Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.
Billy & Akaisha in Mesa, Arizona; courtesy Kiplinger
Earlier this spring, I was interviewed by Billy and Akaisha Kaderli, the globe-trotting early retirees who run the RetireEarlyLifestyle.com website and authors of several books on Early Retirement.
And here is the same interview at RetireEarlyLifestyle.com.
Turnabout is fair play so today, I play interviewer and Billy and Akaisha are on the hot seat to answer.
Jon Chevreau: What do you think of the term FIRE [Financial Independence/Retire Early)? You made it there in your early 30s but can Millennials, Gen X and GenZ expect to replicate your success, given the high cost of housing and everything else?
Billy & Akaisha: FIRE is a great marketing acronym filled with energy and intrigue. There was no such term when we left the working world in 1991, 33 years ago. There really wasn’t even the mental concept of being “financially independent” except for perhaps well-paid athletes, actors and trust fund babies.
We called ourselves Early Retirees, but we never retired from life, just from the conventional idea of working until age 65 or when Social Security kicks in. We had other plans for ourselves like travel, volunteer work, creative projects and continuous learning. We’ve always been productive and we like that feeling of pursuing our passions.
As for whether or not Millennials, Gen X and Gen Z can expect to become financially independent, we would say yes.
It’s a matter of discipline, focus, being aware of one’s financial choices, and most definitely finding a partner who is on the same financial page.
We have explained many times in our books and on our website that the four categories of highest spending in any household are Housing, Transportation, Taxes and Food/Dining/Entertainment. Pare down your personal infrastructure or modify your cash outlay in those categories and you will find money to invest towards your future life of freedom.
So yes, we say it can still be done.
JC: How many countries have you now visited around the world and how long do you tend to stay in any one location? Related question: do you maintain a home base in the United States and how long (and which seasons?) do you stay there each year?
Billy & Akaisha Karderli in Sorrento, Italy, with Mount Vesuvius in background
Billy & Akaisha: For some reason we have never cared to count the number of countries we have visited or lived in. We travel for ourselves, not to tick off boxes or to compete with other travelers.
We have visited all throughout Europe, lived in many Asian and Pacific Rim countries, visited and lived in Canada, most of the United States, all throughout Mexico, Central America and Northern South America, and have sailed throughout the Caribbean Islands.
In the early decades of our vagabonding, we’d be gone years at a time. We made trips back to the U.S. yearly to see family for a few months at a time, but then we’d get our backpacks and world maps out again and hit the road.
We utilized Geo-arbitrage long before there was a name for that hack and found it to be one of the best financial moves we have ever made.
We do still own a manufactured home in a resort in Arizona. But while on this topic, we’d like to say that living in an Active Adult Resort Community in the U.S. has been one of the most affordable and socially satisfying options for housing we have implemented.
That being said, we have many Readers and Friends who prefer to house sit all over the world and that is their gold standard of housing choice to keep costs down.
These are two examples of modifying the category of Housing to positively affect your budget.
JC: I believe you took Social Security early. How much do you think average would-be retirees will be depending on that source of income?
Billy & Akaisha: In our case we planned our retirement as if we would not receive Social Security. We structured our portfolio to produce our needed income on its own. Now that we receive it, between dividends and SS we do not need to touch our portfolio, thus letting it grow. Continue Reading…
Apart from the fact interest rates are now closer to 5% than zero, my wife and I are approaching the time when our RRSPs must be collapsed, converted to RRIFs, or fully or partly annuitized. That of course is required by the end of the year you turn 71.
One financial blogger and financial planner was ahead of the curve on rates and annuities. A year ago, on his Boomer & Echo blog, Robb Engen made the case for annuities just as interest rates were starting to rise. See Using annuities to create your own personal pension in Retirement. “Annuities fell out of favour (if they ever were in favour) when interest rates plummeted over the past 10-15 years,” he wrote, “But with interest rates on the rise, annuities are certainly worth another look.”
Engen’s case for annuities revolves around how they minimize longevity risk: the fear many retirees have that they’ll outlive their money. “An annuity provides a predictable income stream for life – much like how a defined benefit pension, CPP, and OAS pays benefits for as long as you live. Nothing protects you from longevity risk quite like having a guaranteed income that’s paid for life.”
Those who lack an employer-sponsored Defined Benefit pension plan and therefore have hefty RRSPs are particular candidates for annuitization. Yes, it’s true that most Canadians will have some inflation-indexed annuities in the form of the Canada Pension Plan (CPP) and Old Age Security (OAS) but some may feel comfortable transferring a bit of stock-market and interest-rate risk from their own shoulders to that of the insurance companies that offer annuities.
With respect to the interest rate rises of the past year and what it means for annuities, “I agree that the timing is ripe for those approaching retirement,” says Rona Birenbaum, founder of Toronto-based Caring for Clients, a financial planning firm that includes annuities in its recommendations.
Birenbaum – who is working to help our own family take a partial plunge to annuitization – suggested looking first to non-registered money that could be earmarked for an annuity, as it’s very tax efficient. Alterntively, “using RRSP assets makes sense providing the lack of liquidity doesn’t constrain future needs.”
Moshe Milevsky a fan of “slow partial” annuitization
Famed finance expert Moshe Milevsky, who has authored several books on retirement and annuities – notably Pensionize Your Nest Egg, coauthored with Alexandra Macqueen — told me in an email that “I will say that I have grown to become a fan of ‘slow partial’ as opposed to ‘rapid full’ annuitization, which helps smooth out the interest rate risk and is even more valuable from a behavioral psychological perspective.” Continue Reading…
Markets are hesitant, but large-cap tech has been resilient. Learn why large-cap technology with an income strategy can help investors now.
By James Learmonth, Senior Portfolio Manager, Harvest ETFs
(Sponsor Content)
After recovering from some of their 2022 shocks early this year, markets have been trepidatious through most of 2023. That recovery and volatility story, on paper, looks broad based. Between January and mid-May, the S&P 500 is up around 8-9%. The S&P 500 Information Technology index, however, is up over 25% in the same rough time period. That outperformance skews even higher when we isolate some of the largest names in the technology sector.
So while overall market performance this year has been steady, turning choppier since the US banking crisis began in March, large-cap tech leaders are doing what they tend to do: lead.
In a macro environment of market uncertainty, high inflation and tech outperformance, one strategy can give investors exposure to large-cap technology companies, while providing income and ballast against volatility.
Why Large-cap Tech has been a leader
To understand how a tech income strategy can help investors, it’s worthwhile to unpack what has made technology a leading sector so far in 2023.
Q1 earnings season for tech shed some light on the sector’s outperformance. Part of that performance is due to a more broadly positive market sentiment in 2023, compared to 2022, in addition to some recovery following the sector’s struggles last year. Notable, however, is the positive reception large-cap companies have received for their artificial intelligence (AI) strategies.
AI has been the hot new topic this year, and large-cap tech companies have been quick to capitalize on the rapid pace of innovation in this space. Whether they are innovating their own AI tech, or applying AI to new areas these companies are creating serious value for shareholders with this technology.
It’s worth emphasizing the dominance of large-caps in this moment, companies like Meta, Apple, and Microsoft. In recent history, major tech leaps have been associated with ‘disruption’ of traditional larger players. So far in the rise of AI we’ve seen the largest companies leading, demonstrating their value as innovators and appliers of innovation.
Why Volatility is persisting in the broader market
Despite all the positivity in large-cap technology, broad markets have been choppy this year. Most of their recovery took place in the first months of 2023, and since the onset of a US banking crisis in March market performance has been choppy up and down, aggregating out flat.
Macro forces are largely to blame. The banking crisis highlighted the ongoing impacts of rapid rate hikes by central bankers starting last year. Even as that hiking period seems to be ending, the consequences of those raised rates will be felt over the next several months. More recently, fears about the US debt ceiling have troubled markets while geopolitics continues to impact sentiment. Continue Reading…
The full report includes three other graphs focused on the gap between retirees and pre-retirees, each of which includes some important discoveries. For brevity, the main findings for each topic are summarized below:
Things That People Miss About Their Career
A surprisingly large 62% of retirees miss the Social Interaction from work, whereas only 29% of pre-retirees expect that to be an issue. With a 33% gap, this was one of the largest retirement blind spots discovered by the survey.
The other two big blind spots related to what you’ll miss from your career include missingMental Stimulation (38% retirees vs. 21% pre-retirees) and a Sense of Identity (31% vs. 22%)
FRITZ: I’ve written extensively on the many non-financial benefits we receive from work, and yet it’s something that most pre-retirees continue to underestimate. The most successful retirees discover ways to replace the non-financial benefits they once received from work, such as social interaction, mental stimulation, and a sense of identity highlighted by this study.
ERIC: I see this all the time among my clients who are still working. At this stage in their lives, they primarily associate their jobs with a paycheck and bonus. Their eyes are focused on the prize money at the finish line. They fail to see the psychological income that does not show up on their paystubs in the form of intellectual stimulation, purpose and meaning, and the most ignored component of all, social interaction. I can’t put a number on how much of your work paycheck comes from psychological income, but in my experience it’s a significant amount that until you retire you are probably seriously under-estimating. Most people assume that the primary challenge of retirement planning is financial when, for most people, the real challenge is replacing the psychological benefits from their work days with new activities that provide meaning and purpose as well as social interaction.
Challenges of The Retirement Transition
The highest response rate for transition challenges was finding the right Balance of Structure, with 39% of retirees citing that as a challenge. Fortunately, it appears that many pre-retirees also recognize this will be a challenge, with 45% citing it as a concern.
In other areas, pre-retirees are also more concerned with the challenges than appear to be warranted by the actual experience of retirees. In particular, pre-retirees responded with a higher % of concern than retirees for each of the following categories:
Anxiety Over Future (30% pre- vs. 23% post-retirement)
Meaning/Purpose (33% pre- vs. 23% post-retirement
Outdated Identity (27% pre- vs. 20% post-retirement
Mental Stimulation (30% pre- vs. 18% post-retirement
Finding Happiness (23% pre- vs. 18% post-retirement
The Retirement Transition Isn’t As Smooth As Expected
A concerning 52% of pre-retirees “mostly agree” that the retirement transition will be smooth, whereas only 32% of retirees feel the same. This 20% gap is a warning to all pre-retirees and is further strengthened by the 26% of retirees who responded “mostly or strongly disagree” (vs. only 5% of pre-retirees). The reality is that transitioning into retirement is more challenging than most folks expect. A good takeaway for pre-retirees is to expect some turbulence during the transition. Ignore this retirement blind spot at your own risk.
FRITZ: It’s interesting to study the above results. While retirees tend to have better scores than pre-retirees on specific challenges, a much higher percentage of retirees report some difficulty in the transition compared to the expectation of pre-retirees. In fact, only 51% of retirees Agree/Strongly Agree that the transition was smooth, compared to 70% of pre-retirees who expect it will go smoothly.
ERIC: I think that most people in the planning phase only think of the positives of life in retirement. They seriously underestimate how big of a transition retirement can be. In fact, other industry surveys show this disconnect between expectations and reality. The greatest source of disconnect usually happens after the “honeymoon” period wears out. That typically happens within the first two years of retirement. I call this the “messy middle”. Many people associate retirement with a new beginning without ever acknowledging the ending of our prior stage in life or recognizing that all transitions in life usually involve a period of introspection and uncertainty before finding the necessary clarity and direction to move forward. Only a few of us skip out on the “messy middle.” I think it’s best when we plan for some turbulence ahead so that when we are shaken out of our comfort zone we’re neither surprised nor paralyzed from making the required adjustments. I like to remind my clients that a plan is just a guide meant to be revised as new data comes in. Keep iterating forward!
V. Which Components Lead To A Good Life in Retirement?
The final section of the survey was, in hindsight, a bit of “Motherhood and Apple Pie.” What does it take to lead a good life? Ask anyone, and you’ll likely see similar responses to what was revealed in the survey. In the survey, you’ll see we asked both pre- and post-retirees to rank these components. Results were similar between both groups, so for this summary, we’ll simply rank the components identified by those already retired, in descending order:
Components Rated as Very Important
Healthy Living (77%)
Time Management (68%)
Financial Plan (53%)
Relationships (52%)
Purpose/Meaning (41%)
Self-Identity (27%)
VI. Conclusion
We thank the 1,734 of you who participated in this joint study and hope all of you have found the results to be useful. We trust the findings on retirement blind spots will be helpful for those who are planning their retirements in the coming years. To reiterate the key blind spots, below is the conclusion of the key points from the Full Study write-up:
Major Retirement Blind Spots
You’ll miss more than just the paycheck when you retire. You’ll miss the mental
stimulation and social interaction associated with work. Start now cultivating new social
connections and finding new sources of mental stimulation to replace the psychological
benefits of work.
It will take you longer to shed your work identity than you expect. This will be primarily a
challenge in your early days in retirement. Don’t hang on to an outdated image of who
you were in the past. Retirement gives you the freedom to re-invent yourself.
The transition from full-time work to life in retirement won’t go as smoothly as you expect. You’ll struggle initially to come up with a new sense of purpose and meaning. Be
patient, but not complacent. Only you can figure out what’s important to you!
Finding the right balance of structure in your schedule will be a greater challenge than
you currently likely anticipate. Making time for activities that bring joy and fulfillment is
important. A schedule is not a bad thing if it reflects your values and aspirations.
Once you retire, you’ll worry less about money issues and more about your health and
that of your loved ones. As you plan your retirement think beyond just money issues. Take
a holistic approach that incorporates all the important areas of your life. Emphasize
balance.
In closing, it’s reassuring to see that the life satisfaction scores were highest among people who have been retired for more than two years. The future is bright.
Learn from those who are ahead of you on the retirement journey.
Your retirement will be better as a result.
Your Turn: If you’ve already retired, what was your biggest surprise about the transition? If you’ve not yet retired, what’s your biggest takeaway from this study, and are there any modifications you’ll make in your planning as a result? Let’s chat…
Fritz Gilbert is the Founder of The Retirement Manifesto, a Plutus Award winning blog dedicated to helping people Achieve A Great Retirement. After 30+ years in Corporate America, most recently as a Commodity Trader, Fritz retired as planned in June 2018 at Age 55. He and his wife are looking forward to extended travel and “giving back” to their community through charitable work in retirement. This blog was published on his website on May 18, 2023 and is republished here with his permission.
For those who are planning on retiring in the next few years, retirement blind spots can be dangerous.
Wouldn’t it be helpful…
…If we could get a list of our potential retirement blind spots, based on feedback from actual retirees?
…If we could utilize the experience of actual retirees to help shine the light on shortfalls in our planning?
…If someone would tell us what we should really be thinking about as we plan for retirement?
Today, we’re doing exactly that.
We’ve got a special post for you today, a post that has required hours of work by Eric Weigel, my partner on a special survey we conducted with the readers of this blog, among others. It’s the most comprehensive survey ever conducted by this blog, and you will be interested in the groundbreaking results.
After all, you are the subject!
If you’ve already retired, you told us about your actual experience.
If you’re planning on retiring, you’ve told us your expectations.
By comparing the responses of the two groups, we’ve compiled a list of potential blind spots that anyone planning for retirement should be aware of.
It’s time to put on your sunglasses.
Below, we’re shining the light on the retirement blind spots we discovered by analyzing your responses. This is one of the longest posts I’ve ever written, but the content is invaluable. If you don’t have time to read the entire post, skim through the charts and read the conclusion for the 5 most important retirement blind spots you helped to reveal.
On March 1, 2023 you received an e-mail from me with a link to a survey, which was titled “Retirement Attitudes & Perspectives.” In total, 1,734 people took the survey. Most were from this blog, but we also reached out on various channels focused on retirement planning, including Eric Weigel’s page (Retire With Possibilities), The Modern Elder Academy, The Retirement Coaches Association, and personal social media pages.
Eric Weigel, author of Reimaging Retirement, developed the survey and compiled the results (a special note of thanks for the hours he’s invested in this project). He has completed an impressive Final Report with all of the survey detail, which I encourage you to read. The title page is presented below, which is linked to the full report.
Click on the image to read the full report
The primary goal of the research was to compare retirement attitudes & perspectives between those on the cusp of retirement to those who have already retired. How do attitudes change pre- vs. post-retirement, and what can we learn to shed light on potential retirement blind spots for those who are approaching retirement?
To start, the following chart summarizes the demographics of respondents:
We were pleased that over 90% of the respondents fell in the “retirement sweet spot” (Ages 51+). We also had a perfect blend of pre- vs. post-retirees, with 54% classifying themselves as retired, 45% planning to retire (half of whom expect to retire within 2 years), and 1% who had no plans of retiring. 70% of the responders were male, and 86% of the respondents were married.
Below are the summarized results of the survey, which will be presented as follows:
Table Of Contents
Combined Results (Both Pre- And Post-Retirees)
“Retired Only” Responses
Discovering Blind Spots – Part I
Discovering Blind Spots – Part II
Which Components Lead To A Good Life In Retirement?
Conclusion – The Top 5 Retirement Blind Spots
I. Combined Results (Both Pre- and Post-Retirees)
In this section, we’ll present highlights from the entire population. In the next section, we’ll compare pre- vs. post-retiree responses, followed by a deep dive into the retirement blind spots revealed by comparing responses between the two groups. In each of the sections, Eric and I will provide our commentary.
Ability to Manage Finances
To start, it’s important to note that our sample population was a select subset of the population at large, drawing as it did upon readers of this blog. Our sample population is a more knowledgeable group, as demonstrated by the following chart that self-rates your “ability to manage finances.”
Question: How would you rate yourself in terms of your ability to manage your finances?
For all graphs, an “A” is the highest score, and an “E” is the lowest.
FRITZ: I like the fact that our sample was drawn from a more select group of the population. It allows you to compare yourself to a group that is more representative of your peers. That said, Eric and I have discussed the possibility of conducting this survey with a more representative group of the entire population, which would yield some interesting results when compared to this population of retirement blog readers. If we are able to execute that approach, we’ll provide the results in a post dedicated to those results, stay tuned.
ERIC: I agree with you, Fritz. Our survey respondents seem to be well prepared for life in retirement. Even respondents still working and planning their retirement seem to have taken responsibility for their own well-being. While the transition from full-time work to retirement is for most people a very significant life event with its own set of challenges, our respondents seem to be ready for the challenge and well-positioned to iron out any issues that might creep up.
Strong Scores On Lifestyle & Mindset Attributes
Perhaps this is another potential impact of our sample bias, as we had a high percentage of the survey participants scoring well on the lifestyle and mindset attributes that contribute to a good retirement.
In addition to the desire to learn new things (chart shown below), our respondents also rated high in many of the areas that contribute to a good retirement, summarized below for brevity (read the Final Report for details). Responses are sorted in descending order based on % of “A” responses:
Emotional Intelligence (A – 48%, B – 44%)
Life Satisfaction (A – 41%, B – 46%)
Desire to work on meaningful goals (A – 41%, B – 40%)
Healthy Lifestyle (A – 37%, B – 43%)
Quality of Relationships (A – 31%, B – 44%)
Suitability of Home & Environment (A – 31%, B – 44%)
Discipline in Allocating Time (A – 27%, B – 47%)
Positive Habits (A – 25%, B – 49%)
Having A Plan For Retirement (A – 20%, B – 47%)
Transferability of Vocational Skills (A – 20%, B – 35%)
FRITZ: There are various personality traits that foster a good retirement, and I’m pleased to see the high scores from the participants. All of us have to learn how to live our new lives in retirement, and embracing a desire to learn serves people well as they make the transition. The strong scores on the other attributes are good indicators that our respondents are (and will be) leading good lives in retirement. Each of the attributes included in the bullet list above are worth serious consideration as you finalize your plans for retirement.
ERIC: I was pleasantly surprised to see high scores across all question categories. I think that when it comes to leading a happy and fulfilling life in retirement we already know what we have to do. Of course, we all define success in our own unique ways, but the trick always seems to involve taking some sort of action that moves us closer to our goals. In a sense what makes for a successful life in retirement is not a great mystery, but fulfilling our own vision requires a commitment to using our time, energy, and money in a way that creates true happiness and fulfillment.
II. “Retired-Only” Responses
This section of the survey was designed to determine the retirement attitudes determined to be important by folks who have already retired. In essence, it’s establishing the baseline used later in the study to compare what pre-retirees think will be important vs. what post-retirees think is important in retirement. The larger the gap between the two populations, the higher the odds that the issue is a retirement blind spot.
How Well did you Prepare for Retirement?
Many of the questions in this section focused on preparation for retirement, with a focus on both the financial and non-financial aspects of planning. In general, survey respondents did a good job in preparing. We’ll touch on the financial preparation first, then provide a summary of the non-financial responses. Continue Reading…
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