The Barron's cover story last week (June 4) made me stop at a 7-11 and buy a hard copy. The subject was retirement - "Retirement Rethink" - and remembering all the complicated retirement issues I have seen and personally experienced I felt it might be really interesting. What I found was a very thorough and potentially helpful exploration of mostly well covered territory including the question of reasonable withdrawal rates in a market environment which likely implies lower future returns because of high market valuations.
The article also touched on issues like target date and targeted withdrawal funds, sequence risk, and annuities, all topics which turn up from time to time on this site. More surprisingly it also addressed reverse mortgages (which it says have been cleaned up a bit) as well as the counterintuitive concept of having a low equity position at the beginning of retirement and stepping up the equity allocation in later years, especially if retiring at a time when equities appear to be expensive. Without quite ever thinking about it that way, it approximates what I myself am doing. The Barron's story was worth the 5 bucks.
The only real surprise was the repeated folding in of that main premise: that according to experts the market is highly valued and thus predicts lower future returns. I happen to agree strongly, but it was interesting to see that this point of view has become so mainstream.
What the article didn't do much of, however, was tell how people actually get to retirement or what they encounter when they actually get there. Their assumptions about the path to retirement were pretty linear. People work, save, and invest steadily with investment choices as the main issue. What I suspect is that many people get to retirement by a non-linear path. I am one of them. I did a middle-aged reset from zero, and I have a feeling I am not alone.
I have thought that my experience was in many ways exceptional and did not generalize well enough to help other people. In a way I was lucky. I have never held a job for which I matched the nominal pedigree or qualifications. I even somehow ended up with a tenured position at a research university with only a B.A. I did pass the test required to be a Registered Financial Advisor after reading the study book. It took a long weekend but I guess that's a nominal qualification of sorts. Anyway I had some experience in using a little creativity to get ahead.
Reinventing myself from zero at the age of 44 required a complete re-imagining of how I should relate to the world. Who was I? What did I know how to do? I had a liberal arts B.A., with a bit of economics and math thrown in. That was it. I'm not handy, can't repair buildings or fix plumbing or electrical wiring. What could I actually do? After a little thought, I realized that I did have a few skills that were exploitable if I found a way to convert the use of them into income.
AARP articles on this subject talk about things like moonlighting at Whole Foods, doing odd jobs, or becoming a dog walker. I would have certainly done those things if I had to. I never had a greater moment of instant respect than when I ran into a former tennis student and middle level executive who had been downsized out of his job. He was my checkout person at Whole Foods. I realized that we could have equally well been on opposite sides of the checkout counter. A lot of people, especially in recent years, just sit at home and sink into depression. Any kind of work has to be better than that.
The Great Reset
It doesn't actually start with money, although that's what popped into my mind first when I thought about writing this piece. What I realized is that money isn't really the main part of it. What it starts with is a complete mental and psychological reset.
My real retirement preparation began with a divorce at the age of 44 which left me completely without money. It started with one decision which I'm not sure I fully understood at the time. It was a little like volunteering for Vietnam, for which I could give you a half dozen reasons but still don't fully understand.
I sometimes tell a tennis student who is having a bad practice to close their eyes, empty their head, and count slowly to ten while turning 360 degrees, then open their eyes. You are now a new person, I say, get your a** back to the baseline and hit tennis balls. It worked every time with my daughter, and surprisingly often with other people's kids.
That's what I did with myself.
The deal I made with my ex was that she got all the assets - which were substantial - but I got myself, no strings attached. It was both extremely generous and extremely self-interested, depending on how you look at it. Her attorney wanted her to hire an attorney for me so I would have no future recourse. Ha! What she got was just money. Money is only money. What I got was plenary ownership of my own life. I left that marriage with exactly the assets that accompanied me into the world. It's not a bad place for anyone to start over. I've never had a moment of regret.
The next thing I did was the important one. I sat down one day and wrote a list of things to do or get started on over the next five years. The unusual part of this was that I actually wrote these things down. I wish I had kept that single sheet of yellow legal paper. These were the items as I remember them:
- Get my academic salary up. I had neglected to do this for almost twenty years.
- Add a second income by giving tennis lessons to the people who had been asking me.
- Live on that income. Save. Invest. Aggressively at first, conservatively later.
- Pull up the level of my own tennis game and win a regional age group championship.
- Catch up with dental work I had been too busy for - my mom's inherited bad teeth.
- Improve my diet and health habits. Get medical checkups.
- Find a lucrative book project and put the entire proceeds into a defined benefit plan (with self as both employer and employee).
- Find a wife or life partner whose values accord with mine (a certain attraction being a given, of course). Treat her well.
One thing I had to do almost immediately was buy a car. I did a study of the cheapest small cars which had decent records for low maintenance and good longevity. I looked closely at dealer costs. I studied periods of the year and times of the month when dealers were highly motivated.
During a generally punk moment for car sales I priced Dodge Omnis with no add-ons at seven or eight dealers. I made phone calls and narrowed it to one dealer, not too far from where I lived, and wrote down the price I would try to get. There would be no negotiation. The number we agreed to would be the number on my check. One dealer got pretty close to my ideal price, and almost got even closer before saying it just wouldn't make sense for him to drive a hundred miles downstate and bring back a car from another dealer that he could sell less than a hundred bucks cheaper. It was close enough.
I negotiated a good trade-in for my old car and borrowed a couple of thousand bucks at my bank. It was the only personal debt I have ever had in my life. It took me a little over a year to repay it. When the deal was done, I asked the dealer, just for the fun of it, how much he made on the deal. He told me he made 75 bucks, goodbye and good luck to me, but don't hurry back.
That done, I set to work on my list of goals.
Checking Off The List
Somewhat to my surprise the tennis part was easiest. I dropped thirty pounds, practiced a couple of hours a day with a former women's varsity player at Iowa, and learned to hit accurately down the line as well as crosscourt. The guy who beat me in the semis a couple of years earlier had actually suggested that over a beer. I won the Midwestern 40-and-over in 1990. Not a terribly big deal. My daughter, who was a top college player at the time, teased me about it. To be honest, two players who would have beaten me didn't play that year. Good feeling, though. It's the only tennis trophy I have kept.
It seems like a sidebar to the real thing, but winning that tennis championship had symbolic importance. I had never played at that high a level as a kid. It had a message. I could set goals and accomplish them. I declared victory on the tennis front. I had made my point. I stopped playing tournaments and redirected my focus to starting a junior tennis program at a local country club.
I shorted Japan with the first bit of money I saved. With leverage. That was December 1989. For a couple of months I listened on the radio every evening to a market update which often reported the Nikkei open. Sometimes they didn't mention Japan. What was their problem? It was about to be the biggest financial story in years.
For a few months I held my breath that I wouldn't be wiped out. It was a close thing. By late spring I was up big. Let me underscore: don't try anything like this yourself. I knew I was right on the trade, but I could have lost everything I put into it before the tide turned. The reason it was okay for me to do it was that I understood this thoroughly, had little to lose, and if I lost everything I would just save up and start over in about a year.
The book project just sort of dropped on me accidentally - a biography of Jerzy Kosinski, a writer and quite an interesting character. It provided a lot of interesting travel in Poland and Russia financed by grants and an NEH Senior Fellowship. It also generated decent one-time revenue. I paid a specialized planner in Atlanta who used an actuary and a tax code loophole to help me save all proceeds from the book in a one-off defined benefits account.
I didn't know anything about writing a biography, so I started by learning about getting permissions and establishing relationships with the widow and getting access to private papers. I wrote a proposal and my agent sold the book. Then I read a dozen or so well-researched biographies and reverse-engineered the process for going from footnotes back to writing the narrative. I've never learned so much in so short a period. I didn't sleep much.
The book helped triple my academic salary. Most scholarly publication isn't paid for when published but the salary increases generated can be substantial. Less than a decade later I saw that the incremental money available for future salary increases was unlikely to match the annual inflation adjustment of my pension. I retired. I was 57.
I had laid careful groundwork. The first trick to my state university plan was to stuff your last four years with additional compensated tasks and retire at the right moment. The second trick was to buy other years - five in my case, one as a high school teacher, one for that NEH-funded research year, and three for military service.
I paid about $75,000 for those five extra years at a time when that was a large amount of money to me. It turned out to be one of the best investments I ever made. It wasn't long until that retirement plan had paid me more in pension income than I had received in salary over my entire career. Next year it will pay me more than I earned in any single year. How stupid were the people who set up the Illinois university retirement plan?
Teeth were the hard part. Almost thirty years later a really good dentist provided the final touches. Advice: take care of your teeth. Pay up if you have to for quality dental work. I also started having to pay close attention to my skin. More advice: avoid the sun at all costs. If you have been an outdoors person, see your dermatologist two or three times a year.
Following a few likely candidates who turned out to be near misses, my soulmate turned up as unexpectedly as the book deal. I gave her a tennis lesson. The first thing I noticed about her was that she was high energy. The second was that she was smart. She was frugal, a businesswoman, and an athlete. She was raising three kids on her own. I like kids and enjoy the challenge of raising them. She and I are about equally difficult to live with. And, OK, chemistry. We just celebrated our 17th anniversary.
If you are in the middle of such a search, my best counsel is to consider the kind of things I noticed and consider them in the order in which I noticed them. Is there a metaphor in this for buying stocks? Maybe. Is it value, growth, or growth at the right price? I'll think on it. My wife never reads anything I write, but she would laugh.
This makes it all sound easy. It was everything but. I twice lived in spaces rented by little old ladies. One of the rooms was about the size of a prison cell for a white collar criminal. Another little old lady rented me her entire upstairs. She was a good soul and used to leave bowls of soup and other food items on the mat outside my door as if I were a stray cat.
In the process of my reset I learned some very important things. I taught tennis about ten hours a day in the summer, including the summer when 700 or so people in Chicago died from the heat. That summer I killed a pint of cold Foster lager in my car on the way home and collapsed the moment I walked in the door (not recommended).
I must say there's no experience quite like having a person put a twenty dollar bill in your hand at the end of your tenth hour of teaching tennis at 100 degrees. Twenty is what I charged for an hour lesson in those days. No salaried job can correlate income to effort in the way being handed that twenty did.
I learned exactly what it took to earn twenty bucks. Knowing the value of twenty bucks taught me another thing too. I knew I owed twenty bucks worth of value to the person taking the lesson. Some of my students weren't affluent. Everything works both ways. I never gave lazy lessons. It wasn't fair.
I'm not sure if it would have been harder if I had suddenly lost my job. I think it would have seemed harder. Losing a job is losing income. What I lost was not income but assets and position in the world. I had a steady job, but before I started pushing to improve it, my salary was probably below the national median at the time. I could live on it, but I couldn't save on it.
Health problems would have made it a lot harder. My tennis client/friend had problems that required taking a steroid, Prednisone, I think. At least I could bounce out of bed in the morning. He eventually got another executive job. I had suggested that he put his gig at Whole Foods on his resume. I'm not sure whether he actually did it.
Here are some of the things I learned:
- A job is something more than income. A job is a place you get up and go to in the morning. A job is a network of colleagues and clients - people you know and who know and understand you. A job is a big part of your identity and sense of purpose.
- It's wonderful if you can find a job that serves multiple purposes. Teaching tennis provided fun and exercise and a free fitness membership - a huge perk. I mentally tacked on about $5-10K of value to my tennis teaching income. The guys who pick up our garbage look fit. So do the people who deliver our mail, drop off packages, or deliver things like mattresses. There were moments when those jobs were in the back of my mind. I wouldn't have minded doing them. I could have switched my university schedule to evenings.
- Drink a lot of coffee unless you have a specific health problem that says not to. Coffee is the wonder drug. You never feel tired.
- Your teeth are important and you should always keep them in good repair.
- Health habits are important. It is VERY helpful to surround yourself with others who have good health habits - especially your spouse or partner.
- Frugality works.
- Speculating occasionally works if you understand something the world seems not to (like the fact that the Nikkei was absurdly priced in 1989).
- Investing conservatively generally works.
- Understand pension plans, starting with Social Security. I did careful research on what I would receive after the Windfall Elimination Provision and made sure to get my forty quarters of qualifying income.
- It pays to be like a jailhouse lawyer studying the details of every system with a potential impact on your life or income.
- Game your private pension plan if you are fortunate enough to have one.
- Game the world. The world has lots of rules, but the rules are full of loopholes and little eccentricities. Yours probably won't be the same as mine, but you can find them. Institutions constantly do dumb things that appear to serve their interests at the time. Exploit them. It's totally fair.
- Networking helps. I never became friendly with anyone in the expectation of getting help from them, but I generally like the people I see every day. A few of them played a major positive role in my life. I got my university job through a guest lecture I did for a friend of a friend. When I got close to retirement, an administrator with whom I was casually friendly suggested, "Why don't you teach a couple of those freshman honors seminars that everybody else hates. You might like them." I taught a dozen or so of them and found them to be fun - full of very bright kids who were the first in their family to go to college. Each seminar added about $400/year in retirement income for life increasing at 3% annually. The school actually gave me the max three-year post-retirement hire-back to keep teaching them.
- Dental implants seem to be one of the few areas where the high end process is worth it. My dentists in Chicago, for what it's worth, are Mark Rosen (for the extractions and implants) and Martin Marcus (for the covering work). They must be rich now, thanks to me, but I think they still take patients. Both deserve a shout out.
- Working at a country club is great. It reminds you every day of your humble place in the world. Joining a country club is something I would never do.
My ship finally came in. When it arrived in port, it found a different human being. At that point the money, health, and soulmate aspects of life were under control. The necessary funds for retirement were visible. All that was left was to figure out retirement itself. The really hard choices were just starting. For one thing I didn't feel like retiring. I still don't. But that's another article.
I promise to write that article, eventually, but am entering the part of the summer when all I can do when I get home is drink a beer or a glass of wine, pretend I want to eat dinner, and collapse. Expect very few articles in the next two or three months.
My personal experience is just one way of doing a reset. If you are in the middle of one (or if the situation comes up later in your life), I hope maybe one or two of these points may help you. I can tell from other people's articles on SA and the comments I read that pretty much everybody on this site has the capacity to bounce back and recreate a life if some unexpected calamity befalls them. If you have already had such an experience, write a comment about it for me and other readers.
Recovering from a mid-life disaster is hard but doable. You will probably grow from it. The starting point is simple. Close your eyes, do a 360, open your eyes, and get started.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.