Retirement offers so much potential, and yet so often it disappoints. Rates of divorce and depression among retirees has grown, and it’s often those with the largest retirement pots who say that life after full-time work has failed to live up to expectations.
What, then, can financial advisers do to help people enjoy a more fulfilled retirement? Based near Vancouver, BARRY LAVALLEY is the Founder of The Retirement Lifestyle Center and a leading educator and authority on the lifestyle transition to retirement for North Americans. He prefers to call retirement “prime time”.
Advisers, Barry says, have a crucial role to play in helping people to navigate the journey up to retirement and beyond. In this interview, he explains how retirees and advisers can work together to ensure that retirement really is the fulfilling stage of life it should be.
Barry, at what age do people need to start thinking about retirement?
Well, I could throw the question back to you and say, “At what age do people start to think about the course of their life?” It will be different for everybody. If we want to just focus on when you plan to leave the paid workplace and go off and do the things that you want to do, then I would say within ten years of that. Then five years and then one year — you just ramp it up so that by the time that you’re ready to move into whatever you call this new period of life you have a pretty good idea of what the possibilities and the opportunities are.
You call retirement “prime time”. What do you mean by that?
Well, retirement’s just life. It is just life. It has nothing to do with how much money you have or whether you work or you don’t work. The Japanese call it second life and all that means is you get to a point in your life where it’s about life balance as opposed to lopsided leisure, and achieving lifelong goals as opposed to just purely having fun. It’s about focusing on the things that are important to you by first identifying what those are. It’s about living a life on purpose. I could go on, but it is not a 30-year long weekend, it’s not a permanent vacation, it’s not bells and whistles and skyrockets. It’s just life, but it’s life on your terms.
There was once a time when people would stop work at a certain age, be handed a gold watch or a carriage clock, and then head off into retirement. But it doesn’t work like that now, does it?
Well, it doesn’t. Some of it is government led, which is why I kind of shake my head at all the controversy that’s happened about raising the retirement age because I don’t believe that people should be quitting at age 65 anyway. I don’t think that quitting and doing nothing is a good for your health. I’m a big big believer in evidence, and evidence says it’s not a good idea to quit, so we’ve got to factor that in too. I think that we should look at this period of our life and say, “All right, I’m now in control, what do I really want to do?” And I don’t see a lot of that. We still have this idea that retirement is the golden handshake, the pot at the end of the rainbow, and it’s not.
What do you see the role of the adviser being in this regard? And how important is it to have an adviser when you are starting to think about retirement?
Well, I have trouble with the word adviser. I’m not sure at this point in our lives it’s an adviser that we need so much as an educator, a mentor for some who need it, a catalyst and a coach. So the role changes. The adviser becomes a more important part of a client’s life in just helping the client move forward to do the things that the client wants to do. So I see the adviser role to be probably more important than in any other time in a client’s life.
Why is it so important that people live life to the fullest in retirement? And why do so many retirees feel angst and guilt about spending money that they have worked hard earning?
Well, I had a good friend who unfortunately passed away and he said, “You know what, you’d better do as much as you can in life because you’re going to be dead for a long time.” My view on it is that you should do as much as you can, as quickly as you can and hope you can do it for 30 years. I believe life is meant to be lived.
Now, that doesn’t mean that in the the first years of you being in control of this life that you take all of your financial resources and squander them because one of the big fears, and justifiably so, is you might outlive your money. At the same time, you don’t want to be a prisoner of anything, particularly your financial resources.
So figure out what you’ve got. My grandmother used to call it cutting your coat by your cloth; you’ve got to figure out how much cloth you have. And then just go and live life to its fullest. Because, you see, life will change and there may come a point when you can’t live the life that you want. I don’t want you to enter that period of your life going, “Darn, I wish I had.”
In your experience, is it really necessary to have a lot of money to enjoy life in retirement?
There’s no relationship whatsoever between money and happiness. Just look at the lottery winners who thought that just because they won the lottery they would be happy. In fact a recent British study looked at affluent Britishers and their perceived level of happiness. Researchers found no relationship, although they did find if you had money it made sadness a little easier to handle.
I think we should focus on what positive psychology tells us. Happiness is based on our responses internally to the world that we live in. And there are five conditions that people should be aware of, each one of which contributes to happiness. The combination of those five gives us the acronym, PERMA. The idea was developed by the guru of positive psychology named Dr Martin Seligman at the University of Pennsylvania. The five conditions are as follows. and they are:
One, you should have a Positive approach to life. You should really feel like your outlook and everything is going to be as optimistic as you can make it. So, positive energy.
The second is going to be your Engagement in life itself — feeling that life has purpose, that there’s a reason for you to get out of bed.
The third one is your Relationships. You know, we get more from our relationships than anything else that we do as it relates to healthy ageing.
The fourth one is Meaningful activities, doing things that are important, things that make us feel relevant, make us feel like we have value.
And the the fifth one is Achievement. We need achievements. We need them each and every day.
I’ve done a lot of work myself in this area, in positive psychology. The question I get from people is, “What will make me happy?” Well, let’s look. If we can help people understand what happiness actually is then we can build a plan in each one of those areas to help make sure that they continue on being as happy as they can.
What do people have to think about in terms of funding the life that they want to lead in retirement?
I think that they have to understand that you plan short and you plan long. Planning long simply means that you do not want to run out. I prefer to look at money in terms of money buckets. I’m a very big believer in mental accounting when it comes to looking at the assets that you have.
So you want to make sure that your subsistence is look after — food, clothing, shelter, whatever it is — and you fund those out of a different pile than the other two.
Secondly, you’ve got to make sure that you have lifestyle money, and that will change over time, depending on what you do, the trips you take, what you consider to be important to lifestyle.
And then the third one is this nebulous thing that I’ll call nest egg. You want to make sure that you always have enough in assets so that if the world goes to hell in a hand basket you’re going to be OK.
This phase of life, in financial terms, is often called the de-accumulation phase. People often assume that it’s easier than the accumulation phase, but that’s not necessarily the case, is it? What sort of things go wrong?
Well, of course, both phases are important. It’s important for us to save for the future to make sure that we can have the life that we want as we move through the ages and the stages of our lives. So the accumulation phase will make things a lot easier in our lives as we grow older. The de-accumulation phase is equally important because now we’re able to take money out, to enjoy the life that we’ve got, but we have so many other considerations — things like the timing of those withdrawals, what we want to spend the money on, taxation issues, things that we may not have thought about.
You always want this thing that I call financial comfort. In the accumulation phase, financial comfort is, “I know I’m going to be OK, because I’m putting money aside every year and I’ve got it invested properly.” In the de-accumulation phase financial comfort is, one, “I’m patting myself on the back because we did OK,” but also, “I’m handling things as efficiently and as effectively as I possibly can. I’ve done that all my life and now I’m enjoying the fruits of my labour.”
I mentioned the timing of withdrawals earlier. This is a phase of our life when things happen quickly. Your daughter comes to you and she needs £50,000 because she is going to put a down payment on a house. Now you may or may not decide to give it to her — that’s up to you — but the thing is that it may be an issue for you. Or your car blows up and you’ve got to replace it. You want to buy that place in your favourite town and retire there. Then there are major health care expenses.
I mean things happen and then you find that the markets are down and all your money is tied up, you don’t have emergency funds, and you’ve got to take money out at exactly the wrong time. So we need to have emergency funds — cash or cash equivalent — that we can draw on to look after those expenses when we need them.
How important is it to use an adviser in the de-accumulation phase?
I don’t think an investment adviser is what you need. I think you need a life adviser who understands the various elements of the plan that you’ve got and can make sure that you can continue to live the life that you want. The adviser at this point really works at where your life and your money coincide. This person’s role in your life is to be a catalyst, and to say, “OK, let’s look at where we are, where we need to be over the short run and the long run from this point, and let’s just make sure that you can sleep at night and you’re able to do what you want.”
You may also be interested in a recent article I wrote on this subject for The Evidence-Based Investor:
Investing for retirement isn’t just about money