276: Planning For Life After Work, Previously Known As Retirement with Don Ezra
Today, I'm talking to Don Ezra. Don's illustrious career in the insurance and finance industries began in the 70’s and his achievements are numerous. His 26-year career at Russell Investments culminated when he became its Co-Chair of Global Consulting. In 2010, Don "graduated" to a part-time schedule that gave him more freedom to pursue a wide variety of other interests.
Since then, Don has also served on the Joint Investment Committee of Margaret A Cargill Philanthropies. He's been on the advisory board of the World Pension Summit and on the Scientific Advisory Board of Manifold Partners, LLC. He's also become an occasional contributor to the Financial Times, where he's the author of a column called The Art of Investing.
Don's passion is to teach others about personal financial planning, investing, and the economic and subjective aspects of happiness, especially as it pertains to life after full-time work–what some of us still call "retirement."
In his newest book, Life Two, he helps readers conquer their irrational fears, put themselves in the driver's seat, get an understanding of their financial situation, and take control of this extraordinary period of life.
In our conversation, Don and I talk about why your identity is not defined by what you get paid to do, the irrational fears so many people face as they transition into retirement, and how to find real, lasting happiness at every stage of life.
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In this podcast interview, you’ll learn:
- The difference between “former” and “happily retired.”
- Why it’s so hard to figure out exactly what makes us happy until we try things for ourselves.
- How to create a strategy to consume information about retirement without falling for scare tactics, clickbait, and bad advice.
- Don’s income strategies to ensure that his family will have the cash they need, even in the event of a market downturn.
- How to shift your mindset from thinking about assets to thinking about income.
- How to overcome frugality and enjoy the things you want to enjoy.
- "Things that we think make us happy may not, and accidental things very often make us happy." - Don Ezra
- "Nobody understands what $300,000 or $3 million or $30 million means because we don’t spend money in those amounts. We spend money day to day, week to week, month to month, maybe even year to year. Those are amounts we understand." - Don Ezra
- Life Two: How to get to and enjoy what used to be called retirement by Don Ezra
- Stumbling on Happiness by Daniel Gilbert
- Longevity Illustrator
- Your Best Year Ever: A 5-Step Plan for Achieving Your Most Important Goals by Michael Hyatt
- How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won’t Get from Your Financial Advisor by Ernie J. Zelinski
DisclosureOffer valid in the 50 United States and the District of Columbia, to first-time requestors. During the offer period, receive one (1) in-stock book per request. Limit (1) book per week per household. Limit three (3) books total each calendar year, between January 1 and December 31. Offer valid while supplies last. Howard Bailey Financial, Inc. reserves the right to cancel, terminate or modify this offer at any time. Void where restricted or otherwise prohibited.
Casey Weade: Don, welcome to the podcast.
Don Ezra: Thank you, Casey. It’s not only a pleasure, it’s an honor to join the lists of guests you’ve had. It’s wonderful. Thanks.
Casey Weade: Well, Don, I’m excited to have you here. I have spoken with past podcast guests prior to our interview. Quite often, we do a pre-interview. I’ve never had done two pre-interviews. So, you are one very well-prepared man. And I would expect nothing less from a retired actuary, which I understand you don’t necessarily like calling yourself a retired actuary. You mentioned in an article that you avoid being called a former actuary, a former consultant, and instead, you prefer the term happily retired. Why happily retired? Why not former actuary? I mean, that’s quite an accolade.
Don Ezra: Well, former is such a backward-looking word. I mean, it’s like saying nothing matters anymore. That’s who I am. Well, no, who cares who you used to be? I mean, who you are today, I think, is all that really matters. And so, I’m retired, but I’m happily retired. And retired suggests looking backwards, happily suggests I’m really enjoying this, and that’s who I am today. I mean, my identity isn’t described by what I used to get paid for.
Casey Weade: Well, some take quite a negative look at the word retirement or retired, and I don’t know that you do necessarily, but you do have a different take on it. You don’t mind saying, hey, I’m retired, I’m happily retired, but you prefer life two, and we’re going to get into your book that was titled Life Two throughout the conversation. We’re also going to give it away here towards the end of the conversation your book Life Two. I want to ask where that title came from. Why Life Two? Can you explain the acronym that helped create that title?
Don Ezra: Sure. And in fact, I hate the word retired in itself, and whenever possible, if it’s not too worthy, I like to say, I graduated from full-time work. That’s really what I did. I’m a graduate. But the title Life Two was an accident. I was going to call it Life After Work, but I have a very precise friend, and he said, “Oh, you don’t mean life after work?” “No,” he said, “No, no, you mean life after full-time work?” Well, yeah, because it’s that flexibility and greater freedom that I’m talking about. But just try saying life after full-time work, it doesn’t roll off the top.
So, I think what all consultants do, I created an acronym, life after full-time work, L-A-F-T-W, well, make it W-O, L-A-F-T-W-O, Laf Two. I could almost hear a friend saying life two. And so, that’s how the name came about. And once I called it life two, so many other things organize themselves in my head and fell into place. I mean, it’s long enough to be a life in its own right if we’re healthy. It’s not just an afterthought. It’s typically happier than what I now think of as life one, our working life. And just as we need an education to prepare for our working life, I think we need another kind of education to prepare to go into life two. And just a whole bunch of things like that fell into place. So, I just called it life two even since, so convenient.
Casey Weade: Well, I enjoy embracing laughter as much as possible, and I like to think laugh two, I mean, laugh one, laugh two, I think.
Don Ezra: Fantastic.
Casey Weade: Would you consider that you are working full time at this stage for yourself? You said life after full-time work, but as I view what you’re putting out in the universe and every time we talk, I feel like you are working full time.
Don Ezra: Well, my family says I am. The difference is I’m not paid for this. I do this because I love it. And I loved it because when I graduated from full-time work, I was just totally discombobulated. I mean, I had planned this is when I want to retire, this is what I’ll do. And it just took me aback that I suddenly thought, oh my goodness, what do I do now? I had no idea. I felt like a tree that had been uprooted, a very healthy tree that loved the soil it was growing in, and suddenly, I had to be a new tree and I had to grow new roots and I had to put them down and use soil. And I didn’t know where I was going to do that.
And it took me three years to get over this sort of transition. And I thought, what a shame. And what did I not know that I know now? And so, I started researching all this stuff because I love learning. What I’m really doing now is learning. I read, read, read, think, think, think, read, read, read, think, think, think. And then eventually, if I think I’ve got something, I write it down because writing slows down the mind and improves the logic of it. So, to prove to myself that I really understand it, I write it down. I mean, it may get published, it may not, I really don’t care, but that’s what I do.
And so, I do that full time. I do it for the joy it gives me, the constant learning. And I do it because every now and again, one of my website readers will get back to me and say, “You really helped me. I was thinking this. I now realize so-and-so, and this has now changed it.” And then they ask particular questions, etc. And it’s that feedback that I love. I absolutely love it, and it makes everything worthwhile. I don’t need the money to go with it. So, I’m working as hard as ever, but only on things I love doing.
Casey Weade: You know, some are going to hear that, and I think they do two, three, four, five years to get comfortable and figure out where we’re headed in this new life phase. But if we really think about our lifetime, that’s not that long. If we talk about three, four years to figure out who we’re going to be in this next phase of a lifetime, if this is really another life, well, if we go back, I mean, I have to say it probably took me three decades initially to figure out exactly what I wanted to do with life one.
Don Ezra: Well, absolutely. There’s a guy called Dan Gilbert who wrote a book called Stumbling on Happiness. And the title tells you what it’s about, it says we’re not really good at anticipating what makes us happy. We tend to stumble on it rather than say, “Well, I’m going to do this, and I know that’ll make me happy.” Very often, what we’re driven to do things, but that being driven is not the same as being happy. And sometimes you think, well, I’ve done it. Is that all there is?
And so, trial and error is often very helpful. And it’s perfectly okay to try something and say, “Well, that turned out the way I hoped, but it didn’t make me as happy as I hoped.” It’s a constant trial and error till you settle down into something that is very, very helpful. And in fact, that’s what makes the transition into life two so difficult because we’ve spent decades now in life one, we’ve finally done stuff for many of us that we really love. And that’s what we enjoy. We look forward to it. That’s our identity. And then suddenly, it stops. Oh, my goodness. Now what? And that’s what I wrote the Life Two book for, to say, well, I suffered from this more than most, and here’s what I wish I had known at the time.
Casey Weade: Yeah, and I think that’s clearly rational to say that that’s scary. I’m giving up a huge chunk of my identity as I transition into life two, as you call it. But you also say there are a lot of irrational fears that individuals have as they make this transition into retirement. Can you share with us what some of those irrational fears might be?
Don Ezra: Yes. One of them is I have lost my identity. Well, no, you haven’t. You’ve only lost the previous part of it, and there’s more to come. Another one is I haven’t got much longer to live, whereas in fact, I mean if you’re in reasonable health, even average health, the odds are you’ve got 20-plus years to go. And most of those are going to be healthy. And so, there are a whole bunch of things like this. Other fears are am I going to run out of money? We, financial geeks, focus on that kind of fear very much. How am I going to spend my time? And a link to that, I have a life partner. How am I going to coordinate spending my time with my life partner because until COVID, the two of us were apart all day long and we’ve been thrown together? And my understanding is that divorce rates have gone up since COVID partly because of this kind of thing.
And so, there are a whole bunch of issues. And I ended up thinking that with some education, you can at least get rid of the irrational ones that say, oh, I don’t have time to think about it, I don’t know about it, was really what you’re saying to yourself is I’m scared and I don’t want to go that. And I thought, if we can at least get some education before you start life two, then you start at least prepared for it, prepared to experiment, prepared to try things. And if they don’t work, that’s okay, you’re still confident enough.
The analogy I used is that it’s like having a car. You may know how to drive, but when you get into the car, you still have decisions to make on direction, on speed, and you still have those decisions to make, the direction, the speed which you get into life doing what you do, but at least you’re in the driver’s seat and you have a feeling of control instead of, oh my god, I have no clue what’s going to happen next.
Casey Weade: Some of those items, I mean, there are so many different ways you could take this, but lifetime, longevity, running out of money, how I’m going to manage my relationship, my life partner, all those seem very rational. They don’t seem irrational at all. They seem like things we should really be concerned about. Really, when you go through those things, my dad really hits on that lifetime, longevity one. He’s been retired for about five years. He’s 72, and he is always saying, “I don’t have much longer to live. I don’t have much more life that I can continue to enjoy.” What would you say to him? How would you teach him that he is being irrational when he’s 72 and concerned that he doesn’t have much time left?
Don Ezra: In fact, his way of thinking about it is the way the vast majority of people think about it. What they remember is life expectancy at birth is whatever, 75, 80, something like that. And they think, well, then that’s how long I’m going to live. In fact, that’s not true. That’s the average age at death for everyone who is born, well, let’s say, 70 years ago or whatever, but that average includes all the people who have made it to age 70, and they took the average down. For the people who survived to age 70, the future life expectancy is much more than six or eight years.
So, think of it this way. Let’s suppose I do these thought experiments to clarify things in my mind. Suppose there’s a country in which there are 100 people, one’s going to die at age one, one’s going to die at age two, one’s going to die at age three, and so on, and one in which 100. What’s the average life expectancy? No trick question. 50. Half of them will go before 50, and half will go after 50. But what if you’ve already made it to age 40? Well, somewhere between 40 and 100 is when you’re going to die, and the average life expectancy there is up to 70. So, the survivors’ group is a longer and longer-lived group, and their life expectancy is higher. And those who’ve already died are the ones who take it lower. So, at age 70, 72, the future life expectancy is probably another 15 years plus. And then, if you also look at your partner, I mean, this is the actuarial background coming out. If you also look at your partner...
Casey Weade: I love it.
Don Ezra: There’s a concept that we call joint and last survivor expectancy. What a horrible term, joint and last survivor. But it says there are two people, and it’s not only how long they’re alive jointly, but when one goes, the survivor continues and carries on. And the joint and last survivor expectancy tends to be very long. And for my wife and me, for example, when I was 70, she was psychologically still 39, and I won’t tell you what her actual age was. But when I looked at our joint and last survivor life expectancy, females live longer than males, typically. And she’s a number of years younger than me anyway.
So, a joint and last survivor expectancy was like 26 years at that time, and I was already 70. And so, while I might not be expected to go 26 years, one of us was expected. There’s a 50/50 chance that one of us will make it another 26 years after age 70. And so, life expectancy, typically, particularly in older ages, is much longer than people think because all they remember is life expectancy at birth, but we’re already part of a longer-lived population.
Casey Weade: This seems to be in direct conflict with the fear of running out of money. Now, you’ve told me and convinced me, I’m going to live a lot longer than I previously thought. And all the talking heads are going to tell us you’re going to live a lot longer, so your risk of running out of money is much higher. Why is it that you feel that the fear of running out of money is also irrational?
Don Ezra: Oh, I don’t think it’s irrational. That could be a rational one, but there is a rational solution to it, and that is to actually go to, I mean, the one I use was created by a bunch of actuaries, it’s called LongevityIllustrator.org and it tells you for one person or for two people, your 50% life expectancy. So, this is what we call life expectancy. There’s a 50/50 chance that it’ll be less, a 50/50 chance that it’ll be more. And so, I go to the 75% point where there’s only a 25% chance of outliving that, and that becomes my planning horizon.
I actually looked at the 90% point to say, could I make very, very sure, like there’s only a 10% chance that one of us will outlive this, but that becomes a very, very long planning horizon. When I saw how much could we systematically withdraw for that length of time, it was less than we’d like to live on. We enjoy life quite a lot. And so, we’re using the 75% extension. And so, once you do that, you then have a chance to actually be quite rational and calculated about how much money you can withdraw. Now, you may not be able to withdraw every year as much as you want, and that is a rational fear, but let’s at least do the calculation.
Casey Weade: I’ve worked with that actuaries as clients before, and you tend to be very rational. That’s not your typical investor. They’re not comfortable playing with these odds necessarily, a 10% chance of failure sounds like a 1 in 10 chance that I’m going to run out of money. Now, I don’t want to derail the conversation because I really would have focused on some of the softer sides before we transition into specifics around your retirement income plan. I think that’s super interesting, and I know a lot of our questions from our Weekend Reading subscribers came directly in line with what I found interesting there.
But before we go there, you mentioned happiness. So, I want to go back to happiness because you have done a lot of research and a lot of blogging and discussing and writing around happiness. And you brought it up. And I think any time that something such as happiness is brought up, I want to define that. What is happiness? I think that’s different to everyone, and it’s so nebulous that we often get it wrong, I think, what happiness really is. So, let’s first define happiness, and then I want to talk about some of the posts that you’ve had around that.
Don Ezra: It’s very precise. Happiness is however you feel. If you feel you’re happy, you’re happy. There is no objective definition of happiness that you can actually quantify. And in fact, when people do studies on happiness, it’s based on a very simple question. I don’t remember the exact words, but it’s something like taken altogether, how would you say you feel these days, very good, pretty good, or not so good? And that is the question on which happiness surveys are based. And it’s almost like saying pick a number 1, 2, or 3, 1 is low, 2 is middle, 3 is high, rate your happiness today. And that’s the way it goes.
And really, in a way, it has to be that way because people who know me can tell you, oh, he’s happy or he’s not happy or whatever, but their verdict doesn’t matter. They can say he’s a horrible, horrible, horrible person, though he’s a lovely– it doesn’t matter. It’s how I feel the cuts. And so, that’s the basic question. And so, you ask people, how do you feel? And every year, there are surveys of this, and they go on all around the world, etc., etc. So, you see things about the Nordic nations where people are happiest and etc., etc. And that’s all based on that very, very simple notion. How do you feel, guys? That’s all.
Casey Weade: And I think it’s important we check in on that from time to time, if not every single morning, we should be asking ourselves that question and tweaking our life to make that number higher and higher, but...
Don Ezra: It’s almost an instantaneous feeling. It’s not, well, let me think about it for a week and get back to you because then I can toss up all the good things that have happened and the bad things. How do you feel? That’s it.
Casey Weade: Now, we’re talking about it on a shorter-term basis, a day-to-day basis. In your book, you talk about it over, say, a longer-term basis. So, you talk about the U-curve of happiness. Can you explain what the U-curve of happiness is and how we can apply that?
Don Ezra: Sure, yeah. So, you get these answers, 1, 2, 3, in a population and you kind of analyze what they depend on, and they depend on whether you’re working or not working, whether you’re married or not married, have children or no, whether you’re retired, etc., etc., etc. And you can strip away all those effects and leave just the effect of age. So, if you strip away all the other ones, what you find with age in every country, I mean, when I first started this, there were 74 countries in which people were looking in happiness, and in every one of them, there was a U-curve by age.
So, it starts off high. So, when you’re 20, for example, life’s going to be great. You know nothing about life at that age, all you’ve heard is they lived happily ever after and that sort of thing, but you’re happy, it’s good. And then it goes down and then goes up again. So, as you get into life, what I think of this life one, you still have all these ambitions and so on, but you get the grips with day-to-day life, and it’s never quite the way you expect. And it’s certainly never perfect the way in your mind, your simple young mind you expected.
And so, even though we experience all kinds of lovely things, our happiness as reported on average tends to go down a little bit and tends to keep going out until somewhere between age 45 and 50. Now, hang on a sec. Those are national averages. Everyone is different. Some people never do this, and some people that’s younger and some people that’s older, but nationally, somewhere between 45 and 50, it tends to bottom out and then stop going up. Why? Well, it keeps going down simply because we keep striving to do better and better and better. And it’s tough.
But there comes a point where the drive, the dopamine, the neurotransmitter that drives us to do things better and better starts to decline. After age 40 or so, we start to be less driven. And when we’re less driven, we go away from being disappointed perfectionists and we become what’s called satisfices. Satisfice comes from two words, satisfy and suffice. It’s pretty good and it’s enough. And when we change from looking at a glass half empty to a glass half full, we say, actually, that’s pretty good and that’s okay.
And somewhere around that age is where the dopamine that drives us gets less. And we start thinking, actually, this is pretty good, and it goes up and up and up. And by 65 or 70, it’s even higher than it was at 20. So, it’s a U-curve of happiness. And I wrote a book about this, and the subtitle was the best is yet to come because wherever you are on that curve, the best is yet to come. And so, that’s what happens with happiness. And that’s why when I discovered this, I got so disappointed that we’re approaching the happiest time of our life. It has to do only with brain chemistry, not with actually retiring, it doesn’t matter whether you’re retired or not. The age effect goes on. It’s a shame to approach that in fear, suspicion, etc., etc., etc. It’s a shame not to think, you know, this is where it all starts.
Casey Weade: It’s easy to think that, well, our kids move out of the house in our 40s, and then we get grandkids, maybe in our 50s and 60s. Maybe that’s not exactly it. But when you were writing one of your blog posts regarding happiness specifically, you talked about the U-curve of happiness, but you also shared a classification of happiness chart by Arthur C. Brooks. Can you tell us about that chart? How can we leverage that post? And we’ll have a link directly to that post in the notes. But how can we leverage that chart, that post in mapping out our own happiness? And I guess, what’s that even mean to map out our happiness?
Don Ezra: Well, I don’t think it was meant as mapping out our happiness. I think he was taking the notion a step further and saying, we just asked people, are you happy? How happy are you? And we don’t think any further than that. And he said, here are some thoughts on taking it further. How would happiness vary from one country to another? Because I say the Nordic countries are famous for reporting themselves to be the happiest. So, the things that make Nordic people happy are not necessarily– says not, I’m not a Nordic person, I don’t know, but they’re not necessarily the things that make me happy. So, all the national, well, really cultural differences in what makes us happy.
And so, he was thinking broadly that way, not that we should explore it and say, does that make us happy? And he came up with a little two by two matrix. And one was, is our happiness focused more on ourselves or more on our friends and family and neighbors and community? And the other is, is it something that is thoughtful? Or is it something that requires action? And so, he had a two by two classification and he put different countries. The Nordic countries, the States, Southern India, the Mediterranean, and Latin American countries, he put them in different quadrants. It wasn’t meant to explain, now, this is what would make you happy. It just says the things that make one is, you know what? In the States, we’re not the happiest people in the world. We’re in the top group, but we are not as happy as the Nordic groups. Canada, for example, these are the ones that persistently are the top of the national tables, which now the United Nations publishes every year, etc.
So, gosh, if I lived that way, if I lived like them, would it make me happier? And he came to the conclusion, no, he says different cultures get used to different things and as they get used to them and they do them really well and make them happy, that’s great for them, but not necessarily for others. So, he was just trying to sort of break it down into different people find different things or different cultures find different things that make them happy. It wasn’t, here’s what you do for your search for happiness.
And in fact, go back to that book, Stumbling on Happiness, Dan Gilbert’s book. The odds are we’re not going to be able to succeed because we stumble on happiness. Things that we think make us happy may or may not, and accidental things very often make us happy. And the thing is to learn from that, the same like, oh, that was pretty good. I keep trying that. Wow, maybe I can. Do I change my career, whatever? I mean, but it’s trial and error. We stumble on happiness. It’s not, here’s my– author’s happiness is one of the subjects that people write about an awful lot, and you’ll get sort of my quest for happiness. This is very personal. It doesn’t mean if you try this, it’ll make you happy.
Casey Weade: Yeah, I don’t like the idea that you have to stumble upon anything. I want to figure out what I have to do and do it with intention every year. For myself, I believe that largely comes from balance. I think for all of us, there is a certain degree of balance we need in different areas of our life. So, every year, I like to use the assessment that Michael Hyatt has around his book, The Best Year Ever. And it gives you an assessment kind of around the different areas that you point to the seven keys to life’s abundance in retirement.
In those seven different keys, you talk about family, friends, work, play, physical health, mental health, money. And I’m wondering, is there a way that we can assess some of these things prior to retirement? Or every day, what can we do to shorten up that three-year window? I don’t want to wait three years. Let’s say I want it to be instant happiness. I step in retirement, I got to figure it out. Is there a way for us to speed up this process and enter retirement with better balance by a good assessment?
Don Ezra: And that’s what the Life Two book is about. But this notion of the seven elements, I got that from a guy called Ed Jacobson. I was at a conference and I was speaking at it and I thought, what do I do with the rest of my time? Well, here’s one that looks interesting. There’s a guy talking about two accountants about how to have good meetings. And I went to that, and my takeaway from that had nothing to do with accountants having good meetings, it had to do with a notion that Ed called life’s abundance.
And he says life gives us an abundance of happiness in all kinds of different ways. And he said here are seven ways to classify it. And I don’t remember the words Ed used, but I remember them in pairs with the following words, family and friends, work and play, physical health and mental health, including spiritual health. And what’s the seventh one? Oh yes, money. That’s the one we financial geeks focus on. But here are seven elements, and if you want to look at it financially, think of life’s abundance as being a portfolio of things. And these are the seven asset classes in the portfolio. My geeky friends love the idea that life’s abundance has seven asset classes.
And what it suggests is look at these seven things. Oh, by the way, my idea is stop thinking about this maybe five years before you’re planning to graduate from full-time work. Don’t leave it till after. Don’t waste those good years and thinking, oh my god, I don’t know what to do. So, if you start thinking about it, maybe five, as you’ll see, this takes a while to think through. Maybe not five years, but you may change your thoughts along the way and give it time so that when you actually reach retirement, you’re kind of ready for it. But look at each of these seven asset classes, family, friends, work, play, etc., and rate how you feel your life is on each of those seven dimensions, 1 to 10. No right answer, no wrong answer. What somebody else says is irrelevant. Only your answer matters for yourself. So, rate your life in those seven components.
Casey Weade: Well, I love how you call those asset classes too.
Don Ezra: Asset classes, yeah, I know. It’s the portfolio. It’s life’s abundance in the portfolio, seven asset classes. So, when you rate yourself, then step back and say, “Am I happy with those rates?” And again, only your verdict counts. You may be happy with one way you’ve rated yourself a 5, and I’m happy with one way you’ve rated yourself a 7. Do you want that to be higher? So, which of the ones that you would like to be higher? And then the final tough question is, what is within my control to raise that? Not what does life have to give me, what is within my control? And that starts to give you a sense of purpose, of meaning of how to conduct your life, etc.
And as Dan Gilbert says, you may not succeed. Even if you do this and you do these things, well, it may not make you feel any happier, but the odds are in favor of it because you’ve actually started thinking about it properly and you’ve given it time and you’ve got time to try it. So, try those and see what works for you.
Casey Weade: You said start five years prior to retirement, and I’m sure you would say, start today. It doesn’t matter where you’re at to understand what life after work really looks like for you, life after full-time work, or what life two really looks for you, that could be job optional. It could be financial independence, whatever it is, but we want to jumpstart that. And for those that are going, okay, I want to do that. Don said I really need to focus on education. I need to educate myself about retirement. How do they do that intelligently? How do we create a strategy for consuming retirement information? Because I think it’s a dangerous world we live in today, it’s great that we can hop online and learn all about the softer side of retirement and the harder side of retirement, say, financial planning and retirement income planning. I mean, everybody has a different definition of these different things, and there’s so much clickbait out there. There’s someone that’s out there to sell a book or a newsletter or there’s so much slanted and dangerous information. What kind of strategy can we utilize to consume retirement education?
Don Ezra: Well, it’s too early to say simply because retirement education isn’t organized. Education before life one is very organized. You have a whole bunch of subjects. You go through them, you see what you’re good at, what you’re not good at. You can have postsecondary education, go to university, do all kinds of stuff that’s organized. Nothing is organized for life two. And so, I wrote my book Life Two simply as a start, and I would hope that 10 years from now, people will laugh at it and say, “God, how naive he was. I mean, he had a couple of good ideas in there, but oh no, you should really do this, you should really do.” I have no idea. I think it’s far too early to tell, and all I could think of was that there are these three big subjects, not history, geography, math, literature, and all that stuff.
The three big subjects to answer three questions, the purpose, identity, mission question, who am I? The activity question, how do I fill my time? And the financial question, how do I avoid running out of money? And those to me are sort of my first definitions of the three subjects on which we need education? Now, whether you end up subdividing those as the three big categories and you subdivide, I have absolutely no idea. It’s just I found nothing. I did my search. After my three years, I found nothing. And what my research told me was that while it’s exactly what you’re saying that the people are writing about all kinds of things, the self-help stuff is tough.
And so, one way that costs you absolutely zero is to try my website, DonEzra.com, because I write about stuff like this. And the Life Two book, at least one person will get it, and so, they will get it, and I mean, it’s a paperback published by Amazon, so it’s about as cheap as you can get. It’s about 15 bucks or something like that. And really, it says, here’s how you get to grips with these three questions. Now, there are no right or wrong answers to these questions because it’s your happiness we’re talking about.
So, for example, with Ed Jacobson’s classification of his seven asset classes, there are no right or wrong answers. But the process of going through those questions helps guide you to things you might want to do with your life. One that helped me enormously at a time when I was very low in life, and I’m happy now, but I have been very low at times, was Stephen Covey’s set of questions where he says, “Imagine this, you’ve passed away, this is your memorial service, and four people are going to stand up and say something about you, a member of your family, a friend, a fellow worker, and a member of your community. What would you like them to say?” And when I went through that myself, I realized there was no chance that they would say these things because I’m not living my life that way. What I would like them to say then started directing me towards what I would like to do with my life.
And then there’s a guy called George Kinder, who’s about three big questions. You’ve got all the money you need, how would you live your life? Second question, you’ve just been told you’ve got five to ten years to live, how would you change your life? Third question, you’ve just been told you’ve got 24 hours to live, what are your regrets? These are profound questions that take more than sort of 10 minutes to answer. They’re not exam questions of right or wrong answers, but as you think about them, they start telling you what your values are and what you think would make you happy. And these are the questions that help you answer, who am I? What is my mission? What is my purpose, etc.?
And there are other ways to approach the other things, and I’ve got them in the book. But as I say, there are no right answers. You still have to decide on direction, you still have to decide on speed, which you’re in the driver’s seat. That’s the thing that takes away the fears, what the rational fears and the irrational fears that takes them away. And that’s what I discovered after my three discombobulated years when I finally settled down, moved back from the States to Canada, etc., etc., etc. I mean all kinds of things started to sort themselves out, but it took a long time, and I thought, what a shame at the happiest time of life for people to waste that time because they’re afraid and don’t know where to start.
Casey Weade: Yeah. George Kinder, one of my favorite guests of all time. Well, we’ll definitely have a link back to that episode. Really love George. And I think it’d be surprising to some, and then I mean, you say you’re discombobulated as you’re making this transition into retirement. And I love that all the content that you’re building is coming out of pain, right? And you’re putting out this information because it was a painful, discombobulating time for you. When you say you were discombobulated, we’ve talked about the softer side of retirement. Understandable, struggled with some of that, took a couple of years. Would you say you were also discombobulated with the harder side, the financial side, the retirement planning side as well? Was that also overwhelming?
Don Ezra: No, because of my actuarial background. All I knew throughout my career was how to deal with defined benefit pension plans. And I consulted to some of the biggest plans around the world. In many countries, I could see how they were designed differently and funded differently and all that kind of stuff. And I guess from the time I was young, I wanted to apply these principles to individuals. I came up with something I call the STAR analysis, another acronym, S-T-A-R, saving to afford retirement. How much you need to set aside if you want to do certain things in retirement from the time you’re 25 years old, that sort of thing.
But the adaptation that I used in going from pension plans to individuals was again another thought experiment. I thought, let’s suppose my wife and I are the last two survivors. They keep sharing pension plans down, so they’re all shrinking. And as people get older, they die often in this fictional pension plan. My wife and I are the last two survivors. And so, we want some money out of it, and it’s not enough to guarantee us the amounts we want. So, what actually is called the funded ratio, the ratio of assets to how much you need. How much have I got? How much do I need given our ages, genders, and all that stuff?
I adapted that to ourselves and I called it our personal funded ratio. So, what are our assets? How much would we like to withdraw? And how much do we need to do that? And if our personal funded ratio is above 100%, that’s good news, we’ve got enough to do it. And if it’s less than 100%, you know, we need to take action. And so, we need to withdraw less money unless the money grows, etc. But in my thought experiment, I said, I’m the consultant, I’m the actuary to this very strange pension plan. What would I advise the trustees to do? That’s what I would advise my wife need to do.
So, first thing is calculate the personal funded ratio and then take the appropriate action. And then you need a couple of other things to change it from a pension plan where if there’s not enough money, someone else will put in more money. To our situation, where if there’s not enough money, we have to take out less money. So, it’s a different kind of pension plan. The Brits call it, I think, a target benefit plan or a defined ambition plan, but no one’s going to make good any deficit. But to calculate a deficit is the first thing. Here’s what I’ve got, here’s what I need for what I like. What’s the ratio? And my wife is very intelligent, but she is not at all a financial person. But she gets it instantly, the one we’re above 100% is good news. And if we’re below 100%, we need to take action.
And so, what kind of action would you take? Well, for us, we’ve done two things. One is I’ve looked at our joint and last survivor life expectancy, and I’ve gone beyond that to the 75% point. And so, now, we have a time horizon to plan for that gives us at least a 75% chance that we won’t outlive it. And then, how do we invest it? Well, people say an investment risk is year-to-year volatility. Every year from this pool of money, you’ve got to take money out. And so, if money’s down or if the markets have fallen, oh my goodness, this is really, really bad news. Well, gosh, yes, that’s true. If you restrict yourself to taking it out year after year, the pension funds do something else. They match the cash flow for a few years so that if the markets go down, they don’t have to cash out from a fallen market. They’ve got a few years’ worth of cash flow.
And so, in our case, we have five years’ worth of cash flow, and what I think this is a self-insured pot and the rest is in our growth pot. So, in a good year, we’ll take money out of the growth pot because we don’t need to touch the insurance pot, but if the market falls, we’ve got five years for it to recover. Now, most of the time, historically, it’s done this more than 75% of the time. And the times when it didn’t do it during the Depression and that was a prolonged bad period, if that hadn’t happened, we’d have had success almost all the time with the five-year insurance pot that’s held in cash or very short-term securities that don’t fluctuate in value. And the rest is then in the growth pot. And every year, we can take it out of the growth pot if money has grown, but if it hasn’t, we can wait five years for the recovery.
And so, my intelligent but non-financial wife, a couple of years ago, when was it? The COVID stuff started March 2020, more or less, the market fell about 35%, and I got a friend calling me in panic, saying, “What are you doing?” And I said, “I’m doing absolutely nothing.” He said that the market’s fallen. I said, “I could wait five years for it to come back.” I don’t have to touch the money that it’s holding. If in five years it hasn’t come back, I’m in deep doo-doo, but then so is the rest of the world if the market falls for five years, I mean, we’re all in deep doo-doo. So, that’s the chance I’m taking.
And my wife said, “Does that market fall affect us? Or we got five years?” I said, “Yes, spot-on, we’ve got five years.” Now, we’ll see how it works. So far, it’s worked fantastically. And in fact, last year, the market went up so much. I mean, my assumption is 4% plus inflation every year. And if it goes up more than that, I will take out more than one year’s worth as I’ve just taken out essentially five years’ worth. So, my insurance pot has become bigger, and we have even more protection. And if the day comes when we don’t need growth anymore, I’ll just buy a lifetime income annuity because then my longevity risk is also looked after. So, that’s the way I’ve set it up for ourselves.
And my wife, as I say, is very intelligent but non-financial, but she gets it right away. And as I’ve written about this stuff, not by the way in the Life Two book because I hadn’t dreamt it up that way at the time. But in my blog posts and the next blog post is going to go into even more detail, which is what do you do in the in-between years? And how do you adjust gradually, all taken from the way pension plans work? As I say, I’ve learned so much from working with pension plans. I was supposed to be giving them advice. My goodness, the amount I’ve learned from them is way more than I did for them, but they seem to enjoy the work, and I certainly did. And so, the blog posts on the website explain this. The website is absolutely free, and we don’t take notes of who does what on it, etc., and nobody advertises and nobody’s paying for access to it. It’s about as much of a giveback to the world for the luck I’ve had that I can do.
And so, as I said, the Life Two book tells you, here are the things I’ve learned. So, we’ve got George Kinder and others. For the first question, there’s a guy called Ernie Zelinski, whose book I found very useful on how to organize my activities. He called his book How to Retire Happy, Wild, and Free. The title put me off for a while, but when I looked at it, it was fantastic. And so, I actually got in touch with Ernie. And he’s a lovely, lovely, lovely guy, and again, I’ve never met him in person and I get no money from him or George Kinder or anyone else. It’s just these are the things I’ve let on how to answer these questions. And so, that’s what I’m trying to convey in the Life Two book. It’s not meant to say be like me, it’s like saying, you have to be yourself. You make your own decisions on direction and speed, but at least you’re in the driver’s seat.
Casey Weade: The income strategy you described is almost precisely the income strategy we describe of a handful of different strategies we describe in my book Job Optional. We call that our flexible withdrawal strategy. I think the difference is we’re literally using insurance tools for that flexible bucket or bond alternatives for that bucket that gives us that fallback. I think for you, you’re entering this in a different mind space than 99% of retirees, maybe 99.9% of retirees. You’ve lived in this defined benefit space your whole career and you’ve always been focused on income. You weren’t focused on accumulation and growth. You’re always thinking of accumulation and growth for the sake of income or income production today for the beneficiaries of these different plans.
And that leads me to a question that we had from one of our Weekend Reading subscribers. When you subscribe to Weekend Reading, you get the opportunity to preliminarily submit questions to our guests. And this one came to us from Mark. And this is a question that I’m really glad that we received, I’m really glad that Mark’s thinking about this. Mark said, “How does one get in the mindset of the accumulation after years of frugality and accumulation focus?” And I’m wondering how you would consult somebody like that. You’ve always been focused on this income side of things. But for those that weren’t, what’s your guidance to get them to shift that mindset? A Harvard did a great white paper years ago talking about this is the real retirement crisis, this difficulty that Baby Boomers are going to have in shifting from accumulation at all costs to preservation and distribution. So, can you just speak to that, please?
Don Ezra: Yeah. Before that, let me just say the stuff you said about the asset mindset versus the income mindset and how much more important the income mindset is, it’s probably the most profound thing that’s been said today. That is the biggest takeaway for me from everything we’ve talked about, the idea that you need to have an income mindset. And in fact, I think, five years before retirement is when you should start thinking about the identity question. I think, 20, 25 years before retirement is when you should start in your mind converting the assets you’ve got to the incremental generate because nobody understands what $300,000 or $3 million or $30 million means because we don’t spend money in those amounts. We spend money day to day, week to week, month to month, maybe even year to year. Those amounts of money we understand.
I can remember being asked in my days as a consulting actuary by a journalist. I mean, aren’t you afraid in giving advice to billions of dollars? Doesn’t that scare you? Actually, it doesn’t scare me at all because I don’t think of it as billions of dollars. I don’t understand what a billion dollars is. The numbers I understand are the numbers from 1 to 100. I know them really, really well, and they’re all friends of mine. I feel them. And so, everything I do, I express in percentage terms. And if you want to multiply it up by a billion, go right ahead and multiply it up by a billion, but I understand what 60/40 means, that sort of thing.
And so, to get an order of magnitude that people can understand is income. I mean, another friend of mine reminded me as well. Think of the old novels, Jane Eyre, stuff like that, all the classics, people were wealthy in those days. How was their wealth measured? Oh, he has an income of a thousand pounds a year. Oh, he has an income of 2000 pounds a year. It was not what are his assets? It’s the income. And that’s the way we should measure things. So, thank you for mentioning that.
Now, come back to the question. I think you need tools. I think you need people like you for a start to help create this mindset and you would have tools. There’s one on my website, but it’s a very elementary tool. From all the things I’ve said, someone else is designing another tool and saying, “For God’s sake, put this thing on your website.” Well, we’re done with it. So, I’m hoping in a few months, we’ll have another one. But you need something to be able to convert the assets into an ongoing income because then you suddenly say, “Oh my goodness, that’s fantastic. I can do that. That’s wonderful.” Or wow, is that all it produces? I need to adjust my withdrawals, I need to adjust my standard of living, and so on.
And so, other than actually doing the numbers and see how you react, I don’t know what the answer is, but I think the income conversion and taking things seriously starts maybe 20, 25 years before you retire. In fact, I did a series of podcasts with a friend and we divided life into financial life, get started, get serious, and then get set, get settled just before graduating to full-time work and get serious with somewhere around age 40, 45, etc. Because there’s still enough time if you adjust your savings for you have 20, 25 years of much higher savings and investment returns, etc.
Get started is just get in there, do something, don’t worry about how good it is or how bad it is, just get started by age 40 or thereabouts. It’s time to get serious and start doing your personalized calculations, which is where someone like you comes in and says, from now on, we have enough time to do something. If you’re actually in the accumulation, it’s too late because when you’re working in life one, you can save more, you can retire later, you can change your investment strategy, you have lots of levers you can pull. Once you stop working, there are not many levers to pull.
Casey Weade: Speak specifically to the frugality piece of that question. The families that we often meet with, they have been pinching their pennies so they could retire early, right? They have sacrificed so that they could someday be financially independent and then really enjoy that wealth, but it’s not just a switch that we can flip. I find that our spending habits are so well ingrained in us, it’s nearly impossible for us to change that. And there are families that I struggle with working with that are five, ten years into retirement. They’re never going to be able to spend what they have and they’re still making sacrifices with the cars they drive, the places they travel to, the tickets that they’re buying.
What are some things that we can do to overcome some of that frugality and those spending habits and enjoy the things we want to enjoy? I mean, there are two parts of this, right? There’s one that frugality makes us happy in some sense, and in some, that is just responsible so I can maybe give more away. But I think there are others and a wide range of others that fall into that category of I really want to spend it, I just can’t pull the trigger.
Don Ezra: Yes, it’s partly psychological and partly rational. It’s psychological in the sense that we’ve become so used to it. In the same way, it’s part of life one, saving money, saving money, saving money. Psychologically switching to say I need to spend money is very, very, very tough. A friend of mine has written pieces on this, saying it’s very tough to get people to change. And I don’t know what the answer is, all I can think of is that, oh, by the way, you also see this most of all in Australia, where their equivalent of Social Security is individual savings and investment plan. People tend to live on. They’re so afraid of spending all the capital. They don’t spend any of it. They live only on the income and bequests higher than they started off within retirement, which is a real shame.
So, I think we need part of the education to be that in order to maintain standards of living, typically, you have to spend capital as well as income. And then the fear is, yeah, but it’s going to be exhausted. And that’s why people like you come in and calculators and so on to say you can spend down so much and it’ll still be okay. But it’s enormously difficult to change from a saving mindset to a spending mindset, even if people become very, very frugal as a result and could spend much more and could enjoy much more in life. They just don’t know. Again, they haven’t been educated.
Casey Weade: There’s an irrational fear. I’m not supposed to spend my principal, I don’t want to spend my principal in retirement. Well, why did you save it? I mean, you saved it so you can enjoy it. You didn’t save it, so you could pass it on. Or maybe you did, yeah, but I think most people didn’t. And it’s okay to spend that principal, it’s okay to spend that capital, but it’s difficult. It’s difficult emotionally and mentally, just flip that switch and try to change some of these habits that we’ve built into our lives for so long. Well, Don, as our conversation comes to a close, I want to wrap it up with one final philosophical question. What does retire with purpose mean to you?
Don Ezra: Retire with purpose simply means fine things to do in retirement that make you feel you’ve had a worthwhile and happy life, both worthwhile and happy. Worthwhile is where the sense of purpose comes in, but not everyone has a sense of purpose, and it’s not essential to have a sense of purpose. I have a friend I chat with once a week on Sunday nights, and he reminds me that his life isn’t a very happy groove. He has no particular sense of purpose, he just enjoys all the things he does. And if you’re living in a happy groove, you don’t need a sense of purpose. I’m not sure how many of those or I don’t do surveys of the stuff, etc.
For most people, having some sense that it makes me feel I’ve left the world a slightly better place than I found it. And maybe something else which is really what gives me a sense of purpose is the legacy you leave. For me, it’s not a financial legacy. I don’t care about the financial legacy, others may, I’m gone, I don’t worry about that. It’s the emotional legacy. It’s how are people going to think of me after I’m gone. The first little while, I’m hoping that the family at least will have some tears and some sadness, but I know there’s going to be lots of grins on their faces because I have done some of those stupid things on Earth.
In fact, my family wonders how I’ve ever been successful. Not only how have I been successful, how do I even survive in life? And they know that having my wife behind me is part of the reason I’ve survived in life. But to me, the most important legacy is the emotional legacy. Will people think about me fondly after I’m gone? And that to me, what I’m doing now is that sense of purpose that came from Stephen Covey’s question about, if this is your memorial service, what would you like people to say? I would like them to say nice things about me and that they were glad to know me, and that emotional legacy is, if I can leave that, I’ve had a retirement with books.
Casey Weade: Well, I will think very fondly of you, Don. Thank you so much for joining us. As we come to a close, I want to present the option or the ability to get a copy of Don’s book, Life Two: How to get to and enjoy what used to be called retirement. If you’d like to get a free copy of that, Don and I have partnered up and we’re going to be giving away copies of his book to those of you that do a couple of things. One is rate an honest rating and review of the podcast on iTunes. So, you can do that at RetirewithPurpose.com. Just click on the podcast tab, check it out there. You can do it on your phone in the Apple app or whatever device you might be using. Go directly to iTunes, write an honest rating and review. Shoot us an email with your iTunes username at firstname.lastname@example.org, that’s email@example.com, and we will send you out a copy of Life Two as long as we have them. Don, thank you so much for joining us. I look forward to speaking again.
Don Ezra: Thank you, Casey, and thank you for making this such a comfortable experience. I really appreciate that too.
Casey Weade: Thanks, Don.