How do you plan for happiness and a long retirement? From a financial planning point of view there are two key questions to resolve before you can come up with an answer:

1. What is a “happy life”, and 
2. How long is “long”?

 

Happiness in retirement

This is really your part of the financial planning process. The financial planner is not really qualified to help you determine what it is that will define our retiring to a happy life. You may have always been driven by clear-cut goals and objectives but in my experience, you’d be in a minority if this was the case. If you have a partner then chances are that they will be able to give you some starting thoughts and even set out their own idea of happiness in retirement. One way or another though, the planning for happiness in retirement is more important than planning for the financial component of your retirement. Your financial goals should be driven primarily by your happiness goals, and not the other way around!

In practical terms the issue of retiring to a happy life has many facets. There is the philosophical question of happiness, and the balance between your happiness and the greater good. There is the psychological aspect to happiness (what if you were happy through delusion?). Finally there is the completely subjective question of what specific set of circumstances it takes to make you “happy”?  This type of question always brings to mind the opening scenes from the Jewel of the Nile – the 1985 sequel to Romancing the Stone. When the movie starts, we find Kathleen Turner and Michael Douglas living the high life on a boat anchored on the Riviera. This should be the ideal “retirement” but neither character can find satisfaction in what had always seemed like the perfect retirement lifestyle.

A great book for these issues is “Stumbling on Happiness” – the New York Times bestseller written by Daniel Gilbert. Daniel maintains a website through Random House, and asks the question …

“Why do we so often fail to know what will make us happy in the future?”

So much for happiness. What about a “long life”? Now finally, we enter an area where financial planners have a firm base for comment…

A long retirement

In the ideal world, we’d all spend our lives doing exactly what we want to be doing at any given point in time, and retirement would be just more of the same. However, the Great Economic Problem of meeting unlimited wants in a world of limited resources, means that bringing any such dream to fruition involves some form of compromise. From a financial planning point of view, we need to bring that idea of a long retirement down to concrete dates and incomes and timespans. We’ve seen that your personal goals will determine the dates and incomes that will apply – but what about timespans?

A client long ago suggested to me that the primary difficulty of his retirement planning was the lack of a firmly known “expiry date”. In his world, the perfect retirement was one where he and his dearly beloved would manage to spend all of their accumulated funds just in time to not need further funds anymore.

i like the idea but we all know that we just don’t know our allocated time on this planet. However, there are plenty of ideas for at least obtaining some sort of rule-of-thumb on our life expectancy. In our information loaded modern world it is possible to go even further, and identify your own personal lifespan chart. The first step is to work out what the averages say – in other words…

What is a “normal” lifespan? In an ideal world, we start and end the world in a state of dribble, with a ton of love, excitement and challenge in between – but how long, on average, will that that life be?

The question is more than rhetorical, as the answer will determine whether the retirement plans of an entire nation are sufficient. A very good example of this idea in action can be gleaned by looking at Australia’s Age Pension. In it’s original form, the pension was designed to pay income to those who lived past their life expectancy. In effect, the idea was that you retired and pretty much died soon after. The pension was there to help those that didn’t die as quickly. Fast forward to today and people retiring at 65 are expecting to live long (and hopefully happy) lives for many years into their retirement. So what is a “normal” life expectancy?

Historical longevity

Many people will have heard of the biblical “three score and ten” or 70 years. i’m not sure of the validity of that quote but the final biblical figure will depend upon your reference source – Psalms 90:10 suggesting 70-80 and Samuel 5:4-5 suggesting David made it to 70. Keeping with the religious angle, some people of the Jewish faith will celebrate a second Bar Mitzvah at the age of 83 – being a “second” 13th birthday after the Torah’s “standard” lifespan of 70-years.

From an historical perspective, life expectancy has varied greatly over the millennia – Oetzi the 5,300 year old “Ice Man” lived to be ~45 years old by the time he was stabbed, shot with an arrow, clubbed and lay day to die on a mountainside at 10,000 feet. That’s not bad for what were clearly trying times but apparently was considerably longer than “normal” lifespans of the time. As an avid reader of anything related to the Bactrian historical epoch, i have always been amazed at the ages some leaders lived to. References regularly report people leading extremely active and often quite violent lives well into their septuagenarian years. Think of the Diadochi with the likes of Antigonus One-Eyed fighting and barging his way through life to a violent death in battle at the age of 81 or Alexander the Great’s trusted bodyguard Lysimachus, whose incredible life ended in battle with his 81 year old body being faithfully protected from the birds by his favourite hound. Or the greatly feared Silver Shields, who were still turning the tides of battle well into their 60’s. Of course, you don’t have to live a long life to have lived an exciting or interesting life. Keeping aside the more obvious mythical example of Achilles, think of the kings and queens of the Crusader state of Outremer, who managed to achieve incredible deeds in very short lifespans. An example being King Baldwin IV, who figured prominently in the events of his time yet died at the age of 24. Clearly, life expectancy varied greatly over recorded history.

Life expectancy has been changing far more rapidly in relatively modern times. Insurance companies and statisticians keep “Life Expectancy Tables”, and all insurance advisers would be familiar with the ever increasing life expectancy that these tables show when they are updated.

Measure your longevity

There is a great website that will help you to gain some idea of your personal life expectancy based on your specific health, genetic makeup and lifestyle. You can find it here..

Just click the image to go to the site, and enter your own details..

How did you go? Just this week, i’ve had readers come back to tell me their scores and they have ranged from 77 to 93..! Naturally, this is simply a “best guess” for your personal longevity. Increase your stress, reduce your exercise, gain a lot of weight or take up smoking and you are most likely going to have trouble reaching this theoretical lifespan!

How to start the planning?

Between now and your statistical life expectancy there will be lifestyle options and choices that you will want, or be forced to take. These form the basis of your lifetime goals and objectives. There will be uncertainties and probabilities of different outcomes from measures both within and outside of your control. This is where financial planning can help – by modelling the possibly outcomes under various scenarios. This is what i spend a good deal of my working days absolutely immersed in.

We’ll have a look at some of those issues in subsequent posts. In the meanwhile – what plans and worries come to mind when you think about your financial position between now and your statistical life expectancy?

A lot of people come to see me with few ideas of their preferred approach to retirement but very firm ideas on what they do NOT want to see in retirement. A common statement would be “My parents did X and I want to make sure that it doesn’t happen to me”. So ask yourself, what are the things you would like to avoid in your retirement planning?

There are many ways of considering retirement – but once you know the income required through retirement, a guideline life expectancy and the ability of the individual to cope with changes to their financial position along the way, we can begin to get down to some real retirement financial planning.

Feel free to send me your thoughts and comments as we look at some of the approaches to retirement and try to debunk a few popular myths along the way.

Regards

Michael