No doubt about it: at some point we’re neither semi-retired, findependent or fully retired. We’re out there in a retirement community or retirement home, and maybe for a few years near the end of this incarnation, some time to reflect on it all in a nursing home. Our Longevity & Aging category features our own unique blog posts, as well as blog feeds from Mark Venning’s ChangeRangers.com and other experts.
While most business executives are and should be approaching Financial Independence, there is a little-known threat to their financial well-being: addiction/substance abuse.
In fact, according to the SAMHSA [Substance Abuse and Mental Health Services Administration], around 11.4% of management employees (example business executives and managers) are diagnosed with a Substance Use Disorder every year.
If the addiction is not managed in a timely fashion, abrupt dismissal could torpedo any long-term goals for financial freedom.
As an aspiring business executive or someone who is serious about their financial education, it’s good to be aware of addiction and its possible ramifications.
So in this post, we look at why business execs should take addictions seriously. We also discuss different treatment options available for business executives to overcome SUD.
Help is Available
Anyone can suffer from drug addiction, including those in white-collar, executive positions who juggle a lot of responsibilities. In fact, it could be more difficult for them as they may be tempted to avoid/delay treatment so their career or work doesn’t suffer due to the required time off.
That’s where executive addiction-related treatment centers come in. These treatment centers are equipped with high-end tools, services, and necessary amenities so that patients can maintain active personal and professional lives while also achieving sobriety.
Often the main highlight of these programs is the luxury setting and amenities given to the professionals and a distraction-free comfortable environment.
Addiction Treatments available for Business Executives
Medical Detox
Often the first phase of most recovery programs; medical detox aims at the cessation of drug usage. In the absence of medical aid, the patient may experience myriad unpleasant withdrawal symptoms.
Executive treatment facilities, such as detox centers in California, deploy safe and medical procedures to make the detox process as comfortable and less painful as possible.
Psychotherapy
Often the therapeutic phase of the program begins right after the detox is successfully over. Inpatient rehab centers in Los Angeles for example, use it in individual and group settings. Psychotherapy mainly aims to recognize the psychological reasons that are causing or triggering the drug usage.
After that, it teaches several relapse prevention mechanisms and coping techniques to deal with tough situations without resorting to drugs. Continue Reading…
On Friday, the Hub republished the first part of a two-part Question-and-Answer session between finance professor and author Dr. Moshe Milevsky and Gordon Wiebe of The Capital Partner [TCP]. This is the second and final instalment:
TCP: I wanted to turn to your Book, Longevity Insurance for a Biological Age. Your thesis is that we should be looking at our biological age and using that to calculate and project our income and how much we should be drawing from our savings.
M.M. And, more importantly than that, making decisions in our personal finances, right?
You know, somebody is trying to figure out at what age they should take C.P.P. Should I take it at 60? 65? 70?I don’t think they should use their chronological age to do that.
Trying to figure out when to retire? Stop using your chronological age.
I mean there’s a whole host of decisions that you have to make based on age and I’m saying we’re using the wrong age metric. It should be based on your biological age.
Now, at this point, biological age sounds like this funny number that comes out of some website, but sooner or later we’ll all have it. And, it’s going to be faster than you think. Your watch will tell you your biological age. And, then in a couple of years, people will stop associating themselves with their chronological age.
They will just stop using it.
And you’re going to sit down with your antiquated compliance driven forms that say, “I need to know my client’s age. Oh, you’re 62.”
And, the client says, “Ha, ha. That’s chronological age. We don’t use that anymore, buddy. I use biological age. Sixty-two, that’s not my age.”
It’s about preparing people for the world in which age is not the number of times we circle the sun.
TCP: What metrics do you think we’ll lean towards to measure biological age? Telemeres? Others?
M.M. There’s a whole bunch of bio-markers that can be used. Some people use telomeres or something called “DNA methylation” or epigenetic clocks. There are about fifty of them, but eventually they’ll all coalesce into a number called “biological age.”
There will be a consensus on how to measure it and you’ll go to your doctor and your doctor will say, “your chronological age is 50, but your biological age is 62.” You’re doing something wrong.
Then a financial advisor will use that information differently when you build a retirement plan.
TCP: That makes sense, but trying to achieve a consensus and getting everyone to use the same metrics from a compliance standpoint or trying to get pension plans and policy makers to agree would be a challenge, wouldn’t it?
MM: It would be. In fact, that’s exactly where I’m headed now. I’m giving a speech in Madrid and that’s exactly what regulators from a number of different countries want me to talk about.
They want to know, “is this feasible? We want to implement this in our pension system. We don’t want wealthy people retiring at the age of 65, they’re going to live forever and bankrupt our system. We want people to retire at a biological age.”
TCP: Let’s talk about that a little more. Advisors typically use a 4% draw on savings as a benchmark withdrawal rate. But, if we use our biological age, there would then be a range. I assume somewhere between 3-6%?
Adjusting the 4% Rule
M.M. You’re absolutely right. That’s where I would go with this. You have to use your biological age and the 4% rule has to be adjusted.
But, what I’m saying is more than that. That rule has to change. It’s not just about the number or percentage. It’s how the rule is applied.
I really don’t like the idea of fixing a spending rate today and sticking to it for the rest of your life no matter what happens. Your spending rate has to be adaptable.
What you have to tell people is, “look, this year we can pull out 6.2%. Next year, it really depends on how markets behave. If markets go down, we may have to cut back. If markets go up, we can give you a bit more.”
I think the 4 per cent rule is really what I call a one-dimensional rule. It’s not that four is one dimensional. Any one number is one dimensional: just telling them a per cent.
It’s got to be at least two dimensional. Meaning, this is what it is now, but next year if this is what happens we’ll do that. ..
Three dimensional is to go beyond that is to go beyond that and say let’s take a look at what other income and assets you have.
“Oh! You’ve got a lot more income from guaranteed sources, you can afford more than four per cent, this year.”
TCP: It’s a dynamic scenario, a moving target.
M.M. That’s the key word, dynamic versus static.
The threat of rising Interest Rates
TCP: Canadian investors currently have over two trillion invested in mutual funds. Over half is invested in balanced funds or fixed income and we’re in a horrible position where fixed income is concerned. We’ve had declining rates for the past forty years. At best, bonds will stay flat. At worst, bonds could lose up to thirty per cent of their value.
You talk about the importance of the sequence of returns and how that affects income potential. Have you or your students run scenarios with higher interest rates and the impact it could possibly have?
M.M. I haven’t thought about it beyond what you’re noting. The obvious scenario is as interest rates move up, these things are going to take a big hit.
And, retirees who feel they’ve been playing it safe by putting funds in bonds will suddenly realize there’s nothing safe about bonds in a rising interest rate environment.
I think they’re confusing liquidity and safety with interest rate risk. It’s liquid and its safe. Government is not going to default but boy, can it lose its value.
We’ve become accustomed to this declining pattern. Anybody who is younger than forty doesn’t even understand what higher interest rates means. It’s never happened in their lifetime. They don’t believe it. Understand it. Never felt it. You show them graphs going back to the 1970s. That’s not how to convince them. They’re empiricists. They’ve never lived it themselves, they don’t believe you. Continue Reading…
Professor Moshe Milevsky wants us to re-think the metrics we use for retirement calculations. Instead of basing retirement income amounts on our age i.e., the number of orbits around the sun, Dr. Milevsky suggests we consider using our biological age. What is your biological age?
Advances in science suggest our biological age is based on our actual physical shape or our personal physiology. Rock stars like Sting, Phil Collins and Ace Frehley were born in 1951. Their legal age is 70, but their actual condition may be substantially different from Mark Hamill (Luke Skywalker) or Dr. Jill Biden (U.S. First Lady) who also turned 70 in 2021.
The cumulative effects of genes, lifetime dietary habits, exercise, social conditions and stress levels for instance, could lengthen or decrease life expectancy and therefore provide a better indication of future retirement income needs. Recent scientific advances are helping make this information more available to seniors, advisors, researchers and policy advisors.
Background
TCP: From where does your passion for mathematics originate?
M.M. I guess it comes from my life as an undergrad. I was taking various courses including one on English literature and essay writing. I handed in an essay and received a bad grade. The professor said, “You really can’t write to save your life, you might want go into math.”
I did and I got an undergraduate degree in mathematical physics. Then, I went to graduate school and studied math and statistics, but I was really interested in gravitational physics. That was my thing, like how a golf ball moves after a drive, the arc that it makes, etc.
My thesis supervisor said, “Moshe, you’ll never find a job with that kind of specialty. You might want to go to business school.” So, I moved into business and finance and it’s where I’ve been for the past 25 years.
TCP: You also have a passion for financial history. Is there a period in history that strikes you as particularly innovative or ingenious?
M.M. There is. I’m interested in the 17th century, specifically 17th century Europe and the evolution of financial products, instruments, and economics.
Anything from the crowning of James II in 1685 until the ascension of George II in the mid-18th century.
TCP: I’m not that familiar with that era. Does it line up with the advances in math, probability, and statistics?
M.M. It does. There was this interesting alignment of people interested in mathematics and statistics and they developed the basics of probability theory, economics, and finance. It was an alignment of interests that led to many of the instruments we use today.
You know, nobody would say that 1690 was the origin of the i-Pad or the i-Phone or the laptop. But, many of the financial instruments we use, whether it’s pensions, annuities, stocks, bonds, mutual funds, they all kind of originated in the late 17th century. You can almost trace back a direct line. I’m fascinated by that. It interests me and I’ve spent a lot of time looking at history from that period.
TCP: Among other things, the pandemic has shown how segments of the population struggle with basic math principles. Are you surprised by the lack of financial literacy?
M.M. It is a problem the pandemic has brought home. I think it’s a problem that finance has brought home. A lot of people are incapable of mathematical reasoning and that’s not healthy in today’s very quantitative, data driven environment.
Thousands of years ago, you had to make sure to out run the dinosaurs and get home in time for dinner. What did your brain have to do? Nobody was asking you to solve calculus problems.
Now, we have to evolve to deal with these very quantitative issues and make decisions and I think the pandemic has brought that home very starkly. There’s some completely irrational decision making because of a misinterpretation of probabilities and the odds. Just look at Toronto.
There are 300 infections, and everybody is walking around like it’s Ebola and every other person has it. In some sense, you have to step back and say, “Wait a minute. What are the probabilities? Do you understand all of the things you’re sacrificing?” It’s all probabilities. Those things all come down to mathematical reasoning.
I do think the educational system should focus more on some of these statistical, data driven issues. I think financial literacy is an absolute must.
My bread and butter is teaching undergraduate students at the university. Undergraduate Personal Finance. That’s a course I’ve been teaching now for almost twenty years.
It’s basic personal finance. You know. What’s a tax return? What’s an insurance policy? How does a mortgage work? What’s an RRSP?
Why do I have to teach this to 22-year-olds? Why don’t they know this from high school? Why isn’t this covered before I see them? And, why are only the ones that I teach in Business School getting this? What about the rest of the students who are studying something else? Why is this not considered a national emergency? People are wandering into the world without the requisite tools.
TCP: Carrying credit card balances in perpetuity, putting 5% down on million-dollar homes …
M.M. Let alone, just verify that what they’re paying is correct, right? Nobody’s able to do that because it’s all coming from calculations that are being done by algorithms that nobody wants to or even knows how to verify. So, there are a number of things that worry me.
The Mathematics of Retirement Income
TCP: I haven’t had a chance to watch the movie “The Baby Boomer Dilemma,” yet. I’ve just seen the trailer.
M.M. Yes, that’s an interesting one. I’m not sure how I got dragged into that, but I now have an IMDb movie rating. I am now officially a Hollywood actor (chuckling). Go figure.
TCP: On the trailer you say, “what’s been happening over the last few years is our accounts have been growing. It looks like we are getting wealthier. But, the income that we can get from that sum of money is shrinking.” What did you mean by that? Continue Reading…
A new report published by the National Institute on Ageing (NIA) and the Global Risk Institute (GRI) being published today aims to help overcome the $1.5-trillion Decumulation Disconnect in the Canadian Retirement Income System.
Titled Affordable Lifetime Pension Income for a Better Tomorrow, the report makes the case for how Dynamic Pension (DP) pools can strengthen retirement income security for millions of Canadian seniors. Here is the link to the full report.
The urgency is apparent when you consider that 10 million Canadian baby boomers are now entering retirement: with longer life expectancies and a greater dependency on private savings to sustain them. As the report’s authors write, “it’s more important than ever to find solutions that will help retiring Canadians turn their accumulated savings into low-cost lifetime pension income.”
Bonnie Jeanne MacDonald/Ryerson/National Institute on Aging
Lead author Dr. Bonnie-Jeanne MacDonald, Director of Financial Security Research at the NIA, says fears that retiring Canadians’ savings won’t sustain them in retirement are “legitimate … Financial markets, inflation and health expenses are just some of the big unknowns that retirees will need to face over 10, 20, 30 or even 40 years.”
According to the report, Dynamic Pension [DP henceforth] pools have the potential to transform the Canadian retirement landscape. Their goal is simple: to help people optimize their expected lifetime retirement income while ensuring they never run out of money. In other words, gurantee that they won’t run out of money before they run out of life.
Pooling Longevity Risk
While protecting individuals from outliving their savings (i.e., longevity risk) can be prohibitively expensive, the same protection becomes affordable when spread across a large group. Pooling longevity risk allows retirees to spend their savings more confidently while they are alive, says the report.
In a DP pool, pension amounts are not guaranteed but may fluctuate from year to year. This means retirees can stay invested in capital markets and benefit from the higher expected returns.
DP pools have a risk-reward profile that is fundamentally different from current options and products available for older Canadians: such as guaranteed annuities purchased through insurance companies or individually managing and drawing down savings from personal retirement savings accounts, says another of the report’s authors, Barbara Sanders, Associate Professor at Simon Fraser University, “Retirees who are comfortable with some investment risk can stay invested in equity markets and reap the associated rewards, which is important in today’s low-interest and high-inflation environment.” Continue Reading…
Late in October, bestselling author and pyschologist Mihaly Csikszentmihalyi passed away in California at age 87. You can read the obituary in the Washington Post here.
Czikszentmihalyi — pronounced “chick-SENT-me-high” — was a university professor who built a mini empire around the nebulous concept of Flow. See this Wikipedia entry for more on his life and work.
As noted in the earlier reviews, I’m intrigued by the concept of Flow as it applies to Encore Careers and life after corporate employment. As many blogs in the Hub’s Victory Lap section have pointed out, aging baby boomers still have a potentially long and creative period ahead of them that lies between the traditional career and what used to be called Retirement.
So it seems to me that if late-bloomer Boomerpreneurs are going to make a success of this new stage of life, they’d better tap into the concept of Flow. It’s all tied in with passion and mastery, which is why I went to the well one last time with Czikszentmihalyi.
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