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Unlocking the Secrets of Retirement

Published on April 30, 2024

Peter Mallouk
President & CEO
Jonathan Clements Headshot

Jonathan Clements
Director of Financial Education

Pave a clear path to a happy retirement by considering often overlooked elements of retirement planning on this episode of Down the Middle with Peter Mallouk and Jonathan Clements. Plus, learn about mortgage recasting and when it may be beneficial for you to consider it.

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 we’re talking about almost everybody’s favorite financial topic, retirement. Specifically, what does it take to have a happy retirement? To state the obvious, you need to have enough money. But Peter, among the folks you’ve dealt with over the years, do you sense the richer retirees are happier than those who are merely financially comfortable, or is money not the big deciding factor when it comes to happiness in retirement?

Peter Mallouk: So people are all over the place, as you can imagine. Turns out people are different, but I will say unequivocally, the majority of people that are the happiest, they have something they’re really passionate about that was outside of their work or they have a purpose, something that they feel really great about getting up in the morning and putting their energy towards. I’ve found that those two categories are really what make for the happiest retirees.

So one group, I call them the golfers or the walkers or the pickleball players or whatever it is, there’s people that really, really enjoy those things. Not as like a couple of hours a week or one day a week, but truly can do it multiple times a day, they get a lot of fun out of it, their endorphins, all the things. This is a very, very happy group of people. They were going to work so they could get off work and go do those things. Now they can do those things all the time, and I see a pretty significant subset of clients that fall in that group.

I’d say the second group are people that have purpose. So with work comes purpose. For many people, they feel like they’re making a difference. And I think one of the great ironies of work is when you’re young and you’re not having a great time at work because you report to somebody who reports to somebody who reports to somebody and you’re doing the lowest level work and you’re working all of these hours and you’re exhausted because you’ve got these kids at home, you need more sleep and you’re spending all this time at work and you have to travel and so on. But when you’re older, you are in charge of everything. So you tend to be leading a group or you have found what you really enjoy doing and you’re doing more of what you want to do, where you want to do it. And so you’re more in command of your day, you’re doing something that makes you happy, that’s rewarding, that’s purposeful. And guess what? It’s time for retirement.

So right when you’re in charge of everything, when you’re at the top of your game and you’ve got all the time in the world, the kids are out of the house. Now it’s time to retire. Those folks when they retire, if they don’t have a purpose, something else that they get excited about. That is by far the most unhappy group of people I see in retirement. They struggle with it. Many of them go back to work or they buy businesses or they’re just generally struggling with a sense of identity. I know you’ve written extensively about this Jonathan. I’m curious your take.

Jonathan: So I think for a lot of retirees, there’s a cycle. When they initially leave the workforce, there’s this vacation sense. Suddenly they’re free and they do all these things that they’ve been longing to do. They sleep in, they go on expensive vacations, they really revel in the freedom that they suddenly have upon leaving the workforce. And then reality sets in because you can’t be on vacation 52 weeks a year. And so after that initial holiday sense when you quit the workforce, there’s a letdown and people struggle at that point and this struggle might last a couple of years while they try to figure out what it is that they’re going to do. Because remember, retirement isn’t just a couple of years and then you croak. These days, retirement is three decades and you can’t have unrelenting fun for three decades. There is not enough Netflix to binge to get you through that period.

So then that’s when folks start casting around saying, “Well, what am I going to do with this time? What is going to be my sense of purpose?” And there will be this period of trial and error while people try to figure out what it is that’s going to make them happy for the rest of their retirement. And of course there is no single thing that’s going to get them through that period. Just as through the first 30 years of your adult life, your interest shifted over time and what you did shifted over time, similarly in retirement, it’s going to change. What will make you happy during your initial retirement years, what will make you happy in your later retirement years is going to be different.

So Peter, another question for you. One of the things that shows up in the literature a lot is that people who have predictable income, they’ve got a pension, they have delayed social security so they have a larger monthly income, tend to be happier, that people are more likely to be content with their retirement if they have a lot of regular income. Is that your experience or does it vary from one group of retirees to another?

Peter: So I’m going to answer this and I’m going to throw in more on the first question as well. I am sure that people who have income coming in are happier and maybe the word’s not happier. They feel more secure, so they’re more content. So you could have somebody who’s got an incredibly big portfolio that can more than meet all their needs. They tend to feel a little more tentative about that than somebody who’s got a property that’s paying them a check every month or a defined benefit plan from working at the postal service. Even though the portfolio is very reliable in terms of producing the income you need, there’s no question that this just automatic check dropping in your account every month where you don’t see something fluctuating day to day is psychologically better. So I’m not sure I’d use the word happier, but I would definitely use the word more at peace. Now I think the more educated people become the less of a difference you see between those two things.

One thing I want to add, Jonathan to our earlier conversation, and I think you and I have touched on it in the past, but I think it doesn’t show up in the studies of a happy retirement, but it does show up at the top of the list almost always, and if it’s not number one, it’s always two or three. I’ve never seen it below that, in the research of what brings people happiness, it’s friendship. And it’s having these people that you’re around that care about you and you care about them and you know they’re there for you. It’s your ride or die group and they’ve got your back no matter what, or at least people that you’re talking to every day that you care about. I remember when our kids left grade school, we still have some friends from that, but 90% of the people we don’t hang out with anymore. And in high school we still have some friends from our high school kids and then many of them we don’t hang out with anymore.

And I remember seeing somebody at a party this past Friday and they said, we were watching this local band play of people in our church and the person goes, “Well, I just haven’t seen all these people since my kids graduated grade school.” And it reminded me of something happening with a soccer team. And somebody said, “Well, I haven’t seen all my friends since my kid quit playing soccer.” Well, the reason is they weren’t your friends. They felt like friends, you were around them, there was a socialization that was happening. But the second your kid’s not playing soccer, you’re not hanging out with that group anymore. And it’s that way with work for sure. We know the number one reason people quit a job is they don’t like their boss, the person they directly report to. The number two reason is they don’t have friends at work.

So the odds are if you’re working and you’re approaching retirement, you probably have friends at work, you probably go to their baby showers, they tell you about their kids, you tell them about what’s going on in your life, you might even go to happy hour after work or something. For a lot of people when they retire, that’s completely gone. So really ask yourself, who is my friend group? Are there friendships that need to be nurtured? Are there really friendships from work that will carry over? If not, you’re going to find work is not the only void. There will be that friendship feeling that you had that is going to be missing too. And so I think it’s important to find a sense of purpose, find a way to fill the time, but also make sure that you’ve got a friend group as well that’s going to be there for you, that you’ll be there for them when you do retire.

Jonathan: So one of the things that is coming out in this conversation, Peter, is that there are many things that we get from work that we lose upon retirement. A lot of people get to their 60s like, “I am so done. I just want to quit this job so much.” But when we think about the conversation we’re having here, what does work give us? It gives us a sense of purpose, it gives us a social network, it gives us a regular paycheck. And I would say, and this is going to bring me to my last question in this conversation, which is it also gives us a sense of identity. I’m a lawyer, I’m an engineer, I’m a doctor. And among the retirees I speak to when they quit, suddenly they’re no longer a doctor or a lawyer, or an engineer. They are a retiree. And people really chafe at that label. Do you think it’s necessary to have a label for yourself, an identity that’s other than I’m a retiree, or is it just a matter of getting adjusted to that?

Peter: I think this is a uniquely American question. I don’t know if you’ve seen this around the world. If you’re at a party in France, you will not ask somebody what they do for a living in the first conversation. It’s not a priority. It’s not really as much a sense of identities as it is in the United States. I know we’ve got clients in 65 countries and they probably are listening to the part about identifying with your job and not relating to it as much as Americans do. It’s a way in America that we quickly evaluate in each other. When I go visit St. Louis, everyone says, “What high school did you go to?” Because the second you ask somebody what high school they went to, you know their socioeconomic background, their religion, their political affiliation, the whole thing. And in America, we ask people what their profession is, we back into a lot of thoughts about them.

So it is a disproportionate amount of the average American’s identity for sure. I think that’s something that people just have to get over, but it’s more like replacing what that sense of identity meant to you. My dad was a physician. I think he probably still tells people when they say, “Well, what are you?” He says, “I’m a physician, but a retired physician.” But the sense of identity came from meeting those patients and all those patients that are telling you, “Hey, what you did for me is amazing.” I still go around town and people say, “Are you the son of Dr. Mallouk.” Still, I mean, every single day somewhere this happens. That identity in a way can continue post-retirement, but the satisfaction, that’s the hard part to replace.

Jonathan: All right, Peter, so it’s that time of the month time for your financial wellness tip of the month. What have you got for me this month?

Peter: So my biggest tip to people is you said at the beginning when you retire you can travel all over and eventually you can’t travel anymore. I would say don’t wait till retirement to do everything. There are some things that you should just absolutely do now or as soon as possible because every day is a gift. We don’t know if we get tomorrow. It’s not just us. It’s, is the person we want to go on that trip with going to be around? Whether it’s a parent or a sibling or a spouse or a kid. There’s a lot of good fortune to say, “Hey, I’m going to retire 5 years from now or 18 years from now, and I’m going to do this with my family.” And hoping that all of those people are going to be here and be healthy and not be in situations where they can’t go and not have problems and so on.

If you have an opportunity to do something now and you can afford to do it, do it now. Each of our lives comes with an expiration date. Even if we’re going to live a very long life, the quality of life comes with an expiration date. One of the great problems of this life is we don’t know what that is for us and for anybody around us. And so if there’s something you really want to do, don’t put it off to retirement. There’s some things we cannot do until we retire for a lot of different reasons. When our kids are younger, we didn’t want to leave the country and as our kids were in high school, we were willing to leave, but only for a certain period of time. Some of those things can change, but don’t do nothing. If you’ve got a couple of things on your list, try to knock a couple of them out, enjoy some of these things now. It doesn’t all have to be at the top of the mountain. You could celebrate along the way.

Jonathan: So Peter, mine is related to a topic that I’ve only learned about in the last couple of years. I thought I knew pretty much everything about personal finance, but there is a strategy that I’ve only heard about in the past couple of years, and I don’t think it’s had nearly enough publicity. And it’s this notion of recasting a mortgage. So this is different from a refinancing. If you have an existing mortgage and you pay the mortgage provider 250, $500 as a processing fee, and normally as part of the recasting you have to make a large extra principal payment, maybe 5 or $10,000. What you can do is take your existing mortgage and re-amortize it over the original loan length, typically 30 years. So what does this allow you to do?

Well, what it can allow you to do is to lower your monthly mortgage payments. And in particular, this could be useful for folks who bought their current home and hadn’t yet been able to sell their existing home. So let’s say you went ahead and did that, you owned two homes for a while and then you finally sold the old place, you got a big check. And what you can do is take that check, make a big extra principal payment on your current mortgage, and then re-amortize the loan over 30 years so you’ve reduced the monthly payment. And this can be a huge piece of financial relief for people who have previously been juggling two homes. So recasting your mortgage. It’s not something that gets a lot of publicity, but it’s certainly worth looking into if you want to lower your monthly payments on your mortgage. So that’s it for me for this month, Peter. We’ve been talking with Peter Mallouk, President of the firm. This is Jonathan Clements and we are Down the Middle.

Disclaimer: 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.

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