Swedroe: Retirement Is Scary; Plan It Out

June 13, 2016

Retirement creates many challenges. Unfortunately, while about 10,000 Americans retire daily, the sad truth is that most people seem to spend less time planning for retirement than they do for a vacation. Anxiety regarding our futures is a common ailment, especially among the millions of Americans rapidly approaching the end of their working years. And there are good reasons for that anxiety.

  • Retiring can be as stressful as getting married, losing your job or having a close family member become ill.
  • The highest suicide rate in the United States for any segment of the population is men over 70. That’s 50% higher than the suicide rate among teenagers. The speculation is that these men have lost their lives’ purpose and their zest for living.
  • Only 35% of retirees have a written plan for their future finances. This is unfortunate because successful retirement is no different than successful investing: Those who fail to plan, plan to fail.

The Challenges Of Retirement

From an investment standpoint, retirement generates a number of financial challenges. First, your ability to take risk has been reduced because your investment horizon is now shorter. In addition, you no longer have labor capital that can be used to generate income to help offset investment losses.

Second, once you enter the withdrawal stage of the investment life cycle, the negative implication of losses increases, because spent assets cannot benefit from future market recoveries.

Third, it’s likely that your willingness to take risk will fall, and thus your stomach’s ability to absorb the acid created by bear markets will be reduced. And that can lead to panic selling and the abandonment of even a well-thought-out plan.

At the same time, investors have to consider that today’s typical 65-year-old couple has a second-to-die life expectancy of about 25 years. And because half of couples will have a spouse live longer than average, 65-year-old retirees really need a financial plan that’s likely to last at least 30 years. Such long horizons can lead to a greater need to take risk.

As the director of research for The BAM Alliance, I’ve learned that the very act of retirement creates another problem, one that impacts not only quality of life, but the quality of investment decisions as well. One-third of all men over 65 become depressed within one year of retirement. The generally accepted reason is that work had been their primary source of meaning and the biggest occupier of their daytime hours. Replacing that time with activities both mentally challenging and/or emotionally fulfilling doesn’t happen automatically. Additionally, for married couples, the shift in daily household routine to one where both spouses are at home at the same time can also lead to marital stress.

Combine the challenge of finding a replacement for work with the increased investment risks discussed previously and retirees often begin obsessing about their portfolios. The time they used to spend at work is now spent watching CNBC, reading financial publications and browsing financial sites online.

And despite Warren Buffett’s advice to ignore all market forecasts because they tell you nothing about the market (although they do tell you much about the forecaster), the increased attention that retirees give to the markets can lead them to become more worried about the latest predictions of gloom and doom from “gurus” who are nothing more than the financial equivalent of a soothsayer.

Beware Recency & Regret

Retirees also become more susceptible to the dreaded twin diseases of recency (pursuit of the latest hot asset classes and funds), and tracking error regret (panic when a globally diversified portfolio underperforms some common index, like the S&P 500).

While this isn’t an exclusively male problem, my own experience, as well as the research, show that women make better investors because they tend to be less active, adhering to their plans to a greater degree.


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