What Color is Your Parachute? for Retirement: Planning for Prosperity, Health and Happiness

I quit my job and enrolled in a PhD program at Wisconsin and went off to answer those questions. Initially it seemed important that I would just, you know study things where I was located, and so I did study in Wisconsin. But pretty quickly I realized that I needed to take a broader view. Over the next year or so I traveled to 16 states around the country, I went to conferences; I went to the employers that I thought were doing the absolute best job in answering these questions and helping their people plan for retirement. I met with the experts in different fields who were doing research that I thought would be important too. I met with economists and psychologists and medical and wellness people so that we could get a holistic view of what it is that people are planning to transition to. In the course of my travels and the PhD program I ended up answering these questions. That’s what we’ll do today – is answer these questions.

Question One: What is Retirement?

In the old fashioned view that was pretty easy. The whole point of retirement was to think about just not having to do anything. What I discovered of course in talking with baby boomers and other people is that for a lot of them that wasn’t the view that they had at all. In fact it was almost diametrically opposed to this bold view. Some people were in between, they looked forward to freedom and leisure, and other people in fact were going to continue working until who knows when.

I looked back historically and said well, retirement isn’t that old anyway. We haven’t been retiring for all of human history. What does the human lifespan look like? What have people done with their lives historically? Humans have been around for a long time and retirement has not.

Here’s an illustration from the 1840s, the Life and Age of Man.

This picture takes the human lifespan by decades. It starts at zero, shows the peak of life is 50, and then we have the old age – actually age 100 there on the far right.

Now we know that the average age that people are living to has been increasing, but the maximum human lifespan has always been long. Even in ancient times there were people who did live to be a hundred through the action of good genes and a favorable environment.

One of the reasons that a lot of people don’t like to think about retirement is retirement is in their mind linked to aging. Of course aging has never had a really positive view in most people’s eyes and you see all the way back to the 1840s that there’s some themes coming through here. What some people say is well, it’s this health and vitality, you know that’s growing. We’re young, strong, vital, energetic, healthy on the left. And then you become, you know kind of decrepit and, you know lower energy and aches and pains and even disability on the right.

Some people say this shows social prominence and importance on the left, you know we become an important member of our families and society, and then in that later point it starts kind of going downhill; we’re more withdrawn, we’re less prominent, we’re less popular – we have less social authority, less social power. That might well be the case.

This could also be a financial graph. It could say that our economic worth is increasing, our earning power is increasing, our stash of money, or this in Europe could have been how many cattle or how many sheep we own. Who knows? At some point it starts going the other way.

What’s the point of view of this? An external point of view. This is society’s view of the life course, this peaking and falling. It’s not the internal experience that each of us can create.  When we think about internal experience, what this idea of growth and age does not show are things like a sense of internal fulfillment. This doesn’t indicate anything about the fulfillment that’s available to the people as they age. It doesn’t indicate anything about a sense of meaning in life. Sometimes in our youth we’re confused about life and why we’re here, and in fact in retirement or older age can be the opportunity for us finally to get some clarity about our own values, our own purpose, why we’ve been here. The richness and deepness of relationships is not shown here. We might have a smaller social circle as we age, but the importance and depth of those relationships may be richer – again, if we work on them. Where along this whole idea of the life course is retirement? Where on here do you see retirement? Nowhere.

The most important thing to take away from this is that for all of human history changes in life stages have been gradual, that we have had gradual transitions in life from one age and stage to the next. The gradual nature of that is kind of like the changes in nature: Spring leads to summer, leads to fall, leads to winter, and it’s even though maybe marked on the calendar as a certain day.  The truth is, it’s a gradual change.

So what changed all this? Henry Ford. Now Henry did not invent retirement, but Henry really created the environment within which retirement was created. We have this original idea around a hundred years ago of going from that gradual life change to these abrupt changes. Instead of children learning at home at their parents’ knee on the farm, in weaving, horseshoeing, fishing and whatever those trades were as apprentices, we put them in school. That was a good thing. But as a society we at that point made a sharp division between the world of education, sending off kids to school, and the world of work, putting people largely in factories.

Instead of a gradual transition from youth and learning into work and productivity, we made that very stark division between school and work. It’s really abrupt; a lot of kids don’t handle it well. You know, they’re successful in education, but then they’re not as successful in the world of work.

We then created this sharp division between working and retirement, and the Social Security Act of 1935 was probably the most significant aspect of that transition. So in the same way that we created schools and then the workplace, we also created the withdrawal from the industrial workplace.  People were happy to do that because a hundred years ago work was dirty, nasty, dangerous business – foundries and machine shops and agricultural working too. It’s really tough hard work. Creating retirement at that time was a welcome relief. But it wasn’t that long ago.

As a society when we created these divisions, we created them each with a purpose. Now everybody can do everything. But the truth is in education the focus is on development – that is you’re getting yourself ready for something next – you’re developing to be better. Then we go into productivity, it’s “get her done,” right? We’re productivity machines. Jobs, relationships, kids, mortgages – productivity all day, all night, we get things done.

Then retirement was created purely as leisure, and that’s because people by then were pretty physically worn out from this nasty dangerous work; as worn out cogs of the industrial machine, to use one metaphor.  They weren’t good for much so they were put out to pasture.

As a society we created this and we also funded it through private pensions, public pensions,  and the Social Security system. From an economic model we were supporting public education for education and environment – and development. We were supporting a retirement system so that this would all work.

The thing that messed it all up is that people didn’t die on schedule. Medicine got so good that it kept us alive longer than anybody anticipated. It threw the funding off for what to do about funding retirement as a society and as individuals.

Question Two: What do people do in retirement? 

When the ideal retirement originally was pure leisure for five or ten years that made sense, but if people have the potential, especially public employees or people who stay with a single employer like a corporation – people who really stick to it and work somewhere for 30 years and save up a good amount of money, what do they do when they might have a 20 or 30 year retirement? Is leisure enough?

People who were graduating from work into retirement realized that it was not enough and they started breaking rules. This is what I discovered ten years ago as I went around the country interviewing people, learning about people’s retirement lifestyles and goals and dreams, is that we started mixing up the boxes.

We had people retiring and saying well, you know, it would make no sense to develop myself or go back to school formally or informally if I weren’t going to be around a long time. But if I’d like to keep learning, or I’d like to keep working and being productive, and of course I would like some leisure too. Most of the people have at least a vague idea of being able to mix up these different life stage activities once they’re freed from regular work.

Retirement began at a single point; on Friday they were a worker, on Monday they were a retiree. That meant income shifted completely when they did that. The emphasis then was on financial planning for the future – to have enough money. Once they got to retirement there were few decisions that they had to make. The decisions were about leading up to retirement; retirement was the finish line. Then you didn’t have so many decisions to make, all the preparation was in advance.

Question Three: What’s emerging in the field of retirement?

First of all, as a life stage it will be relatively long for most of us. Medicine will keep up alive longer than many of us expect.  In spite of ourselves, likewise, we may arrive at retirement pretty physically healthy – we’re able to do a lot of things.

That means that it’s not just leisure, it’s leisure and something more. Often for people now it begins intermittently; when we phase out of our primary career we may have a part time job, we might have a whole new retirement career, a full time employment in a new direction. We might have self-employment or consulting. We’re skipping in and out of this idea of retirement.

That also means that income often shifts gradually, it’s not just flipping the switch from earned income to retirement income, but new combinations of that. That means too that instead of just financial planning, which is absolutely essential, but it’s this bigger idea of life planning.

Maybe most profoundly is that there are many more decisions to make than in the original idea, and retirement is not the finish line where decision making stops. There are many ongoing decisions to make once we get there.

Question Four: What’s a Good Retirement?

If that’s what the new retirement is, if that’s what we see people living and wanting, what’s a good retirement? Once we get there, what is it that would make it a good life? This is a broader question.

When I consulted the experts about what would constitute a good retirement for people, the first thing we look at of course is economic wellbeing. From an economics and financial planning perspective people want wellbeing. In economics wellbeing means lifestyle, or it means the standard of living that someone can maintain.

Interestingly, if you talk to some other people and use the term wellbeing, such as doctors and medical practitioners and public health people and wellness professionals, when they use the term they mean health and wellbeing. Of course that has nothing to do with how much money you have other than being able to pay for medical care. What it really means is this health and vitality in your body. These two domains of life are connected certainly for people, but when they think about what’s important they look at their own narrow area.

The third group that uses this same term – wellbeing – is the psychologist. When they talk about psychological wellbeing, what are they talking about? They mean happiness. The psychologists aren’t really paying attention to whether somebody’s standard of living has stayed the same or how healthy they are; they study and focus on how happy they are.

These domains are conducting real research with real humans, gathering statistical and qualitative data about what makes for a good life before retirement and after retirement. But historically these ideas of wellbeing have been independent.

The prosperity in the physical world and health in your physical body are the foundation. You need those things as a foundation then for happiness. That is, if you’re sick it’s hard to be happy. If you’re poor it’s hard to be happy. So you need the prosperity and you need the health. However, on their own they do not create happiness. You literally need to build and create happiness as a goal in itself.

Prosperity and health are necessary for, but not sufficient to create happiness. What the research has also shown us is that people by planning for and creating happiness, they stay healthier. Happy people stay healthier as they age. Prosperous people stay healthier as they age. Happy, healthy people are more likely to do better with their money, both managing their money and if they need to go earn some money in retirement, happy, healthy people are more able to get a job and earn some money. So while these things are distinct and separate and important in their own right, there’s also an amazing overlap.

So what is a good retirement? Wellbeing in all three of these dimensions.

Question Five: What don’t people want?

I we know that these universal desires are for prosperity, health and happiness, and everyone wants wellbeing and all kinds of it; what don’t they want?

The opposite of prosperity would be poverty or economic insecurity or uncertainty. In fact when we study people in retirement one of the biggest things that we find is that people are often very unhappy when they have not just a lower standard of living, but when they have an insecure income stream. There are many studies that have explored this, but one good example would be comparing people of two similar income levels, but for one of those people it’s a guaranteed income stream regardless of higher performance.

For the second group of people it is a potentially variable income stream which is subject to market fluctuations or different factors. When income level is equal, people who have a more secure income stream report being happier than the people who may have a variable stream.

When we talk about what people want, which is prosperity, maintaining their standard of living, we can also talk about what they don’t want, which is a lower income level and uncertain income, insecurity of different forms, retirement risks which maybe they haven’t anticipated or haven’t prepared for.

What about health? What their fears usually revolve around are becoming older than they anticipated. That is feeling older, looking older, and having the habits and energy level of an older person. What they really want is youthfulness; what they fear frankly, is aging. What they fear is disability. What they fear is disease. It’s this experience of not having health.

How about happiness? As it turns out most pre-retirees have a naïve idea about happiness. That is through 30 or more years of work life what we tend to do is to think that our weekends and our vacations – this unstructured time where we don’t really have to anything – that that’s happiness, that that’s fun. I would submit and I would suggest that those weekends and those vacations are happiness, they’re fun as a counterpoint – as a counterbalance to our work.

In Sum

To the extent that we enlist the whole person we’re working with; that we enlist all of their dreams and hopes; that we recognize and accommodate all of their fears and concerns; to the extent that we help them fully articulate and envision this big colorful idea of what it is that their next stage of life is going to be about; the more real retirement will be for them. Then they may be more likely to do the down and dirty tasks like increasing their contribution to the retirement plan or taking another look at their investment allocation.

I urge you to think about the whole person, to think about their entire stage of life, to think about the dreams and concerns that they have.  The more fully we can articulate that and engage them in that life planning process, the better they’re going to do in the financial life process.