Worried About Running Out of Money in Retirement?

On this episode of The Long View, Eric Weigel and Fritz Gilbert discuss the results of their survey of retirees and preretirees and what to remember when planning your own retirement. Weigel and Gilbert are both authors, and Weigel is the founder of Retire With Possibilities.

Here are a few excerpts from Weigel and Gilbert’s conversation with Morningstar’s Christine Benz and Jeff Ptak:

Nonfinancial Retirement Concerns

Benz: It also appears that among your survey respondents, at least nonfinancial concerns, weigh more heavily on both groups, both the preretirees and retirees, than financial ones. Do you think that’s a function of the selection bias of your sample that people who are financially well are more likely to subscribe to a retirement newsletter? And could the fact that we’ve had a fairly decent market environment over the past decade be a contributor, too?

Gilbert: That’s an interesting section, Christine. I was surprised that as many of the preretirees were aware of the nonfinancial concerns as they were. I do think it’s a sample bias. Everybody on the survey either reads my blog or Eric’s or other retirement media. And I have a strong focus on the nonfinancial as well as Eric, as he mentioned earlier. So, I think these participants were more aware of the need to do the nonfinancial focus. Most people—maybe it’s a bias of mine, but my perception is most people as they’re planning for retirement tend to focus more on the financial, and it’s only after retirement that you really start realizing the importance of these nonfinancial issues. That’s what causes a rough journey for some people, that they haven’t taken that into consideration, suddenly they have to do. I think, yeah, it’s a little bit of a sample bias, and I do think probably the people that are doing the survey are probably more financially well off, as we mentioned. So, OK, I’ve got that part under control. What else do I have to work on? So, it’s a little bit of both.

Worried About Running Out of Money in Retirement?

Ptak: One interesting dimension is that preretirees are more concerned about financial matters, running out of money during retirement, for example, than is the case for retirees. Fritz, you note that mirrors your own experience with retirement. Can you talk about that?

Gilbert: This goes to what I was saying earlier, but I think it’s worth diving into a little bit. Almost everybody, when you ask them about retirement, if they’re in their early 50s, they go to the financials. Everybody. What I did is, I was getting ready to retire, I started interviewing people that were in their 80s. I just randomly would run into people, and I’m pretty direct. I just, “Hey, I write this blog, and I’d like to ask you one question.” I’d tell them in advance what it was. I asked maybe 10 people, what is the one thing—I’m six months away from retirement—what’s the one thing I should think about to ensure the greatest possible retirement? Not one of them mentioned money. So, the people that have lived it, they’ve made the transition, they’ve had a good retirement, it’s these nonfinancial areas—finding meaning and purpose, finding a sense of identity—all those things we’ve talked about. Those are the areas that after you retire, you realize, hey, my money is what my money is.

I wrote a post called “The 90/10 Rule of Retirement.” I made it up, but the concept is, 90% of your work as you’re preparing for retirement is focused on the financials. But once you get into retirement, your money is what it is. You get used to living on that. Yeah, you worry about inflation and whatnot, but the reality is, the financial situation is, at that point, it’s locked in. You’ve made the decision when to retire. Your financial situation is set, depending on market returns, and so on. But you spend a lot less time thinking about the financial, and that’s where the 90% comes in, the 90/10—in retirement it switches, and you spend the majority of your time trying to figure out these nonfinancial things, which is really where you find joy. That’s what my book is all about, Keys to a Successful Retirement. It’s figuring out these nonfinancial aspects. I went through it myself. I thought about the nonfinancial more than average because I’ve been writing every week for three years. I recognize their importance. I had a very smooth transition. In my research, I found that there’s a direct correlation between the amount of time that people spend, especially on these nonfinancial aspects, before they retire and a correlation to how smooth the transition goes. It’s directly related to how much time you spend planning on them.

Don’t Be Afraid of Boredom

Benz: Speaking of nonfinancial considerations, another of the disconnects that you identified related to boredom. It sounds like most of your survey respondents weren’t concerned about being bored in retirement, but a bigger share of preretirees than retirees were worried about that. What conclusions can we draw from that?

Weigel: I think sometimes people forget what they went through. At least that’s the conclusion that I’ve reached from many discussions with my clients. A lot of times, you enter retirement, you’re really happy about it, and then you enter this period where you start questioning some things. You might even get a little bit bored. But that doesn’t take forever. That might take one or two years until you figure it out, until you figure out what your life in retirement is like. So, I look at the answers to those questions as, maybe people that have been retired for a while have forgotten that they might have been a little bit bored because they’ve moved on, they’ve figured out retirement life already. I think in terms of people still planning their retirement, they understand that they’re going to replace eight to 10 hours a day of their time with something else. They have a bucket list. They have an idea of what they want to do, but obviously, you can’t play, for example, golf 10 hours a day. Some people might want to do that, but that’s a little extreme. So, it’s hard to come up with, what am I going to do for eight to 10 hours a day that I previously spent at work? So, I think it’s a natural reaction to start getting a little bit concerned.

The other thing that I’ve found is that—Fritz mentioned this a little bit in terms of relationships, so the social side—but I think even in terms of hobbies, I think men tend to have given up on their hobbies over their careers for the most part, and they’re now starting to think again, what am I going to do with my time? I think it might come across as boredom, but it’s really when people start thinking, OK, I don’t want to be sitting on a couch watching some news show or watching a ticker go by all day long. I have to figure out what I want to do with my life and during the hours of my days. So, I think that it reflects, number one, the fact that a lot of people have forgotten that there might have been some challenges in their early transition into retirement and also the reality that for the most part, and I think our survey responders fit this category, that they’ve done very well in their careers and time has been precious, and now that you’re going to have a lot more time, you really need to come up with a plan for how you’re going to spend it.

‘Psychological Income’

Ptak: You flagged another big disconnect with respect to work. People who retired missed some key aspects of working, but the yet-to-retire cohort was less worried about those things. Eric, can you discuss what you call the “psychological income” that we get from our jobs and how people can replace it?

Weigel: Yes. I think most people approach their jobs, especially as they start thinking about retirement, they look at their jobs as, OK, how much more money am I going to put into my 401(k) or in my savings so I can retire? Because for the most part, people think of retirement as a financial event. The reality is that there are a lot of benefits, positives, of having a job that you enjoy. I think there’s a little bit of a disconnect between blue collar people and professionals. Professionals tend to enjoy what they do. They tend to derive a lot of stimulation from the work that they do. They don’t realize it, but the social aspect is very strong at work. So, for example, I’ve worked in situations where you go out to lunch with the same group of people every day. Once that stops, it becomes—and that stops whether you’re retired or you leave that work—it leaves a void. So, I think people underestimate the environmental benefits of a job, which are primarily—everybody thinks about the paycheck, but the reality is that beyond the paycheck, you also have the mental simulation, you have the social context in which you work.

And also, another aspect that’s really important is your sense of identity. I think sense of identity is an issue that I’ve seen a lot of people struggle with because they still, even once they retire, they still identify themselves in terms of their career. So, I think that’s an area that people really need to think ahead and realize that your sense of identity has to fit the stage of life you’re in. And people really don’t think about those benefits associated with work. I think for me, at least, that was the biggest surprise and biggest blind spot that we found in our survey, which was, prepare yourself ahead of time for the things that you’re no longer going to have beyond just the paycheck.