From good health to a thriving social network, Peter Mallouk and Jonathan Clements discuss several key ingredients for a good retirement. Plus, learn two things you should do with your bucket list right now.
Hosted by Creative Planning Director of Financial Education, Jonathan Clements, and President, Peter Mallouk, this podcast takes a closer look into topics that affect investors. Included are in-depth discussions on financial planning issues, the economy and the markets. Plus, you won’t want to miss each of their monthly tips!
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Jonathan Clements: This is Jonathan Clements, Director of Financial Education for Creative Planning. With me is Peter Mallouk, President of the firm, and we are Down the Middle. Today’s topic, what are the necessary ingredients for good retirement? Obviously, money is crucially important. What are the other key ingredients that we need? Peter, I’d probably put good health at the top of the list. Do you agree?
Peter Mallouk: A hundred percent. Every day I do retirement projections with clients, and they pick an age where they want to stop working or be able to stop working if they feel like it and they want to do certain things. And the projection might say, “Okay, I’m doing this when I’m 62 and I’m going to live ‘til a hundred.” And some of these folks are married or have a significant other and they go, “Okay, I’ve got this timeline to do these things.” And the reality is we usually don’t have that timeline to do those things. We don’t really have from 62 to 100. And it’s not just statistically that any given person might not be able to get somewhere, but if you’re doing something with somebody else, a friend, a significant other, a spouse, and you say, “Okay, I’m going to retire in my 60s and maybe I’ve got ‘til 85 to go do all of these things.” The reality is both of you need to be able to do those things.
So the second that one person has something that impedes them from being able to travel or do certain kinds of experiences that you wanted to do, it really will impact both of your enjoyment, both of your happiness in retirement. And so the primary thing that allows people to enjoy retirement is health. It’s the ability to have your mental and physical well-being and be able to enjoy all of the wealth that you’ve created. And you’ve got this health generally all the way up until retirement and it gets more tenuous for all of us every year that goes by. And so the biggest investment anybody can make is in their health. A lot of people think that they value money over time, but if you told somebody, “Hey, look, you could have Warren Buffett’s wealth, but you’re going to be Warren Buffett’s age, would you take it?” Nobody listening to this would take it. Nobody in their right mind would take it. You’d be much better off to have 10 more years than Warren Buffett has than to have his wealth. So time is the greatest asset, and health is what really drives our time availability.
Jonathan: That’s so true. Time, in the end, is the ultimate limited resource. So coming back to money, Peter, even if you’ve amassed a reasonable amount of money, a good retirement requires a willingness to spend that money — that can be tougher than it sounds. Peter, I suspect you’ve seen a reluctance to spend among some of your retired clients. What do you say to these folks?
Peter: This is a recurring theme, and we try to have all the wealth managers talk to our clients about this, which is money is simply there to serve a purpose. And you have things that you care about, you have dreams, you have values. You might want to help your kids. You might want to help charities. You might want to go on vacations, and you might just want to sit at home and watch football, but you want to know that you’re financially independent and you can do anything whenever you want. Money is a means to an end. But a lot of people that are successful, that top 10% of the population that’s put away a couple million bucks, they got there by putting off satisfaction and pushing all this into the future.
So it’s very hard after a lifetime of this incredible discipline to just suddenly flip a switch and go, “I’m putting money in, I’m putting money in, I’m putting money in. Okay, wait, today I’m going to take money out.” It’s just psychologically traumatizing to some people. But like I love to tell our clients, your kids are not going to suffer from that same stress and trauma. They’re going to have no problem taking the money out, so you’ve got to find a way to remember why you put the money away in the first time. And we’ve talked in the past about how certain experiences expire. They come with a timestamp. You’ve got to do them in a certain amount of time or you’ve lost the ability to do them. There are things they just physically can’t do at certain ages or it won’t be the same at certain ages. And so you want to really take that money, put it to use for you and quit the deferred gratification at some point. Once you’re financially independent, that was the whole point: to really be able to make the money work for you.
Jonathan: And sort of touching on what you said, Peter, in your earlier comments about health, a lot of people talk about travel as a retirement goal, but that tends to be a relatively time-limited thing. At some point in your 70s, maybe as late as age 80, your desire to get on the plane and fly across the Atlantic or fly across the Pacific is going to start vanishing. You’re just simply not going to want to put yourself through it. So if you want to see Europe, if you want to see the Far East, you really should be doing it in your 60s and your early 70s, and that means you’ve got to be willing to open up your wallet. Another key thing we need for a good retirement is a new identity. Even if you don’t like your job, it gives you an identity. I’m an engineer, I’m a teacher, I’m a banker, and you lose that identity when you retire. So Peter, how do you go about replacing that? Or don’t you need to?
Peter: It’s interesting because that’s a very American phenomenon that our identity is tied to our profession. It’s very unique to the United States, and we really do get wrapped up in our professions here. It’s very common at a party, it’s the first question somebody asks you, “What do you do?” That’s a very identifying American characteristic and phenomenon. And I think that we do really tie our identity to our purpose. And so a lot of us, our purpose is our work, especially if you’re in a job that’s very gratifying. It’s very hard, for example, for doctors to retire where all day long you’re helping people and you’re putting them in a better position and they’re thanking you all day long and then you’re going to step away from that. That’s very, very difficult. And usually when you’re approaching retirement, you’re at the top of your game, right? You’ve worked your way up the ladder, you don’t have to work as hard, it’s as enjoyable as it could ever be, and then all of the sudden, boom, you’re gone.
Also, on top of that, our friends are in the workplace. So you have the social network, and to me, ties to both your question now about happiness in retirement and also to health. It’s fascinating. There’s a study out of Harvard that says the number one indicator of health in retirement, and I got to say it’s unbelievable to me, but it shows up time and time again, it’s not diet, it’s not genetics, it’s social connection. Do you have people that you can comfortably talk to that you enjoy your time with on a daily basis? One of the many reasons, probably, that women live longer than men is they have seven friends on average, men have one friend on average, and I’m not convinced most men have one friend on average.
So I think those social connections, a lot of our friendships are really not deep friendships, they’re proximity friendships. It’s kind of like when your kids are in grade school and you’re hanging out with 20 people and your kids go to high school and all of a sudden you’re not hanging out with those 20 people. It was more about proximity. But when you leave work, the difference in this journey is your kids go from grade school to high school and high school to college, and you’ve got your work. But when you leave work, that friendship group is not naturally replaced. You have to make an effort. You’re not moving into another work environment where you’re going to make those new friends.
What I’ve found with my clients, and this is anecdotal, is they tend to be happier if they have a sense of purpose to replace the work. There’s something else that they feel great about. Now, some people, they love golf, that’s what they want to do. Some people are in runs and walks and things like that. Some people are very charitably motivated or they have a part-time gig that’s more aligned with their passion. So that purpose part is a very big, big piece of enjoying retirement, and then the social connections is a very big piece of enjoying retirement. The people that I see that retire and they come in for their next review and they’re not feeling good, they tend not to have that social network or that purpose to replace what they were getting in the workplace.
Jonathan: So in terms of social network, a lot of people make it even more difficult for themselves because upon retirement they move, they either go to a warmer climate or they go to a state with a lower cost of living. Peter, do you have any tips on how to handle that transition so that you don’t end up in a place where you’re unhappy?
Peter: I always tell people to find your place and maybe don’t wait to retire to go figure it all out, start going ahead of time. Start to see your future state, what it’s going to be like and ease it into your life. I think the reason there were so many people that didn’t go back to work after COVID was because they were debating a retirement, and then COVID forced that transition. They suddenly weren’t going into the workplace. They were having to make other connections, whether it was via Zoom or whatever, reconnect with family and friends and find a segue out of work. It presented a natural way out of the workplace, “Oh, I’m going to work every day, now I’m working on Zoom. Now I’m retiring.”
Most of us don’t have that luxury, but if you know where you’re going to move or you know where you’re going to visit a lot, start before your retirement. I’ve seen people have to make multiple changes after retirement, and you really would like to leave the workforce and already have a foot in the door where you’re going to go. Have you had any experiences with this, Jonathan?
Jonathan: Yeah. I think it’s really important to test drive your retirement in a variety of different ways. So yes, if you’re going to have a sense of purpose in retirement, there’s some activity that you are going to say, “Not only am I retired, but I’m also volunteering for X organization,” or, “I have this hobby where I do X.” You better make sure that you like it, so you should be doing it before you reach retirement age. If it’s just wishful thinking, “Yeah, one day I’m going to write a novel.” I have to tell you, Peter, if somebody really wants to write a novel, it’s really a burning desire inside of them, they would’ve already written it. So if there’s something you really think you want to do in retirement, you should be trying it out, and the desire should be so great that you’d be happy to try it out.
The same thing with moving to a new place. If you think you want to move to Florida or Arizona or wherever it is, you should be spending substantial amounts of time down there so you make sure it’s really what you want before you buy the condo and you start spending hundreds of thousands of dollars and you uproot yourself from your current life. We all have this chance to test drive our retirement, and people should definitely do that. Anyway, Peter, I know you don’t like these podcasts to run too long, so it’s time for your financial wellness tip of the month. What do you got for me?
Peter: My tip of the day is we’ve all heard about bucket lists, but very few people actually write down the things that they want to do, I would start with that. But the piece that I would add is an end date, like, I want to have a family reunion in Colorado by this date. Put those dates on all the things you want to do, force yourself to make them happen in the timeline where they make the most sense for most people to enjoy them. I think that if you can tie your bucket list to those dates, you’re more likely to hold yourself accountable to it.
Jonathan: All right. Peter, my tip of the month is to sit down and calculate your fixed monthly living costs. I’m talking about things like mortgage or rent, food, utilities, insurance premiums, and so on. Ideally, your fixed living costs should be 50% or less of your gross income. So not only do you have plenty of money left over for savings, but also you have plenty left over for discretionary spending, which is the fun stuff in life.
On top of that, there’s another key reason to calculate your fixed monthly living costs: it should be a key factor in determining how much emergency money you have, because this is the money you’re going to have to spend if you find yourself out of work. You want to know what that fixed monthly nut is. So Peter, that’s it for this month. This is Jonathan Clements, Director of Financial Education for Creative Planning. I’ve been talking to Peter Mallouk, President of the firm, and we are Down the Middle.
Disclosure: This show is designed to be informational in nature and does not constitute investment advice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on this show, will be profitable or equal any historical performance levels.