additional free resources you might find helpful are A Brief Guide to Retirement Bliss and the Financial Checkup Checklist.
Thanks for reading and touch base if I can ever help.
~ Joe
by Joe Hearn | Apr 3, 2015 | Happiness, Lifestyle Design, Retirement
In 8 Habits of Successful Retirees I talked about what actions, habits and behaviors make for a great retirement. But sometimes being successful at something is as much about avoiding the bad as it is about doing the good. With that in mind, here are 5 behaviors that will ruin your retirement.
Poor time management. Legendary basketball coach John Wooden once said “I keep track of minutes like a banker keeps track of money.” He wasn’t just referring to games either. His practices were scheduled down to the minute too. His reasoning was simple. He had 5 two-hour practices each week over the course of a 21 week season to coach his players. That is 210 hours or 12,600 minutes of practice. That time is easy to waste if you’re not very, very intentional. The same is true for your retirement. You will have a very limited time in retirement, even under the best of circumstances. If you’re not careful, it’s easy to waste days, months or even years (See also: The surprising truth about how retirees spend their day). Keep an eye on the clock and be very intentional with your time.
Waiting for permission. Too many of us sit around in life waiting for someone to tell us it’s ok to do something. Call it the inertia of permission. It can kill your retirement. Chances are good that you don’t need anyone’s permission to do what you want in retirement. You’re a responsible adult. You live in a free country. You (hopefully) have financial independence. As long as what you do doesn’t break the law or hurt someone else, just do it. Don’t wait around for someone to give you a green light. You don’t need it. Give yourself permission and get going.
Assuming. We make lots of assumptions. We assume that we won’t develop crippling arthritis in our feet. That we won’t have a heart attack walking to the front door. That we won’t be diagnosed with a life changing illness like cancer or diabetes. That we won’t get divorced. That a friend or loved one won’t die. That we won’t lose our job. Those are all things that haven happened to clients of mine over the last year and when they happened, they wiped out dozens of opportunities from each person’s “To-do” list. If you assume that the opportunities available to you today will also be available to you tomorrow, a year from now or ten years from now, then you’ll tend to put things off. One of the most valuable insights I’ve gained from working with hundreds of retired clients over the years is that these “unexpected” things happen to everyone. Don’t assume that you’ll always have time. Live your life like your opportunities have an expiration date, because they do.
Confusing “Past” you with “Future” you. Retirement should be a time in your life when you do the things that you’ve always dreamed of. For you that might be travel, leisure, adventure, volunteering or learning a new skill or hobby. When given the opportunity to actually do those things, however, people will often talk themselves out of it. They say something like, “I’ve never been one to…” or “That’s not me.” Well guess what. That might not have been you when you were working 60 hours a week and raising 3 kids, but your circumstances have changed. You need to get rid of limiting beliefs and redefine how you see yourself. Maybe you ARE the guy who becomes an expat to Ecuador. Maybe you ARE the lady who takes up skydiving. Maybe you ARE the couple that sells everything and starts a B&B in Oregon. Past you does not equal future you.
Not leveraging the first half against the second half. I have a friend who works at IBM. Early in his career he changed positions within the company as often as possible so that he could get a broad set of skills and experiences. His goal was to take that varied set of skills and experiences from the first half of his career and leverage them into a successful management position during the second half of his career.
We should all be doing something similar in life. By the time you reach retirement you’ll have about sixty years of hard won knowledge, skills, wisdom, insights and experiences. Use those things as leverage to define, shape and create a successful retirement. You know what works and what doesn’t. You know what makes you happy and what doesn’t. You know who matters to you and who doesn’t. Put that knowledge to good use.
Have a great weekend!
~ Joe
Photo by Nick Kelly.
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