Dan Haylett: Retirement Planning = Life Planning

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Our guest on the podcast today is Dan Haylett. Dan is a financial planner and head of growth for TFP Financial Planning based in the United Kingdom. Dan focuses on financial planning, retirement planning, and life planning for people over age 50. He also hosts a podcast called The Humans vs. Retirement that is centered on the behavioral aspects of retirement. Prior to joining TFP, Dan occupied several positions in the asset-management industry.

Background

Bio

TFP Financial Planning

The Humans vs. Retirement podcast

Retirement

“How to Become a ‘Retirement Rebel’ for a Higher ‘Return on Life,’” by Dan Haylett, humansvsretirement.com.

“Retirement Is a Flawed Concept, With Carl Richards,” The Humans vs. Retirement podcast, humansvsretirement.com, June 19, 2023.

“Navigating the Changing Relationship With Your Spouse in Retirement, With Ashley Quamme,” The Humans vs. Retirement podcast, humansvsretirement.com, June 5, 2023.

Identity and Purpose

“Retiring With a Bang: Harvard’s 85-Year Study Unlocks Secrets to a Long and Happy Life,” by Dan Haylett, humansvsretirement.com.

“Happiness, Fulfillment, and Contentment in Retirement,” by Dan Haylett, humansvsretirement.com.

“The Anchors of Retirement Well-Being,” by Dan Haylett, humansvsretirement.com.

“Retirement Should Not Be Viewed as the Third and Final Phase of Life,” by Dan Haylett, humansvsretirement.com.

Psychology of Spending

“Understanding the Deep-Seated Fear of Running Out of Money and Its Impact on Retirement,” by Dan Haylett, humansvsretirement.com.

“From 4% Rule to 8% Fool: Unleashing Your Inner Retirement Spending Rockstar,” by Dan Haylett, humansvsretirement.com.

“The Psychology Behind Spending Money in Retirement,” by Dan Haylett, humansvsretirement.com.

“Annuitized Income and Optimal Asset Allocation,” by David Blanchett and Michael Finke, papers.ssrn.com, Sept. 22, 2017.

“Dan Haylett: Is It Good Advice to Give Money Away?” by Dan Haylett, essexcommunityfoundation.org.uk, July 27, 2022.

Other

“Lessons and Experiences Through the Lens of a Real-Life Retirement Journey, With Andy Murphy,” The Humans vs. Retirement podcast, humansvsretirement.com, June 26, 2023.

“6 Weeks Into His Retirement! An Inspirational Real Retirement Story With Neil Jones,” The Humans vs. Retirement podcast, humansvsretirement.com, Nov. 17, 2023.

“How to Light Your Retirement Torch With the Father of Life Planning, George Kinder,” The Humans vs. Retirement podcast, humansvsretirement.com, Oct. 6, 2023.

“Carl Richards: It Should Be OK to Relax Out Loud,” The Long View podcast, Morningstar.com, July 27, 2021.

“Michael Kitces: How Higher Yields Affect Asset Allocation and Retirement Planning,” The Long View podcast, Morningstar.com, May 9, 2023.

Mitch Anthony

Paul Armson

Transcript

(Please stay tuned for important disclosure information at the conclusion of this episode.)

Christine Benz: Hi, and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning for Morningstar.

Jeff Ptak: And I’m Jeff Ptak, chief ratings officer for Morningstar Research Services.

Benz: Our guest on the podcast today is Dan Haylett. Dan is a financial planner and Head of Growth for TFP Financial Planning based in the United Kingdom. Dan focuses on financial planning, retirement planning, and life planning for people over age 50. He also hosts a podcast called The Humans vs. Retirement that is centered on the behavioral aspects of retirement. Prior to joining TFP, Dan occupied several positions in the asset-management industry.

Dan, welcome to The Long View.

Dan Haylett: Thank you, Christine. It’s a pleasure to be here. Can’t wait for the conversation.

Benz: Well, we’re really excited to have you here, too. We want to talk about the type of financial planning that you practice. It’s sometimes referred to as life planning or lifestyle financial planning. What’s the difference between that type of planning and conventional financial planning?

Haylett: I think that there’s plenty of names for this, isn’t there? Life planning, as you said, lifestyle financial planning. I think for me, it’s all about putting the human at the center of the thing and ensuring that the relationship is with them and not their money, so focusing on that return on time or return on life and what money enables them to do.

So, for me, the real difference there is their life and them as a human being and all the wonderful uniqueness that we have as individuals and as humans, understanding that, and then making sure the money enables us to live the life that we want with all of our wonderful quirks that we’ve accumulated along the way. And I do think it’s getting the pyramid and the focus the right way. I think for me, it’s making sure, as I said, the relationship is with them and not their money. I think sometimes if we get into that conventional financial planning and lead with the money, I think that can overshadow some of the work that we really want to get involved with our clients.

Ptak: What was your personal catalyst or aha moment in the realm of wanting to do planning in this way? Was it hearing from another life planner, working with clients, maybe a combination of the two?

Haylett: I can probably trace a lot of my curiosity into humans and behaviors down to my childhood when I was into my sports. I played golf at a pretty high level and a wonderful English sport called cricket. I don’t know whether you’ve ever seen it. But I was always curious in the whys of performance rather than the technical aspects of performance. That’s been inbuilt in me for ages, and I’ve done a lot of studying around sports psychology when I was playing at a decent level. And then when I realized I wasn’t ever going to be a professional at one of those things and getting into finance—well, I realized really early on there’s no more emotive subject than money. And so, working my way through my career, I worked in investment management for a number of years before becoming a financial planner. And I toured around the U.K. speaking with and helping financial planners and advisors put together investment propositions. So, I was fortunate enough to see the good, the bad, and the ugly of the work that was being out there without sugarcoating it. And there was some catalyst around seeing some of the life-changing work that some of the really good inspirational financial planners were doing and actually understanding how it wasn’t about the numbers and me discussing the outcomes they were having with people. So, that really lit my fire and combining everything around how I grew up and what my interests were, plus seeing the life-changing work that a lot of these financial planners were doing. It made me dig deeper and come across people like Mitch Anthony and Paul Armson and Carl Richards and Michael Kitces and there’s others that start to delve into this a bit more, and that really lit the fire for me to want to do this.

Benz: And you’ve had several of those folks on your podcast, I know as well.

Haylett: I have, yes.

Benz: I’m curious, do you get pushback from clients on the life planning stuff? Are some of them mainly interested in getting into the spreadsheets and really fiddling around with the numbers versus thinking more aspirationally about how they’d like their lives to unfold?

Haylett: It’s an interesting question. We haven’t actually had any pushback, I would say, so far. And I think it’s a lot to do with us being—and I’m working on becoming clearer, actually, I think—but us being clear about what we stand for, what we want to do and how we want to work. And I think it probably naturally repels those people, that they’re probably put off by that conversation. So, we haven’t really had pushback from them to go, well, can we start here rather than start where we want to start? But what I do know is that there are obviously some individuals that are much more analytical and spreadsheet-orientated than others. And those are very different conversations to keep them—and I think we’ll probably get onto this later on in the conversation—but to keep them away from the numbers at the most important points because those kinds of people have the danger of starting to talk about life, they connect it with the numbers, and then the conversation takes the wrong turn. So, there’s definitely a challenge for us to make sure that we keep people centered where we want them throughout the process.

Ptak: I wanted to talk a little bit about retirement bigger picture. With respect to your practice, I think your focus and in your other work is people over the age of 50. What made you decide on that demographic as your niche?

Haylett: It would be remiss of me to say as an English person that it’s niche. I’m joking. Do you know what’s really interesting, Jeff? I’ve had this view for a long, long time and well before I become a financial planner and having a look through again working with a number of financial advisors across the country or with differing models, I think that retiree or the people aged over 50 have been the most sought after by financial advisors globally, because they’ve got the money. But because they’ve got the money, my view is probably the most underserved. Because the focus is on the money, I think that there was definitely for me an opportunity to go, well, there is a different way of doing this. And I believe that the way that the majority do this is not actually conducive to you living your best life because you’re at a point in your life where other things need to be explored. And also, I think my take around financial planning that is moving very much into coaching and guidance—and I’m not a therapist, but I definitely do marriage therapy and that. So, I think for me, the biggest impact with that mindset is on the people that are making a significant life transition that involves a truly holistic view. And yeah, and I think that led us to saying, well, actually we can design a really impactful, different service for this bunch of people.

Benz: I wanted to follow up on your point about couples. And I think in retirement or as retirement approaches, couples might have really different thoughts about what retirement might look like. I wonder if you can maybe share an example or two from your practice about how you’ve helped couples come together so that their two disparate visions for retirement can be as one.

Haylett: I had a great conversation in my podcast with Ashley Quamme who does a lot of work in this space. And I think it’s a really interesting time for couples, and we do have really challenging but life-changing conversations with them. And the thing that I try and encourage with couples is to say, look, this is not all about creating one single journey. You’re separate people. Although you might be married or whatever and you might have children, there’s always been maybe separate dreams, separate ambitions, separate likes and dislikes. So, what I really try and encourage is, let’s look at this as three journeys. This is one for each of you and one together. And how can we carve out time for all three? How can you both understand each individual and what they are, and what you want, and what you want to do, and how you can support one another in your individual journeys? And then what is the common ground? What are the things that you want to absolutely enjoy together? So, you overlap them two circles and you go, well, actually the bit in the middle is that joined-up journey—what does that look like, how does that work? And then focus on them as individuals and then how they can understand and support each individual journey. I think it’s a very intentional model and conversation that we have with couples.

Benz: Does it ever happen that someone wants to retire earlier, and someone wants to continue working and how do you make that work? And I guess does that work well for couples?

Haylett: It happens a lot. Again, I think it’s opening up those conversations. I’m absolutely astounded by the lack of conversation many successfully happy long-married couples have had around this stuff. And I think the ability for us to give them time and space to really talk about this is just such a key element of it. And absolutely, they’re on individual journeys. I’ve just recently finished working initially with retirement planning for a couple. And Claire, his wife, wanted to carry on working. She had huge amounts of purpose in her job and loved what she did, and he wanted to retire. But he didn’t quite understand how much she loved her job and everything she got out of it that was mostly nonfinancial. And when they started discussing that, it became clear that it was the right thing and he could support that, and it’s the thing that she should be doing. So, again, I think everyone’s unique, but I think it’s very rare that two people retire at the same time. And I think it’s just making everyone aware of the reasons behind it and making sure that we open up that conversation so both partners understand the whys behind the decisions that they’re making and how they can support one another in their individual journeys.

Ptak: How do you encourage both partners in a couple to be a part of the process so that one partner isn’t doing all the talking or making all of the important decisions?

Haylett: That can be a massive challenge because quite often the dominant partner is overly dominant. It’s not even a 60/40 thing. So, I think for me, one of the things I really try and do—and I’m still working on it and sometimes it absolutely doesn’t work—but always try and bring in the nondominant partner first to these conversations. If there’s a question that I would love them to answer, I would make sure that I ask the nondominant partner for their response first and try my best to ensure that they have space and time without being interrupted to answer. And if there is interruption, it’s like, “I’d love to hear what he or she says first, I will come to you and you’ll get your time to answer that question, but I’d really love to hear that,” and encourage that, “I think you would love to hear that this answer as well, because it could be meaningful and impactful for you.” It doesn’t always work, but I try my best. And when it does work, it is transformational and you get the couples looking at one another and they turn and go, “Why have you never said that before?” And it’s like, “Well, I’ve never had the time. You’ve never given me the opportunity.” And it can get quite emotional and stuff, but it’s an absolute necessity, I think, to really make their retirement more meaningful for one another.

Benz: So, your tagline is helping retirement rebels craft their amazing second lives. What makes someone a retirement rebel?

Haylett: I love that question. Love it. So, I’ve got, I suppose, five things that I would say, through all my reading and all my working with people—there’s five things that I think are really common when it comes to my definition of a retirement rebel. I’ll run through them.

Number one is free from corporate shackles to explore opportunities and untraveled roads. Number two is to continue to grow, have purpose, and be everything they can be irrelevant of age. Three is they are creative, adventurous, and thrive on new challenges. Four is that they have dreams, goals, and ambitions that need to be realized. And number five, they’re happiest when they are doing fun, interesting, exciting, and slightly scary stuff. And they know that fun lies outside of their comfort zones. So, that’s the kind of people I love to work with. That’s who I would say is retirement rebels or who is a retirement rebel. And interestingly, I think the vast majority of people over the next 10 or 15, 20 years that are approaching “their retirement,” I think they’re going to be a lot like this. I think this is what a modern-day retiree will likely have as their personality traits, which I find fascinating.

Ptak: In a related vein, it’s pretty clear that having a sense of purpose is important, happiness and satisfaction in life, and many of us get that sense of purpose through our jobs. How do you help clients retire with a purpose in mind?

Haylett: Purpose is one of the main things that many people will struggle with when it comes to retirement. It’s that why should I pull back the duvet question that they will ask themselves? So, I do think there’s a bit of a purpose crisis potentially coming up as more and more of these modern-day retirees maybe want to leave the full-time workforce a little bit earlier than maybe that they would have done. So, I think for me, this is about understanding that for me, purpose comes from pursuing new goals and enjoying present-moment experiences. And understanding—and I’ve done a lot of research and reading on the Harvard 85-year-old study and I encourage my clients to have a look at that stuff—particularly when it comes to retirement and getting them to understand that the number-one challenge, according to that study, in retirement is the loss of social connections that work is giving us and the need to replace them. So, if they can understand that as one of their big challenges, then part of our retirement planning workbook that we work through with people—we will have an exercise that is, what I call, “from and to.” So, I get them to understand what they’re retiring from and more importantly, what they’re retiring to. So, what will they miss and won’t miss from work and what are they looking forward to and anxious about and understanding some of the nonfinancial things that work gives them and how are they then going to think about that once they don’t have that work as their structure and to fall back on. So, I think it’s one of the most important conversations we have with people as we work through their retirement planning process.

Benz: Can you provide an example or two perhaps of clients who successfully transitioned from their career identities to a new identity in retirement?

Haylett: I’ve got a couple of really cool ones actually. So, a couple I started working with— unfortunately, it hasn’t had a massive impact—but they retired in the February before, or he retired, I should say, in the February before the pandemic really kicked off. So, pandemic kicked off in March 2020. He retired February 2020. And he was a very, very successful guy that worked for JPMorgan—high up, traveled the world. And they both retired to breed Irish wolfhounds, and they had six of them, which was, when I went around to see them, I mean six Irish wolfhounds in the house is amazing. And they were very passionate about the breed. They wanted to increase the gene pool. They were worried about crossbreeding and everything like that. And so, they’ve had a bit of a mission to have litters of pure breeds. They go to dog shows and their dogs have been on TV. So, basically, their life in retirement couldn’t be any more different from the high-pressured, high-volatile life that particularly he had in his work. So, I think that’s a really cool story that we figured out their purpose really early on and got them to retire to that life.

And then, another really interesting one: I started working with a couple a few years ago. He was a CFO for a big investment management firm over here. And a lot of the conversations I had with him was about giving back. He’d done very, very well financially for himself, giving back time, giving back money. And he’s transitioned to be a board member of our local community foundation and doing a huge amount of volunteering and volunteering his skills to make that community foundation better and promote it. So, I think, yeah, when it works, the outcomes are stunning.

Ptak: Does it ever happen that you work with a client who has plenty of financial resources but the right answer for them is to keep working because of the sense of identity and purpose that that we’ve just discussed?

Haylett: All the time, Jeff. I think the right answer for most people is to continue to work in some sort of fashion, paid or otherwise. I think it solves a lot of the wired-for-modern-retirement problems that we have that I believe that we’re not wired or ready for this modern-day retirement as human beings. So, I think just because there is an amount of money that exists doesn’t mean that the default option is to stop working. I think that’s part of the problem. I think there is still an ingrained thing that you get to this magical number, and you literally then just retreat and stop, which is really, really dangerous. We’ve all heard stories about the people that stopped doing what they were doing, sat on their sofa, and weren’t around for much longer thereafter.

So, I always explore what do people want to do with their time and remove the financial reward somewhat of work, although I think it’s still important even if you don’t need the financial reward to get rewarded from work whether it’d be a financial or otherwise. But I think a lot of the time for most people, particularly really successful people where a lot of their identity is built up in their work and a lot of their social connections and time outside of work is still with people that they’ve developed relationships with through their time at work, I think the right answer is to continue to do something and use your skills and knowledge that you’ve built up.

Benz: Carl Richards talks about the “stop doing pile” or “stop doing lists”—you keep a list of some of the things that you don’t like about your job but focus on the things that you really do like. Have you had experience with that with clients where they do have some aspect of their job that they really do like and then other aspects that they don’t like so much? Can you help them focus their activities and maybe get their job geared a little bit more in the direction of those things that are enjoyable?

Haylett: Yeah 100%. Carl mentioned that when he was a guest of my podcast, and I loved that what he what he says out there in the world about this. I think fundamentally time becomes more important for us as we approach that phase in our life. I think time should be equally important throughout life, but it definitely becomes more in focus and more important. Many people actually like, some even love what they do, they just want to do less of it, and they want a bit more free time to explore some other opportunities. Or as I say, I think that part in our life is the first time since we were probably children that we can be curious enough to explore with freedom. So, I think we want to get back to that childlike curiosity and be that. But we actually love what we do.

One thing I have absolutely come across is I think people are afraid to go to their employer and ask to do part-time work. They think it’s a binary thing. I’ve either got to stay on or leave. But what I’m seeing increasingly is that the value of experience is so valued, and more and more businesses and employers are so open for good people with amazing skills that can add value to work two days a week, or to work three days a week, or to do some consultancy work every couple of months for them. And I think my advice to people would be really, look, if you love what you do, explore the ability to continue doing that with that employer but grabbing some more of your time back. I think more and more businesses are much more open to that conversation than they’ve ever been, particularly with new working patterns and what you can now do or what what’s now been the norm post-COVID, I think I think it’s a great opportunity for people.

Ptak: Actually, you anticipated the next question I was about to ask you, so this might be a short answer for you. But from a practical perspective, do you think working longer is getting easier for older clients in that COVID normalized remote work for a lot of workers? And I suppose this goes both ways. There’s the employers’ receptiveness to that sort of format but then also I would imagine that from the soon-to-be-retirees’ perspective perhaps they’ve dipped a toe in remote work and have gotten more comfortable with it and so they’re more willing to stick with it into retirement perhaps longer than they plan. Have you found that in practice?

Haylett: Yeah, 100%, absolutely. We’re obviously in an age where our work potentially is a lot less physical. So, if you’ve built up those skills that can be done, then the opportunity to do them is so much easier. The barriers to entry now for people to set up a business, to do all of that stuff both financially and time are the lowest they’ve ever been. So, to design websites and to build brochures, and to design everything—you don’t need to hire people and spend fortunes on this stuff now. So, I think that makes it easier for people to realize some of the dreams they may have had, then felt shackled by corporate time, but it also makes it easier to transition from full-time work to part-time work and to have that sense of purpose. So, 100% agree, yeah.

Benz: Your podcast is called Humans vs Retirement, and you’ve said that humans aren’t wired for a modern retirement. What do you mean by that?

Haylett: I believe that, as I said before, the vast majority of retirees over the next 15 or 20 years will probably fall into the rebel camp that I described earlier. However, I think that they and we will be stepping away from a world where we have identity, we have purpose, we have social connections, we have money security, and we have a concept of time that work gives us most of that. And some of the things that we’ve done outside of work during that time gives us that as well. And so, we then moving into a place where we must have answers on the flip side to questions like who am I, why should I pull back the duvet, who is in and what is in my tribe, how do I spend my money, because I don’t like seeing my capital deplete, and how am I going to fill my day? All of which really conflict with being a rebel and then play into our basic survival instinct. So, we’ve got this—I think we’re not wired to fully embrace that rebel nature because basic survival instincts are still going to go who am I now, why should I do it, where’s my tribe, oh my God, I’ve got paycheck anxiety, I’ve got more than enough money but no more money is coming in, what the hell am I going to do, how am I going to fill my day? So, I think they’re both in a period of conflict at the moment, and I think that’s a real challenge for people to overcome.

Ptak: For clients who are maybe a bit timid about their visions for their own retirement, how do you help them to think more expansively? I would have to think that you encounter a fair number where this is an issue. So, how do you address that?

Haylett: What I try and like to say to people is that I think retirement planning is both creative and artistic. I think giving them space to feel and be creative and artistic is really important, a nothing-off-limits space and also encourage them. And we have a specific values and vision meeting in our client journey, and I want that meeting to stay as far away from numbers as possible. So, I think their timidness about their vision comes from the cloudy nature that the numbers give them, and I think it’s giving them permission just to think big, dream big, and be creative and artistic. But also, I think to understand that it doesn’t have to be this massive grandeur retirement where it’s unlimited travel, it’s dining at the finest restaurants, all of that stuff. It’s really understanding what is most important when it comes to their vision and maybe it’s the time just to go and have lunch together, to walk the dog with freedom, to make sure that you can have a glass of wine on a Sunday night and not checking your emails to worry about getting up in the morning on a Monday. It’s making sure that these things are embedded and giving them that space and time to be creative and artistic is making sure we remove that number conversation because I think it does cloud it.

Benz: Do you think people who are approaching retirement get a little too hung up on bucket lists? And I guess I’m infusing my own view on this. I should let you say about whether people are maybe unduly focused on “I want to do X, Y, and Z,” really big thing and less on those day-to-day quality-of-life things?

Haylett: 100%. Because again, I think it’s a societal thing. If you’re retiring, where’s your bucket list? There are books that are called Bucket Lists. And we think now we’ve got this time that we need to fill this time with amazing experiences and unbelievable moments, and I think it’s just saying let’s bring this back down, it’s truly what’s important to you. I had a wonderful conversation on my podcast that’s just been released with one of my clients, Neil Jones, and he said something pretty profound in that. It was like, look, the most enjoyable part of my retirement—he is six weeks into this—the most enjoyable part of my retirement is walking the dog with my wife with no distractions; is being able to stop off for a pub lunch and not worry about opening my emails up. He said, of course, I’ve got a bucket list, of course I’ve got things I want to do, but they’re not the most important thing to me. I will get to them. But this is the most important thing, the thing that gives me joy and happiness is the simple things. And I do think we get too hung up on how we have to spend our money on these big-ticket items and don’t focus enough on that kind of foundational pleasure that simple stuff gives us.

Ptak: What would you say are some of the other big misconceptions that people embarking on retirement have? What do they get wrong?

Haylett: There’s one big thing for me actually. I think the amount of time they have to truly enjoy their hard work. I think the longevity thing has been rammed down people’s throats to think that they are going to be alive for 40 years and need all of their money to last and they’re going to spend 20,000 pounds or dollars a year on leisure forever and we’re going to be alive longer. I think to take advantage of those go-go years and understand that our health span is different to our life span, I think that they definitely get that wrong. The misconception around health and life and the fact that they should always try and front-load the fun and whilst we’re active and we can enjoy the time that we have whether it is big-ticket items or simple things like walking the grandchildren to school or being able to go for a nice walk and have a pub lunch. That time is not always given to us. It is borrowed. And our health, both physically and mentally, will absolutely decline and probably decline sooner and quicker than we all are going to plan for. So, I think they do have a real misconception of time when it comes to planning their retirement.

Benz: I want to follow up on that because I think that’s such an important point that people at the outset of their retirements might not think through the hard stuff about their retirements, about how the home that they loved may not be the right home for them at some point in their lives, all that kind of stuff. How do you help marry the more-happy vision sorts of things with some of these more sobering topics that inevitably I think you’re going to have to discuss with your clients?

Haylett: Yes, great question. It’s a real challenge, because on one hand, I want to be the beacon of light and energy and hope that go and enjoy your time whilst you have it, but for the vast majority of people that I’ve been very fortunate to work with, they come with a sense of realism built in as well. So, I think that I’m not having to do too much heavy lifting when it comes to that conversation. I think they’re kind of expecting it. But I do want to make sure that, again, we get that out in the open as soon as possible. Because I do think that if you tackle the back end, that is, what it might look like when it comes to health, and care, and expenses, and you might need to sell the family home, you might need to sell some land, you might need to think about how you spend your money, and so on. If we deal with that upfront, it brings a lot more in-the-moment confidence and a lot more in-the-moment comfort that I think then allows them to really take advantage of the moment than thinking about a “what if” in 20 years’ time some of this stuff that we’ve got to do. So, it’s an absolutely essential part of those really early conversations when we start building through cash flow and stress-testing and bring some of the numbers to life.

Ptak: I’m going to turn to spending. How do you help your clients figure out their annual spending levels? What sort of system do you use to determine how much they can spend from their portfolio per year?

Haylett: Again, I’m trying to think about how we’re wired to think. I don’t think most people entering into retirement likes the word “budget.” It feels quite restrictive. So, we get them to create a spending plan and that spending plan is broken down into basics—leisure and luxury expenditure—and we get them to think about the big-ticket items over the next 12 months and three years as well, and that can be anything from new cars or house repairs or gifts or weddings or big birthday or milestone moments. So, we get them to craft out that, as well as getting them to really think about through those three phases: What does it look like immediately after retirement, what does it look like from the ages of 72 through to 82, and what does it look like from ages 82 onward? And I say to them, look, I have no idea what your heating bill is going to be like in five-and-a-half years’ time; neither do you. I’m not trying to crystal-ball this. But I absolutely do know that our clients know a sense of direction when it comes to their spending patterns. Again, the realism around you are going to be spending less on leisure activities in your 70s than you are in your 60s and less in your 80s than you are in your 70s. So, getting them to really start to think about how spending changes through those phases is a really, really important part of understanding the annual spending levels now and in the future.

So, we then overlay that with forward-looking cash flow where there’s some deterministic numbers around growth and inflation, which we are very, very prudent on. And I think it’s very dangerous to start chucking in some of these growth rates that I’ve seen on forward-looking cash flow because again false confidence and straight-line certainty isn’t the thing that I’m into because we just don’t know. We use a backward-looking stress-testing system where we look at 108 years’ worth of economic data and investment returns and overlay what they want to do and then have a look at the success rate of those plans. I’m not a massive fan of Monte Carlo if I’m honest with you. I think the backward-looking stress-testing paints a better picture for me to really give an understanding of how their plans fared during some of the worst and best times over the last 100-odd years.

And then it’s really starting to educate them about what I’ve said is evidence-based retirement timelines, and that is the concepts of retirement spending or spending in retirement falls naturally over the period but by about 1% a year. So, although inflation is obviously the silent assassin that we see, I think that if we understand that our real-time spending falls in retirement, then we get much more comfort about what we might need going forward, understanding the concept of health span versus life span and the three phases of retirement and how all the evidence supports that. How all the evidence supports that most retirees leave quite a big chunk of their money on the table and start to bring that into life through some of that cash flow planning just to make sure that they understand what they can spend. And from a spending point of view, it’s entirely flexible. I’m not a believer of this 4% rule, 8% rule, 12% rule that’s been in the news lately as guardrails and all this stuff. I think there is some frameworks that you can put around things. But I’ve got clients that are spending 10% of their portfolio at the moment and it’s not unsustainable because they’re not going to spend it forever. They’re just going to spend it for the next two, three years before Social Security or our state pension kicks in. So, it’s flexible spending based on what they want to do now and given that they understand that spending falls in retirement. So, I try and bring as much evidence to that as I do to my investment philosophy.

Benz: I wanted to follow up on the spending patterns, Dan. One big point of angst for a lot of retirees in the U.S. is that they’ll have these long-term-care expenses toward the end of their lives, which are basically here not covered by any sort of government supports at all. How is that handled in the in the U.K.? Is that different?

Haylett: Yeah. I say to a lot of people that we are so lucky over here. I think retirement planning for you guys in the States has a whole different dimension around increased healthcare costs in later life. And I do think there’s a bit of a problem, because I think some of that is coming through over here. So, there are retirees, the public, that hear some of those messages and they revert it to here not understanding that there is—and it gets a really bad rap, and I don’t know why—but we have the National Health Service that can provide levels of free healthcare and care in later life. But there is still a concern.

So, we are fortunate enough to go, well actually, there is potentially a basic level of need being taken care of. But a lot of people that I speak to, they don’t want to be a burden to their children, and they don’t want to rely on just the state to fund their care in later life. So, there is some nervousness around this. A lot of them don’t necessarily want to feel like they have nothing left, so they’re just put in the worst care home they can be, and they want to be able to afford some decent stuff toward end of life and again not feel like their children are having to pick up any of the financial and emotional tab on this stuff as well. So, there is some concern. But again, I back it with evidence.

So, for us, in the U.K., if they went into full-time care, then you are probably looking for a really good care home at about GBP 80,000 to GBP 100,000 a year. I don’t know what the exchange rate is at the moment, but it’s still quite a lot of money. So, again, you think about the evidence around that and a lot of people over-egg the time that they will spend in that. So, all the evidence over here suggests that if you go into full-time care, then the maximum time that you will spend is about 18 months. The average time you spend is 9 months. Yet people want to build three years’ worth of GBP 100,000 in 20 years’ time into their plan for care. And I get why they’re trying to do it, because they’re worried about running out of money. But if we start presenting the evidence to them—and actually, then the evidence suggests over here that you don’t go into full-time care straight away; you go into maybe some live-in care. You stay in your house and people come in and support you, which is obviously less money than going into full-time care. So, again, I think there’s a lot of hearsay, there’s a lot of talk down the pub with my mates, there’s a lot of false news and fear put into people at that stage of life and what they’re planning for, and I really try and bring it back home and share the evidence with them that I’ve come across.

Ptak: And maybe to widen out—and it was very helpful, your perspectives, on late-in-life care. But many preretirees, I would imagine, are worried in general about running out of money later on in life. So, what steps do you take to try to allay those concerns to ensure that they spend appropriately during their retirement years?

Haylett: I think it comes back to the evidence-based retirement timelines. Like I’ve said, it’s making sure that there’s some evidence and factual stuff that we can present to them about what happens. And again, I know everyone is unique and therefore, we build in standard what-if scenarios into our plans around investment declines and investment valuations, upticks in short- and medium-term inflation. The death of one of the spouses and that kind of thing. So, we build in standard what-ifs. But then, it’s about listening to them. It’s about understanding what their fears are and how we can show them that through some of the planning work that we do.

And some of these don’t necessarily paint a pretty picture. I will always try and break the plans because the plans are wrong. We all know that. The plans are wrong at the moment created. So, I try and show them what breaks them. And more often than not what will break the plan is something they’re never going to get anywhere near and so that then gives them comfort. But what I will say is that this is not a money thing. I’ve got people that have got much more than enough, much more than enough and they’re worried about running out of money. So, it’s a human problem, not a money problem. And I think that by listening and building these what-if scenarios but making sure they understand that these are big-picture things that we have very little control over, but we can make some short-term decisions if the direction of travel doesn’t quite go to plan, then that concept really helps.

And then, one other thing I think that I do encourage them, and people love is that I say to them, “Would you rather be in a position that I’m having a difficult conversation with you when you’re 78 to cut your spending than have a difficult—surely, that’s a better conversation. You’re in your late 70s, early 80s; you’ve done some wonderful things over the last 15 years with your family. I would rather be having a conversation with you then about releasing some equity in your house or spending a little bit less on this and that.” And I think it’s just putting that into perspective with them really helps.

Benz: I’m wondering have you found any tools to help people with the permission to spend problem? It’s something we’ve been talking a lot about internally that we have a lot of engaged, retired individual investors who really proudly quite underspend relative to what they could. Can you talk about how to help people over that hump? I know Michael Finke and David Blanchett did a paper about how an annuity might help in that context where it’s this sunk cost, there’s no looking back. Anything that works with your clients in practice?

Haylett: I think annuities is really interesting. They’ve come back into vogue here in the U.K. in a big way because of the rates that you can get on them. But actually, I’ve always been a fan of them from a behavioral point of view because one of the big anxieties that I do come across is that paycheck anxiety, the loss of the regular paycheck that they get. Irrespective of how much money they have and how much money they earn, that security blanket of a paycheck is such an interesting concept for them behaviorally. So, to give them some guarantee and certainty around that, I absolutely subscribe to the fact that that frees up more discretionary spending. If they’re worried about running out of money in later life then through some careful planning—with Social Security in the States and state pension over here—and maybe some annuities, and they might have some other guaranteed income sources, you can show them that at some point in later life you might have enough guaranteed money to support that lifestyle with that evidence-based timeline that we said if real-time spending falls and so on, we build in those assumptions. So, you take away that concern about running out of money in later life to some degree and that definitely does free it up.

So, I think annuities, irrespective of the rates that you get from them, I think are a wonderful tool when it comes to giving people permission to spend because it takes away one of their big anxieties, and also, I think what I would describe as kind of real cash buffers. So, the textbooks, particularly over here in the U.K., will say six months to a year of emergency cash in there to spend just in case. But I think building in real cash buffers, understanding how much they need to spend, on what, over a three-year period, and putting those three years of expenditure in cash and then having flexibility to draw it either from investments if they do well or from cash if the investments don’t do well, gives people real comfort. I’ve got people that with five years in cash put it on a spreadsheet, it’s stupid, it’s absolutely ridiculous, it doesn’t work. The spreadsheet is a big cross. It’s stupid. No right person would do this. However, from a behavioral point of view, it’s a 100% right for these guys because they wouldn’t have the permission to spend on the things they want to if they felt like that money was in jeopardy of the markets over the short term. So, I think that kind of bucketing approach or time segmentation approach that Wade Pfau talks about I think it’s a really, really good concept to help people have permission to spend their money.

Ptak: Do you discuss lifetime gifts with your clients where they’re making periodic gifts to children or charity rather than leaving a large sum at the end of their lives?

Haylett: All of the time, Jeff, all of the time. I’ve kind of nicked a saying and put my own little twist on it— but one of my favorite sayings is that why would you not want to give your money away with a warm heart not a cold hand. Again, I think this thing about leaving money to the end of life is a cry for I don’t know whether I’ve got enough or I’m worried about running out of money. I think if people were absolutely convinced that they weren’t going to run out of money, the vast, vast majority of people would want to give their money away during their lifetime because that makes us feel good. And part of the purpose, part of the thing around retirement is happiness. We know that giving away our time and money does make us happy.

So, again, a lot of people I work with have children at an age where there are milestone moments coming up: first house, marriage, first baby, cars, and so on and so on. And I get more joy by seeing my clients give their money away to their family, to their friends, and to charities than at really any part of this process, because they come in waxing lyrical about the thing that they’ve done, and you can see the joy that that gives. So, I discuss it all the time. I work very closely with my local community foundation, the Essex Community Foundation, and encourage my clients where there is some real philanthropy to what they want to do to set up their own family charitable foundation to really have a long-term impact and get involved in that stuff. Yes, it has a tax benefit, but that tax tail isn’t wagging the dog. It’s about what it does. So, I discuss it all the time with people. It sometimes takes a bit of time to get them comfortable to feel like they can do it, but more often than not we get there because it’s the right thing for them to do.

Benz: You’ve been doing your podcast for a while now, your Humans versus Retirement podcast. What have been one or two of your favorite episodes and why?

Haylett: Honestly, I’ve loved every episode and I’ve learned so much from talking to some amazing people. But the two that I’ve enjoyed the most and have had the most impact on me and the audience, because I’ve had the feedback from it, has been the two clients that I’ve had on. So, Andy Murphy was episode 12, I believe or 11, and Neil Jones who was the last episode just on, episode 26. Two of my clients—Andy has been retired for a year; Neil has been retired for six weeks. And I don’t think there’s enough real retirement stories out there. I don’t think there’s enough people to look up to see and hear from about how it went. And actually, what was really interesting in those conversations—I’ve worked with them for… Andy and Tina I’ve worked with for four years; Neil and Claire, I’ve worked with for 18 months. And they said stuff on that podcast that I haven’t heard from them in the meetings I’ve had with them. So, every conversation is great. They’ve revealed stuff. They were brave to come on it and share their story. And so, they’ve been my two favorite episodes because it’s real life and as much as I love to bake this into academic and fact and expert opinion around the psychological and emotional impact, which is phenomenal, I think there’s nothing better than hearing real stories about how they made that transition and how they’re thinking about their retirement.

Ptak: Last question. How has your work on retirement planning influenced how you plan to approach your own retirement?

Haylett: It’s had a massive influence. I pretty much exclusively read books and white papers and stuff in this area and listen to podcasts and stuff. I do have another life. That’s not just what happens. I do nerd out on this stuff. So, it has absolutely had a big impact. I’m definitely a retirement rebel. Maybe some of those points I said at the start is a bit about me, I don’t know. But I’m definitely one that I feel like my purpose and passion is tangled in what I’m doing now. I don’t consider myself ever wanting to retire. I absolutely want to continue to make an impact. But I do want some time to myself probably earlier on than I thought. I’m not going to wait till I’m 65. I’ve got two young children that I want to spend some time with. I want to get my handicap back down. So, I want to spend a bit more time on the golf course. I’ve got some things that I want to do. So, it’s definitely influenced it from that point of view, but I don’t ever see myself not working. And actually, I look up to people like Dan Sullivan and George Kinder and people that are in their 70s, 80s, and beyond that are entrepreneurial that are working that have energy and spirit and they want to give back. I think there’s a lot of life longevity linked to that, and I want to try and be around for as long as I can. So definitely.

Benz: Well, Dan, your passion for this topic really comes through. Thank you so much for taking time to be with us today.

Haylett: I’ve loved every second. Thank you for having me on.

Ptak: Thank you.

Benz: Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts.

You can follow us on Twitter @Christine_Benz.

Ptak: And @Syouth1, which is S-Y-O-U-T-H and the number 1.

Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.

Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.

(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. While this guest may license or offer products and services of Morningstar and its affiliates, unless otherwise stated, he/she is not affiliated with Morningstar and its affiliates. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis, or opinions, or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision.)