WEBVTT 00:00:00.000 --> 00:00:02.720 Welcome back to the Deep Dive. Today we are taking 00:00:02.720 --> 00:00:06.120 on a, well, a truly immense topic. Maybe one 00:00:06.120 --> 00:00:08.500 of the single biggest financial and social challenges 00:00:08.500 --> 00:00:12.560 we all face, retirement. And it's so much more 00:00:12.560 --> 00:00:15.199 than just, you know, quitting your job. What 00:00:15.199 --> 00:00:17.379 we're really looking at today is retirement as 00:00:17.379 --> 00:00:20.260 this huge phenomenon that has completely reshaped 00:00:20.260 --> 00:00:23.239 modern life. Right. Our sources define it, you 00:00:23.239 --> 00:00:25.839 know. pretty clearly. It's the permanent withdrawal 00:00:25.839 --> 00:00:29.100 from your job. But even then, we have to immediately 00:00:29.100 --> 00:00:32.140 talk about semi -retirement. That gray area where 00:00:32.140 --> 00:00:34.039 you're not fully working but not fully stopped 00:00:34.039 --> 00:00:36.179 either. Exactly. You're just dialing it back. 00:00:36.320 --> 00:00:38.619 It's a huge and growing trend. OK, so let's unpack 00:00:38.619 --> 00:00:40.700 this. We have an incredible stack of sources 00:00:40.700 --> 00:00:43.140 today. I mean, it stretches from the late 1800s 00:00:43.140 --> 00:00:46.439 all the way to these super complex mathematical 00:00:46.439 --> 00:00:50.359 models that planners use right now. Indeed. And 00:00:50.359 --> 00:00:52.880 our mission here is really threefold. And it's 00:00:52.880 --> 00:00:55.500 built specifically for you, the listener. First, 00:00:55.640 --> 00:00:57.600 we need to get into the history. You'll be surprised 00:00:57.600 --> 00:00:59.539 how recent this whole concept is. And we have 00:00:59.539 --> 00:01:02.460 to trace how the funding for it completely changed. 00:01:02.659 --> 00:01:05.239 Second, we're diving deep into the human side 00:01:05.239 --> 00:01:07.200 of things. You know, the personal, the economic, 00:01:07.299 --> 00:01:09.519 the social factors that make someone decide, 00:01:09.640 --> 00:01:12.109 OK, now's the time. And the third part. The third 00:01:12.109 --> 00:01:14.250 part is the hard math, the technical calculus 00:01:14.250 --> 00:01:16.569 of it all. We'll break down the models people 00:01:16.569 --> 00:01:18.930 used to plan for this to actually try and achieve 00:01:18.930 --> 00:01:21.670 financial independence. And just to set the stage 00:01:21.670 --> 00:01:23.409 for how much things have changed, especially 00:01:23.409 --> 00:01:26.069 in the U .S., our research turned up a really 00:01:26.069 --> 00:01:30.540 surprising fact. As of early 2023, Only about 00:01:30.540 --> 00:01:34.560 15 percent, one five of private industry workers 00:01:34.560 --> 00:01:38.359 had access to a traditional pension plan. It's 00:01:38.359 --> 00:01:40.540 a staggering number. And to really feel that 00:01:40.540 --> 00:01:42.379 contrast, you have to look at the public sector. 00:01:42.500 --> 00:01:45.200 Government workers. Right. State, local, federal 00:01:45.200 --> 00:01:47.900 employees. For them, it's almost 75 percent. 00:01:48.079 --> 00:01:51.200 Wow. That's 60 point gap. That's the whole story 00:01:51.200 --> 00:01:53.000 right there. It's a story of a massive shift 00:01:53.000 --> 00:01:55.620 from a guaranteed income provided by an employer 00:01:55.620 --> 00:01:58.379 to a system where, well, all the risk is on you. 00:01:58.560 --> 00:02:00.930 So let's jump. straight into that history because 00:02:00.930 --> 00:02:03.189 this is where you really see what a new invention 00:02:03.189 --> 00:02:05.590 this is. We just take it for granted. But for 00:02:05.590 --> 00:02:09.050 almost all of human history, retirement, it just 00:02:09.050 --> 00:02:11.210 wasn't a thing. That's absolutely correct. I 00:02:11.210 --> 00:02:13.969 mean, if you look at the records before, say, 00:02:14.050 --> 00:02:16.569 the 18th century, the sources are pretty clear. 00:02:16.750 --> 00:02:18.629 Average life expectancy was somewhere between 00:02:18.629 --> 00:02:21.530 26 and 40 years. Which is an insane number to 00:02:21.530 --> 00:02:23.689 even think about. It is. And you have to be careful 00:02:23.689 --> 00:02:26.330 with it, of course. High infant mortality really 00:02:26.330 --> 00:02:30.439 skews that average down. But. Even if you made 00:02:30.439 --> 00:02:32.379 it through childhood, the idea that you'd live 00:02:32.379 --> 00:02:34.379 long enough to be too old to work but still have 00:02:34.379 --> 00:02:37.860 decades ahead of you, that was incredibly rare. 00:02:38.060 --> 00:02:40.460 So the model was simple. You worked as long as 00:02:40.460 --> 00:02:42.240 you were able. And if you couldn't, you relied 00:02:42.240 --> 00:02:45.560 on family or, you know, charity. There was no 00:02:45.560 --> 00:02:48.020 institutional system for a long period of leisure 00:02:48.020 --> 00:02:49.819 at the end of your life. That's a modern invention. 00:02:50.400 --> 00:02:53.319 So when did this idea actually start to emerge? 00:02:53.780 --> 00:02:56.479 Really in the late 19th and early 20th centuries, 00:02:56.560 --> 00:02:58.680 you had people living longer, cities were growing, 00:02:58.800 --> 00:03:02.159 and industrial jobs were just not something an 00:03:02.159 --> 00:03:04.360 older worker could physically do forever. So 00:03:04.360 --> 00:03:07.580 society needed a solution. It did. And the biggest 00:03:07.580 --> 00:03:09.979 milestone, the one all the sources point to, 00:03:10.060 --> 00:03:14.020 is Germany in 1889. What happened there? That's 00:03:14.020 --> 00:03:16.060 when Chancellor Otto von Bismarck introduced 00:03:16.060 --> 00:03:18.300 the first national retirement benefit system, 00:03:18.419 --> 00:03:22.000 the very first one. 1889. So we're talking about 00:03:22.000 --> 00:03:24.419 what our great grandparents generation maybe. 00:03:24.680 --> 00:03:26.879 They were the first people in history who could 00:03:26.879 --> 00:03:29.319 actually expect to stop working at a set age 00:03:29.319 --> 00:03:31.580 and get a check from the state. That's the scale 00:03:31.580 --> 00:03:34.490 of the shift. I mean, it's a seismic change in 00:03:34.490 --> 00:03:36.810 just three or four generations. And once that 00:03:36.810 --> 00:03:39.750 idea was out there, it became a worker's right, 00:03:39.830 --> 00:03:43.009 something to fight for. It did. In a lot of developed 00:03:43.009 --> 00:03:45.449 countries, it's not seen as a gift from the government 00:03:45.449 --> 00:03:48.229 anymore. It's a fundamental right. Some countries 00:03:48.229 --> 00:03:50.229 even have it written into their constitutions. 00:03:50.569 --> 00:03:52.449 So let's talk about the funding, because this 00:03:52.449 --> 00:03:54.189 is where the U .S. story gets really interesting. 00:03:54.530 --> 00:03:57.169 We mentioned that old school pension, the defined 00:03:57.169 --> 00:04:00.189 benefit plan. Right. The defined benefit or DB 00:04:00.189 --> 00:04:04.060 plan. It was a promise. A promise of what? A 00:04:04.060 --> 00:04:07.080 promise from your employer that starting at a 00:04:07.080 --> 00:04:09.960 certain age, you would get a specific, predictable 00:04:09.960 --> 00:04:12.860 monthly payment for the rest of your life. And 00:04:12.860 --> 00:04:15.860 crucially, the company was on the hook for all 00:04:15.860 --> 00:04:17.920 the investment risk. That sounds pretty good. 00:04:18.019 --> 00:04:20.980 So what happened to it? Why is it so rare now 00:04:20.980 --> 00:04:25.660 in the private sector? In a word, risk. Companies 00:04:25.660 --> 00:04:27.899 started to realize that guaranteeing those payments 00:04:27.899 --> 00:04:30.100 for a workforce that was living longer and longer. 00:04:30.430 --> 00:04:33.829 It created these huge, unpredictable liabilities 00:04:33.829 --> 00:04:35.930 on their balance sheets. It was too expensive 00:04:35.930 --> 00:04:38.350 and too risky for them. Exactly. Which leads 00:04:38.350 --> 00:04:40.449 us straight to the new standard, the defined 00:04:40.449 --> 00:04:44.069 contribution, or DCE plan. The 401k, the IRA, 00:04:44.370 --> 00:04:47.050 the things we all have now. Right. And the defining 00:04:47.050 --> 00:04:49.550 feature of the DCE plan is that massive shift 00:04:49.550 --> 00:04:52.069 in responsibility we talked about. How so? Well, 00:04:52.110 --> 00:04:53.810 in a DCE plan, your employer might contribute 00:04:53.810 --> 00:04:55.490 some money. Maybe they'll match what you put 00:04:55.490 --> 00:04:58.209 in. but they make zero promises about what you'll 00:04:58.209 --> 00:05:00.389 get at the end. The final amount depends entirely 00:05:00.389 --> 00:05:02.870 on how much you save, what you invest in, and, 00:05:02.910 --> 00:05:06.430 well, how the market does. Precisely. All of 00:05:06.430 --> 00:05:09.230 that risk, the market risk, the risk you'll live 00:05:09.230 --> 00:05:11.550 too long and run out of money, it moved from 00:05:11.550 --> 00:05:13.689 the company's books directly onto your shoulders. 00:05:13.930 --> 00:05:16.029 Which is why, you know, financial literacy isn't 00:05:16.029 --> 00:05:18.350 just a nice skill to have anymore. It's a survival 00:05:18.350 --> 00:05:20.350 skill. You have to be your own portfolio manager 00:05:20.350 --> 00:05:23.759 now, your own risk analyst. Before we move on, 00:05:23.759 --> 00:05:26.079 let's circle back to that idea of pre -tirement 00:05:26.079 --> 00:05:28.379 for a second. It sort of challenges the whole 00:05:28.379 --> 00:05:31.980 idea of a permanent stop. It does. The sources 00:05:31.980 --> 00:05:34.970 see it as... People looking for an alternative 00:05:34.970 --> 00:05:37.850 to that hard binary choice. You know, either 00:05:37.850 --> 00:05:39.810 you're working 60 hours a week or you're doing 00:05:39.810 --> 00:05:41.550 nothing. So people are finding a middle ground. 00:05:41.810 --> 00:05:43.689 They are. They might cut back their hours or 00:05:43.689 --> 00:05:46.250 become a consultant or switch to a less stressful 00:05:46.250 --> 00:05:48.550 part -time job that they actually enjoy. Is that 00:05:48.550 --> 00:05:51.250 a choice or is it a necessity? It's a mix. For 00:05:51.250 --> 00:05:53.649 some, it's absolutely a lifestyle choice, a way 00:05:53.649 --> 00:05:56.550 to downshift. But for a lot of people, especially 00:05:56.550 --> 00:05:58.769 those who caught the tail end of that shift from 00:05:58.769 --> 00:06:02.550 pensions to 401k, the math is just harder. So 00:06:02.550 --> 00:06:04.910 they have to keep working in some capacity. They 00:06:04.910 --> 00:06:07.910 do. To bridge a financial gap? Maybe to keep 00:06:07.910 --> 00:06:09.750 their health insurance until Medicare kicks in? 00:06:09.930 --> 00:06:12.449 Or just to delay taking Social Security for a 00:06:12.449 --> 00:06:14.829 few more years to get a bigger check? Okay, so 00:06:14.829 --> 00:06:17.389 that's the foundation. Let's move on to the age 00:06:17.389 --> 00:06:20.829 itself, the standard retirement age. The data 00:06:20.829 --> 00:06:23.490 we looked at shows it varies wildly across the 00:06:23.490 --> 00:06:26.160 globe, right? Somewhere between 50 and 70. The 00:06:26.160 --> 00:06:28.600 variability is huge, but the big macro trend, 00:06:28.819 --> 00:06:31.360 the thing you really need to grasp, is that in 00:06:31.360 --> 00:06:33.779 most developed countries, that age is slowly 00:06:33.779 --> 00:06:36.279 but surely creeping up. And this is just a matter 00:06:36.279 --> 00:06:38.740 of demographics and math, isn't it? It is. People 00:06:38.740 --> 00:06:41.779 are living longer, healthier lives. So the public 00:06:41.779 --> 00:06:43.860 pension systems, like Social Security in the 00:06:43.860 --> 00:06:46.420 U .S., they have to pay out benefits for more 00:06:46.420 --> 00:06:48.839 and more years. And if the money coming in stays 00:06:48.839 --> 00:06:51.079 the same, but the money going out for longer... 00:06:51.620 --> 00:06:53.680 You've got a problem. You've got an insolvency 00:06:53.680 --> 00:06:55.660 problem. Yeah. And you only have a few levers 00:06:55.660 --> 00:06:57.879 to pull. You can cut benefits, you can raise 00:06:57.879 --> 00:07:00.720 taxes, or you can push back the age when people 00:07:00.720 --> 00:07:03.240 can claim. Most countries have chosen to push 00:07:03.240 --> 00:07:05.180 back the age. So what are some of the examples 00:07:05.180 --> 00:07:08.040 the sources give us? Well, here in the U .S., 00:07:08.040 --> 00:07:10.300 the full retirement age for Social Security is 00:07:10.300 --> 00:07:13.240 gradually moving up to 67. That should be finished 00:07:13.240 --> 00:07:16.459 by 2027. OK. You see a similar thing in Spain. 00:07:16.519 --> 00:07:19.339 They're moving from 65 to 67. And of course, 00:07:19.339 --> 00:07:21.060 there's France. Right. There were massive protests 00:07:21.060 --> 00:07:24.259 there over this. Huge protests. But they're still 00:07:24.259 --> 00:07:27.160 in the process of raising their age from the 00:07:27.160 --> 00:07:30.959 low 60s to the mid to high 60s. It just shows 00:07:30.959 --> 00:07:33.819 that even when the math is simple. The politics 00:07:33.819 --> 00:07:36.360 are incredibly difficult. And sometimes when 00:07:36.360 --> 00:07:38.459 a system is really on the brink, the changes 00:07:38.459 --> 00:07:41.800 can be much more drastic. The example of Iran 00:07:41.800 --> 00:07:44.000 comes to mind. That's a really instructive case. 00:07:44.120 --> 00:07:46.860 They were facing a potential bankruptcy of their 00:07:46.860 --> 00:07:48.120 Social Security system. What are they going to 00:07:48.120 --> 00:07:50.720 do? They massively increased the work requirement. 00:07:51.279 --> 00:07:53.860 The sources say workers now need a 42 -year history 00:07:53.860 --> 00:07:56.699 of paying into the system to get full benefits. 00:07:56.860 --> 00:07:59.439 42 years. 42 years. That means you basically 00:07:59.439 --> 00:08:01.759 have to start working full -time without any 00:08:01.759 --> 00:08:03.540 long breaks from the time you were a teenager 00:08:03.540 --> 00:08:07.139 just to qualify. It's an extreme measure, but 00:08:07.139 --> 00:08:08.800 it shows what can happen when the numbers don't 00:08:08.800 --> 00:08:10.800 add up. But even as the general age is going 00:08:10.800 --> 00:08:12.860 up, there are these really interesting exceptions 00:08:12.860 --> 00:08:16.120 to the rule, groups that can retire much, much 00:08:16.120 --> 00:08:19.339 earlier. Yes. And these exceptions are sort of 00:08:19.339 --> 00:08:22.120 a societal bargain. We see it in high stress, 00:08:22.319 --> 00:08:24.680 dangerous professions. Like police officers. 00:08:25.019 --> 00:08:27.879 Exactly. In many places, police can retire with 00:08:27.879 --> 00:08:31.079 half pay after just 20 years of service. That 00:08:31.079 --> 00:08:33.080 means they could be retiring in their early 40s. 00:08:33.320 --> 00:08:35.620 Or they can go 30 years and get three quarters 00:08:35.620 --> 00:08:37.960 pay. And the military has a similar structure. 00:08:38.179 --> 00:08:41.139 A very similar system. After 20 years of active 00:08:41.139 --> 00:08:44.059 duty, you're eligible for retirement. The system 00:08:44.059 --> 00:08:47.990 recognizes the physical toll. The risk, the burnout, 00:08:48.190 --> 00:08:50.330 and it gives them an off -ramp that the general 00:08:50.330 --> 00:08:52.850 public just doesn't have. That contrast is incredible. 00:08:53.070 --> 00:08:56.169 A police officer potentially retiring at 42 while 00:08:56.169 --> 00:08:58.009 an office worker is trying to make it to 67. 00:08:58.470 --> 00:09:00.629 It's not one system, it's a whole patchwork. 00:09:00.809 --> 00:09:03.389 It is. And to understand how that patchwork really 00:09:03.389 --> 00:09:05.769 affects people's decisions, researchers need 00:09:05.769 --> 00:09:08.769 amazing data. And that brings us to the big longitudinal 00:09:08.769 --> 00:09:11.090 studies our source is focused on. And when we 00:09:11.090 --> 00:09:13.230 say longitudinal, we mean studies that follow 00:09:13.230 --> 00:09:15.889 the same exact people for decades, right? That's 00:09:15.889 --> 00:09:18.879 right. And it's so powerful because retirement 00:09:18.879 --> 00:09:21.139 isn't just one decision you make in your 65th 00:09:21.139 --> 00:09:24.519 birthday. It's the end result of decades of your 00:09:24.519 --> 00:09:26.759 health, your wealth, your family all changing 00:09:26.759 --> 00:09:29.799 over time. A snapshot just can't capture that. 00:09:30.000 --> 00:09:32.399 The big one in the U .S. is the Health and Retirement 00:09:32.399 --> 00:09:36.100 Study or HRS. Yes, the HRS is the absolute gold 00:09:36.100 --> 00:09:38.940 standard. It started back in 1992. And every 00:09:38.940 --> 00:09:42.460 two years, it surveys this huge nationally representative 00:09:42.460 --> 00:09:45.080 group of Americans over the age of 50. And they're 00:09:45.080 --> 00:09:47.539 asking about more than just their 401K balance, 00:09:47.659 --> 00:09:49.960 I assume? Oh, much more. Of course, they get 00:09:49.960 --> 00:09:52.879 deep into the financials, assets, income, pensions. 00:09:53.059 --> 00:09:55.120 But what makes it so rich is that they also track 00:09:55.120 --> 00:09:57.419 health conditions like diabetes or joint problems. 00:09:57.519 --> 00:10:00.299 They track work history, family changes, even 00:10:00.299 --> 00:10:02.919 psychosocial things like how optimistic you are 00:10:02.919 --> 00:10:04.940 or how much risk you're willing to take. So you 00:10:04.940 --> 00:10:07.200 could see if someone's personality in their 50s 00:10:07.200 --> 00:10:09.899 predicts their retirement timing in their 70s. 00:10:09.899 --> 00:10:12.159 Exactly. It's the engine behind almost all modern 00:10:12.159 --> 00:10:14.600 retirement research. And the brilliant part is 00:10:14.600 --> 00:10:16.860 they designed it to be replicated in other countries. 00:10:16.980 --> 00:10:18.460 Which is where the European studies come in. 00:10:18.580 --> 00:10:20.899 Right. You have the English Longitudinal Study 00:10:20.899 --> 00:10:24.200 of Aging, or ELSA. And then there's SHARE, the 00:10:24.200 --> 00:10:26.659 Survey of Health, Aging, and Retirement in Europe. 00:10:26.799 --> 00:10:29.879 And SHARE is huge. It's monumental. It covers 00:10:29.879 --> 00:10:32.659 14 countries in Europe. plus Israel. And because 00:10:32.659 --> 00:10:34.899 it's modeled on the HRS, researchers can make 00:10:34.899 --> 00:10:37.600 these amazing cross -national comparisons. They 00:10:37.600 --> 00:10:39.580 can ask, you know, is this behavior we see in 00:10:39.580 --> 00:10:42.139 the U .S. a universal human thing or is it just 00:10:42.139 --> 00:10:44.679 a weird side effect of our specific Social Security 00:10:44.679 --> 00:10:47.179 system? So we basically have this global laboratory 00:10:47.179 --> 00:10:49.840 that's been running for 30 years, tracking everything 00:10:49.840 --> 00:10:52.659 about aging. And that's the foundation for understanding 00:10:52.659 --> 00:10:55.539 what really drives these decisions. OK, so with 00:10:55.539 --> 00:10:58.039 all that incredible data as a backdrop, let's 00:10:58.039 --> 00:10:59.879 drill down into the factors themselves. And the 00:10:59.879 --> 00:11:01.919 first one is. what the sources call the financial 00:11:01.919 --> 00:11:05.460 magnet. There's this really interesting clustering 00:11:05.460 --> 00:11:07.559 effect. It's one of the most solid findings across 00:11:07.559 --> 00:11:10.279 all these studies, globally. People are overwhelmingly 00:11:10.279 --> 00:11:13.179 more likely to retire exactly on their birthday 00:11:13.179 --> 00:11:16.159 when they become eligible for a pension. So in 00:11:16.159 --> 00:11:18.980 the U .S., that's age 62 for early Social Security 00:11:18.980 --> 00:11:22.419 and then the full retirement age, 65 or 67. Exactly. 00:11:22.580 --> 00:11:26.159 Those ages act like powerful magnets pulling 00:11:26.159 --> 00:11:28.440 people out of the workforce. And here's the paradox, 00:11:28.620 --> 00:11:30.899 right? The actual financial difference between 00:11:30.899 --> 00:11:35.379 retiring at, say, 62 versus 63 is often what's 00:11:35.379 --> 00:11:38.899 called actuarially fair. Let's unpack that term. 00:11:39.579 --> 00:11:42.759 Actuarially fair means that, on average, the 00:11:42.759 --> 00:11:44.860 total lifetime benefit you're expected to get 00:11:44.860 --> 00:11:47.620 is about the same. How does that work? Well, 00:11:47.679 --> 00:11:50.220 if you retire early, your monthly check is smaller, 00:11:50.320 --> 00:11:53.279 but you get more of them. If you wait, your check 00:11:53.279 --> 00:11:56.340 is bigger, but you get fewer of them. So in theory, 00:11:56.399 --> 00:11:59.389 it's a wash. The math is neutral. So if the math 00:11:59.389 --> 00:12:01.610 is a wash, why does everyone rush for the exit 00:12:01.610 --> 00:12:04.669 at 62? Psychology. It's a focal point. It's a 00:12:04.669 --> 00:12:07.049 social signal that says it's okay to start now. 00:12:07.230 --> 00:12:09.429 People gravitate towards that simplicity and 00:12:09.429 --> 00:12:11.850 social norm instead of doing a complex optimization 00:12:11.850 --> 00:12:13.870 calculation. Okay, that makes sense. Now let's 00:12:13.870 --> 00:12:16.190 talk about just raw wealth, the ability to buy 00:12:16.190 --> 00:12:17.870 your leisure time. The more money you have, the 00:12:17.870 --> 00:12:20.389 earlier you retire. That seems intuitive. It 00:12:20.389 --> 00:12:22.610 is the general pattern, yes. But it's actually 00:12:22.610 --> 00:12:25.110 tricky for researchers to prove that wealth causes 00:12:25.110 --> 00:12:27.529 early retirement. Why is that? Because maybe 00:12:27.529 --> 00:12:29.850 the people with high wealth are just the type 00:12:29.850 --> 00:12:32.269 of people who are disciplined savers. And that 00:12:32.269 --> 00:12:34.370 discipline is what's really driving the early 00:12:34.370 --> 00:12:37.610 retirement plan, not the money itself. It's a 00:12:37.610 --> 00:12:40.309 classic correlation versus causation problem. 00:12:40.590 --> 00:12:42.669 So how did the researchers get around that? How 00:12:42.669 --> 00:12:45.350 did they isolate the pure effect of wealth? They 00:12:45.350 --> 00:12:47.350 looked for what they call an exogenous wealth 00:12:47.350 --> 00:12:50.309 shock, basically a windfall of money that you 00:12:50.309 --> 00:12:52.529 didn't plan for or earn through your own discipline. 00:12:52.769 --> 00:12:55.639 Like winning the lottery. Or... The best example 00:12:55.639 --> 00:12:58.279 from the HRS data, receiving a large inheritance. 00:12:58.659 --> 00:13:02.080 A slightly morbid research tool, but very effective. 00:13:02.299 --> 00:13:05.220 Very effective. And the data is so precise, they 00:13:05.220 --> 00:13:07.460 found that receiving an inheritance increases 00:13:07.460 --> 00:13:09.679 the probability of retiring earlier than you 00:13:09.679 --> 00:13:13.100 expected by 4 .4 percentage points. And what 00:13:13.100 --> 00:13:15.580 is that in relative terms? It's about a 12 % 00:13:15.580 --> 00:13:17.519 jump compared to the baseline retirement rate. 00:13:17.679 --> 00:13:20.600 It's a clean, direct signal. When unexpected 00:13:20.600 --> 00:13:23.220 money shows up... a significant number of people 00:13:23.220 --> 00:13:25.559 use it to buy back their time. All right, let's 00:13:25.559 --> 00:13:28.759 tackle a big one. Economic shocks. Specifically, 00:13:28.779 --> 00:13:32.919 the 2008 financial crisis. The story we all heard 00:13:32.919 --> 00:13:35.759 was that everyone's 401k got destroyed, so people 00:13:35.759 --> 00:13:38.220 had to delay retirement for years. That was the 00:13:38.220 --> 00:13:40.620 narrative, absolutely. But the research we looked 00:13:40.620 --> 00:13:44.039 at... It really challenges that. It does, significantly. 00:13:44.399 --> 00:13:47.799 The HRS data showed that older workers, the ones 00:13:47.799 --> 00:13:50.639 closest to retirement, often had less exposure 00:13:50.639 --> 00:13:53.299 to the stock market crash than you'd think. Why? 00:13:53.480 --> 00:13:55.299 Because they'd already moved their money into 00:13:55.299 --> 00:13:57.980 safer things. Exactly. They were already in more 00:13:57.980 --> 00:14:00.559 conservative bonds and fixed income stuff. So 00:14:00.559 --> 00:14:03.159 while it hurt, it wasn't as catastrophic for 00:14:03.159 --> 00:14:05.539 the 60 -year -old as it was for the 40 -year 00:14:05.539 --> 00:14:08.460 -old. But the chaos of the recession still had 00:14:08.460 --> 00:14:11.000 a huge effect. What about layoffs? That's the 00:14:11.000 --> 00:14:13.639 key. That was the real story. Another study looked 00:14:13.639 --> 00:14:15.960 at job losses during that time, and the layoffs 00:14:15.960 --> 00:14:18.679 hit older, more expensive workers really hard. 00:14:18.779 --> 00:14:20.759 It was a massive push factor. So they didn't 00:14:20.759 --> 00:14:23.639 choose to retire. They were forced out. That 00:14:23.639 --> 00:14:26.399 effect was so powerful, the researchers estimate 00:14:26.399 --> 00:14:28.779 that the increase in retirements due to layoffs 00:14:28.779 --> 00:14:31.980 was almost 50 % larger than the decrease in retirements 00:14:31.980 --> 00:14:35.220 due to the stock market crash. Wow. So the net 00:14:35.220 --> 00:14:37.740 effect of the Great Recession was actually more 00:14:37.740 --> 00:14:40.659 retirements sooner. That's what the data suggests. 00:14:40.740 --> 00:14:42.860 Being pushed out of your job was a much bigger 00:14:42.860 --> 00:14:45.440 driver than pulling back because your portfolio 00:14:45.440 --> 00:14:48.980 took a hit. Okay. Shifting gears to health. The 00:14:48.980 --> 00:14:52.019 link here seems obvious. Poor health leads to 00:14:52.019 --> 00:14:54.620 early retirement. It's a very strong and consistent 00:14:54.620 --> 00:14:57.639 link. The research points to specific chronic 00:14:57.639 --> 00:15:00.539 conditions, things like hypertension, diabetes, 00:15:00.919 --> 00:15:04.019 joint diseases. They all correlate with a higher 00:15:04.019 --> 00:15:06.120 chance of leaving the workforce early. Now, the 00:15:06.120 --> 00:15:07.919 sources mentioned something called justification 00:15:07.919 --> 00:15:10.440 bias, the idea that someone might quit their 00:15:10.440 --> 00:15:12.519 job because they hate it, but then tell the survey 00:15:12.519 --> 00:15:14.679 it was because of their bad back. It's a possibility 00:15:14.679 --> 00:15:17.470 researchers always have to consider. Yeah. But 00:15:17.470 --> 00:15:19.970 the link between objective health data and retirement 00:15:19.970 --> 00:15:23.090 timing is so strong that most believe that bias 00:15:23.090 --> 00:15:25.149 is a pretty small effect. But there's a flip 00:15:25.149 --> 00:15:27.090 side to this health story, a really critical 00:15:27.090 --> 00:15:30.490 one. There is. And it's a powerful warning. Some 00:15:30.490 --> 00:15:32.809 of the U .S. studies using that same HRS data 00:15:32.809 --> 00:15:35.210 show the causal arrow can point the other way. 00:15:35.370 --> 00:15:38.190 You mean retirement can make your health worse? 00:15:38.730 --> 00:15:41.549 It can. Both physical and mental health have 00:15:41.549 --> 00:15:43.990 been shown to decline after retirement in some 00:15:43.990 --> 00:15:46.210 people. How is that possible? You have to think 00:15:46.210 --> 00:15:48.649 about what work provides beyond a paycheck. It's 00:15:48.649 --> 00:15:51.389 routine. It's social interaction. It's cognitive 00:15:51.389 --> 00:15:54.269 challenges, a sense of identity. When you suddenly 00:15:54.269 --> 00:15:56.990 remove all of that structure, it can lead to 00:15:56.990 --> 00:16:00.429 loneliness, less physical activity, and a real 00:16:00.429 --> 00:16:03.159 decline in well -being. So your retirement plan 00:16:03.159 --> 00:16:05.659 needs to be more than just a financial plan. 00:16:05.799 --> 00:16:08.220 It needs to be a life structure plan. It absolutely 00:16:08.220 --> 00:16:11.620 does. Let's talk about another huge factor, your 00:16:11.620 --> 00:16:15.600 spouse. This decision is rarely made alone. Almost 00:16:15.600 --> 00:16:18.240 ever. Most people are married at retirement age, 00:16:18.379 --> 00:16:20.419 and there's a very strong tendency to coordinate. 00:16:21.240 --> 00:16:24.100 The data is clear. Men are much more likely to 00:16:24.100 --> 00:16:26.200 retire if their wives are already retired, and 00:16:26.200 --> 00:16:27.960 the same is true for women. That makes sense. 00:16:28.000 --> 00:16:29.340 You want to have your leisure time together. 00:16:29.500 --> 00:16:32.299 Right. And it can create interesting timing issues 00:16:32.299 --> 00:16:34.480 since husbands are often a few years older than 00:16:34.480 --> 00:16:37.240 their wives. One person might have to wait or 00:16:37.240 --> 00:16:39.519 the other might have to go a bit earlier to sync 00:16:39.519 --> 00:16:42.440 up. The European data had some fascinating findings 00:16:42.440 --> 00:16:45.460 on family size and gender, didn't it? It did. 00:16:45.679 --> 00:16:49.039 A study in Spain found that for older men, having 00:16:49.039 --> 00:16:52.299 a larger household, more kids or other dependents 00:16:52.299 --> 00:16:54.820 living at home actually made them less likely 00:16:54.820 --> 00:16:57.639 to retire. An income effect. A clear income effect. 00:16:58.039 --> 00:17:00.259 You've got more mouths to feed, so the pension 00:17:00.259 --> 00:17:01.960 check alone isn't going to cut it. You have to 00:17:01.960 --> 00:17:04.220 keep working. And what about the difference between 00:17:04.220 --> 00:17:07.400 Western and Eastern Europe? A really sharp contrast. 00:17:07.740 --> 00:17:10.240 In the old member states, the more established 00:17:10.240 --> 00:17:13.140 Western European countries, women tended to retire 00:17:13.140 --> 00:17:15.779 earlier than men. Okay. But in the new member 00:17:15.779 --> 00:17:18.279 states, in Eastern Europe, it was the opposite. 00:17:18.500 --> 00:17:20.839 Men retired less than women. Why the reversal? 00:17:21.160 --> 00:17:23.799 Researchers point to bigger gender wage gaps 00:17:23.799 --> 00:17:27.299 and larger family sizes in those economies. In 00:17:27.299 --> 00:17:29.819 a situation where the man is the primary breadwinner 00:17:29.819 --> 00:17:33.240 by a large margin, he has to keep working longer 00:17:33.240 --> 00:17:35.259 to make sure the household finances are stable 00:17:35.259 --> 00:17:38.180 enough for both of them to retire. So local economic 00:17:38.180 --> 00:17:40.660 reality just completely shapes the decision. 00:17:41.039 --> 00:17:44.259 Every time. Which leads to the last factor, the 00:17:44.259 --> 00:17:47.519 local labor market itself. The UK data on this 00:17:47.519 --> 00:17:50.400 was just stunning. What did it show? It showed 00:17:50.400 --> 00:17:53.160 that where you lived and what the job market 00:17:53.160 --> 00:17:55.279 was like when you were young. could cast this 00:17:55.279 --> 00:17:57.619 incredibly long shadow over your entire career. 00:17:57.859 --> 00:18:01.000 How so? Specifically, workers who were exposed 00:18:01.000 --> 00:18:03.440 to high unemployment rates in their local area 00:18:03.440 --> 00:18:06.880 when they were, say, 26 years old. They showed 00:18:06.880 --> 00:18:09.420 poor health and were less likely to be employed 00:18:09.420 --> 00:18:11.920 near retirement age decades later. So a recession 00:18:11.920 --> 00:18:14.440 in your 20s could actually impact your health 00:18:14.440 --> 00:18:17.700 and job prospects in your 60s. That's the finding. 00:18:17.799 --> 00:18:20.200 It's a cumulative effect. The decision you make 00:18:20.200 --> 00:18:22.980 at 62 isn't made in a vacuum. It's the end result 00:18:22.980 --> 00:18:25.720 of a lifetime of economic opportunities and setbacks. 00:18:25.920 --> 00:18:28.279 OK, we've covered the history and the human factors. 00:18:28.519 --> 00:18:31.420 Now let's get into the hard math, the calculus 00:18:31.420 --> 00:18:33.920 of actually planning for this. And the goal is 00:18:33.920 --> 00:18:37.420 simple, right? Financial independence. The goal 00:18:37.420 --> 00:18:40.940 is simple, but the process is anything but. The 00:18:40.940 --> 00:18:42.859 sources really stress that good planning has 00:18:42.859 --> 00:18:45.880 three parts. You have to assess where you are. 00:18:46.329 --> 00:18:49.069 identify what you need to do, and then actually 00:18:49.069 --> 00:18:50.950 develop the discipline to do it. The sources 00:18:50.950 --> 00:18:53.309 break a good plan down into three big domains, 00:18:53.609 --> 00:18:56.490 financial, health, and personal. Let's start 00:18:56.490 --> 00:18:58.950 with financial. The financial checklist is long. 00:18:59.089 --> 00:19:01.789 It starts with the basics, your savings, your 00:19:01.789 --> 00:19:05.390 401ks, your IRAs. Then you have to map out all 00:19:05.390 --> 00:19:07.410 your future income streams, Social Security, 00:19:07.670 --> 00:19:10.450 any pensions, maybe an annuity. And budgeting. 00:19:10.750 --> 00:19:12.509 Detailed budgeting. Not just for your needs, 00:19:12.589 --> 00:19:14.549 but for your wants. A lot of people find their 00:19:14.549 --> 00:19:16.069 spending actually goes up in early retirement. 00:19:16.390 --> 00:19:18.710 And then you get into the really complex stuff, 00:19:18.890 --> 00:19:21.769 planning for inflation, planning for taxes, figuring 00:19:21.769 --> 00:19:23.589 out the most tax -efficient way to draw down 00:19:23.589 --> 00:19:26.049 your money. Okay, next is the health domain. 00:19:26.309 --> 00:19:28.109 And in the U .S., this feels like the biggest 00:19:28.109 --> 00:19:31.089 financial wildcard of all. It absolutely is. 00:19:31.210 --> 00:19:34.349 You have to have a plan for Medicare at 65 and 00:19:34.349 --> 00:19:36.609 for the supplemental insurance you'll need to 00:19:36.609 --> 00:19:39.529 fill the gaps. And the big one that people ignore 00:19:39.529 --> 00:19:42.089 is long -term care. Right. How are you going 00:19:42.089 --> 00:19:44.710 to pay for that if you need it? And the sources 00:19:44.710 --> 00:19:48.049 specifically call out health savings accounts, 00:19:48.269 --> 00:19:51.250 HSAs, as a critical tool here. Because of the 00:19:51.250 --> 00:19:53.839 tax advantages. The triple tax advantage. Your 00:19:53.839 --> 00:19:55.880 contributions are tax deductible, the money grows 00:19:55.880 --> 00:19:59.079 tax -free, and your withdrawals for medical expenses 00:19:59.079 --> 00:20:01.640 are tax -free. It's the most powerful tool there 00:20:01.640 --> 00:20:04.980 is for funding future health care. And finally, 00:20:05.059 --> 00:20:07.259 the personal planning domain. This is where the 00:20:07.259 --> 00:20:09.599 numbers meet reality. This is where you ask the 00:20:09.599 --> 00:20:11.700 big questions. What kind of life do you actually 00:20:11.700 --> 00:20:14.240 want to live? Do you want to travel? Where do 00:20:14.240 --> 00:20:16.319 you want to be? And then you have to model the 00:20:16.319 --> 00:20:19.019 great unknowns. Like what? Market returns, inflation, 00:20:19.220 --> 00:20:21.740 and the big one. How long are you and your spouse 00:20:21.740 --> 00:20:24.569 going to live? You can't just use today's averages. 00:20:24.769 --> 00:20:26.470 You have to plan on living longer than that. 00:20:26.670 --> 00:20:29.289 So when you're starting this process, do you 00:20:29.289 --> 00:20:31.410 try to do it all yourself or do you hire someone? 00:20:31.490 --> 00:20:34.390 The whole DIY versus planner debate. The DIY 00:20:34.390 --> 00:20:37.470 route is more possible than ever. There are some 00:20:37.470 --> 00:20:39.910 really sophisticated online tools out there. 00:20:40.390 --> 00:20:43.549 But a good planner can be invaluable. The key 00:20:43.549 --> 00:20:45.750 thing our sources warn about is understanding 00:20:45.750 --> 00:20:48.450 how they get paid. Fee -based versus commission. 00:20:48.829 --> 00:20:51.880 Exactly. A fee -based planner charges you for 00:20:51.880 --> 00:20:54.759 their time and advice. A commission advisor gets 00:20:54.759 --> 00:20:57.940 paid to sell you specific products. And you just 00:20:57.940 --> 00:20:59.920 have to be aware that that commission structure 00:20:59.920 --> 00:21:02.759 can create a potential conflict of interest. 00:21:03.039 --> 00:21:04.740 Okay, let's get into the real technical stuff. 00:21:05.039 --> 00:21:07.160 The sources start with a really simple model 00:21:07.160 --> 00:21:10.660 to illustrate the savings burden. The zero real 00:21:10.660 --> 00:21:12.900 interest rate model. This is a great thought 00:21:12.900 --> 00:21:15.160 experiment. It strips away all the noise of the 00:21:15.160 --> 00:21:17.839 market and just looks at the raw numbers. It 00:21:17.839 --> 00:21:20.960 assumes your investments earn 0 % after inflation 00:21:20.960 --> 00:21:23.099 and taxes. So your money doesn't grow at all 00:21:23.099 --> 00:21:25.579 in real terms. Not at all. Which means every 00:21:25.579 --> 00:21:28.420 single year you work has to pay for itself. Plus, 00:21:28.480 --> 00:21:30.279 it's your of all your years in retirement. So 00:21:30.279 --> 00:21:32.420 let's use the simple example. You work one year, 00:21:32.519 --> 00:21:34.700 you retire one year. Then you have to save half 00:21:34.700 --> 00:21:37.259 your pay, 50%. You spend half, you save half. 00:21:37.400 --> 00:21:40.000 That one year of saving funds, your one year 00:21:40.000 --> 00:21:42.140 of retirement. What about a more realistic scenario? 00:21:42.559 --> 00:21:45.480 Work 40 years, retire for 20 years. Okay, so 00:21:45.480 --> 00:21:48.960 every year of work. has to support itself plus 00:21:48.960 --> 00:21:51.579 half a year of retirement so you need to save 00:21:51.579 --> 00:21:56.000 a third year income 33 .33 % every single year 00:21:56.000 --> 00:21:59.019 for 40 years. That really puts the scale of the 00:21:59.019 --> 00:22:01.279 challenge in perspective. And there's a formal 00:22:01.279 --> 00:22:03.420 formula for this, right? That includes a replacement 00:22:03.420 --> 00:22:05.559 ratio. Right. The replacement ratio is just the 00:22:05.559 --> 00:22:07.519 percentage of your pre -retirement income you 00:22:07.519 --> 00:22:09.960 want to live on. The formula is a bit much for 00:22:09.960 --> 00:22:11.980 radio, but let's use the example from the sources. 00:22:12.180 --> 00:22:14.920 Okay. They say you work 35 years and you want 00:22:14.920 --> 00:22:18.000 to be retired for 30 years, living on 65 % of 00:22:18.000 --> 00:22:20.880 your old income. 35 working, 30 retired. Right. 00:22:20.920 --> 00:22:22.559 When you run those numbers through the formula, 00:22:22.910 --> 00:22:25.890 It tells you that you need to save 35 .78 % of 00:22:25.890 --> 00:22:29.549 your pay every year for 35 years with zero return. 00:22:29.710 --> 00:22:32.049 It just shows you the baseline commitment. But 00:22:32.049 --> 00:22:33.829 of course, we don't live in a world with zero 00:22:33.829 --> 00:22:37.049 returns. We live in a world with volatile, unpredictable 00:22:37.049 --> 00:22:40.250 returns. And that's where stochastic modeling 00:22:40.250 --> 00:22:42.690 comes in. This is where we have to leave the 00:22:42.690 --> 00:22:45.750 simple spreadsheet behind. Because retirees face 00:22:45.750 --> 00:22:49.609 two enormous, terrifying risks. The first is 00:22:49.609 --> 00:22:52.029 longevity risk, not knowing how long you'll live. 00:22:52.190 --> 00:22:55.190 The second is market risk. And specifically something 00:22:55.190 --> 00:22:57.869 called sequence of returns risk. Yes. And it's 00:22:57.869 --> 00:23:00.150 so important to understand this. It's the risk 00:23:00.150 --> 00:23:02.910 that you get terrible market returns right at 00:23:02.910 --> 00:23:04.730 the beginning of your retirement. Why is that 00:23:04.730 --> 00:23:06.730 so much worse than getting them later? Because 00:23:06.730 --> 00:23:08.789 that's when your portfolio is at its biggest. 00:23:09.279 --> 00:23:11.700 If the market crashes in your first few years 00:23:11.700 --> 00:23:14.359 of retirement, you're forced to sell your assets 00:23:14.359 --> 00:23:17.500 at bargain basement prices just to live, and 00:23:17.500 --> 00:23:19.619 you can permanently cripple your portfolio's 00:23:19.619 --> 00:23:22.519 ability to recover. The order of the returns 00:23:22.519 --> 00:23:25.859 matters immensely. So a simple spreadsheet that 00:23:25.859 --> 00:23:28.500 just assumes an average 7 % return every year 00:23:28.500 --> 00:23:31.420 is basically useless. It's dangerously misleading, 00:23:31.660 --> 00:23:34.039 which is why planners use Monte Carlo simulations. 00:23:34.559 --> 00:23:36.359 Okay, that sounds advanced. Break that down. 00:23:36.750 --> 00:23:38.869 Imagine running your retirement plan through 00:23:38.869 --> 00:23:41.910 a computer simulation, not once, but 10 ,000 00:23:41.910 --> 00:23:45.329 times. Each time the computer uses random but 00:23:45.329 --> 00:23:47.869 realistic values for things like market returns 00:23:47.869 --> 00:23:50.390 and inflation. So you're creating 10 ,000 possible 00:23:50.390 --> 00:23:53.289 futures for your portfolio. Exactly. And the 00:23:53.289 --> 00:23:55.789 output isn't a single number. It's a probability. 00:23:55.910 --> 00:23:58.950 It tells you... Based on all this, your plan 00:23:58.950 --> 00:24:02.430 has an 85 % chance of success. It gives you a 00:24:02.430 --> 00:24:04.289 way to manage the uncertainty. And what about 00:24:04.289 --> 00:24:07.069 the other big uncertainty, longevity? How do 00:24:07.069 --> 00:24:10.109 you mitigate the risk of just living too long? 00:24:10.309 --> 00:24:12.690 The main tool for that is an inflation -indexed 00:24:12.690 --> 00:24:15.750 life annuity. An insurance product. It is. You 00:24:15.750 --> 00:24:17.509 give an insurance company a lump sum of your 00:24:17.509 --> 00:24:19.829 money, and in exchange, they give you a guaranteed 00:24:19.829 --> 00:24:21.930 monthly paycheck for the rest of your life, a 00:24:21.930 --> 00:24:23.849 check that goes up with inflation. It takes the 00:24:23.849 --> 00:24:25.710 risk of you outliving your money off the table. 00:24:26.299 --> 00:24:28.660 Lastly, we have to talk about the rule of thumb 00:24:28.660 --> 00:24:31.640 everyone knows, the 4 % rule. Ah, yes, the famous 00:24:31.640 --> 00:24:34.420 4 % rule. It came out of a study called the Trinity 00:24:34.420 --> 00:24:36.740 Study, and it basically found that historically, 00:24:37.019 --> 00:24:39.759 if you withdrew 4 % of your starting portfolio 00:24:39.759 --> 00:24:42.279 in your first year of retirement and then adjusted 00:24:42.279 --> 00:24:44.960 that amount for inflation each year after, your 00:24:44.960 --> 00:24:47.799 money was very likely to last for 30 years. But 00:24:47.799 --> 00:24:49.819 there are some huge warnings that come with that 00:24:49.819 --> 00:24:53.019 rule. Huge caveats. First, it's based on past 00:24:53.019 --> 00:24:55.119 U .S. market performance, which might not repeat. 00:24:55.690 --> 00:24:58.170 Second, it's designed for a 30 -year retirement. 00:24:58.390 --> 00:25:01.009 If you retire at 45, that's not long enough. 00:25:01.130 --> 00:25:03.410 The biggest one. The biggest one is that it assumes 00:25:03.410 --> 00:25:06.289 your spending is smooth and predictable, and 00:25:06.289 --> 00:25:08.410 that you have no other income, like a pension 00:25:08.410 --> 00:25:10.930 or Social Security. If you have a huge health 00:25:10.930 --> 00:25:13.809 expense later in life, the 4 % rule can fall 00:25:13.809 --> 00:25:16.450 apart completely. It's a starting point, a rough 00:25:16.450 --> 00:25:19.140 guide, not a lot of physics. So we've done the 00:25:19.140 --> 00:25:20.920 history. We've done the math. Now let's talk 00:25:20.920 --> 00:25:23.039 about the life. What does it actually look like 00:25:23.039 --> 00:25:25.799 after you start working? We know it often triggers 00:25:25.799 --> 00:25:29.160 big lifestyle changes, even moving. Big changes. 00:25:29.279 --> 00:25:31.400 You see people moving to retirement communities 00:25:31.400 --> 00:25:34.059 or they become gray nomads and just travel constantly. 00:25:34.420 --> 00:25:36.240 And there's a whole trend of people retiring 00:25:36.240 --> 00:25:38.720 abroad, moving to warmer climates or places with 00:25:38.720 --> 00:25:41.460 a lower cost of living. But the research we reviewed 00:25:41.460 --> 00:25:43.680 showed something fascinating about Americans. 00:25:44.099 --> 00:25:46.700 For most of them, retirement doesn't actually 00:25:46.700 --> 00:25:49.950 mean stopping work. That's maybe the most surprising 00:25:49.950 --> 00:25:53.289 modern finding. One study identified six common 00:25:53.289 --> 00:25:56.589 retirement lifestyles and four of the six involved 00:25:56.589 --> 00:25:59.509 continuing to work in some way. Four out of six. 00:25:59.670 --> 00:26:02.849 Four out of six. Continuing full -time, going 00:26:02.849 --> 00:26:05.190 part -time, retiring, and then coming back to 00:26:05.190 --> 00:26:07.809 work. The traditional retirement where you just 00:26:07.809 --> 00:26:10.349 stop working for good is now the minority experience. 00:26:10.730 --> 00:26:13.690 Why are so many people becoming working retirees? 00:26:13.710 --> 00:26:16.470 Is it all about the money? Money is a huge part 00:26:16.470 --> 00:26:18.690 of it, of course, the wages, the health benefits. 00:26:19.109 --> 00:26:21.990 But the non -financial reasons are just as important. 00:26:22.289 --> 00:26:25.210 Like what? Social interaction, sense of purpose, 00:26:25.329 --> 00:26:27.549 and something we shouldn't underestimate, social 00:26:27.549 --> 00:26:30.710 status. In our society, being busy and having 00:26:30.710 --> 00:26:32.690 a professional identity is a big part of who 00:26:32.690 --> 00:26:35.930 we are. And this whole trend ties into the massive 00:26:35.930 --> 00:26:38.410 demographic wave of the baby boomers hitting 00:26:38.410 --> 00:26:40.309 retirement. It creates this double pressure. 00:26:40.670 --> 00:26:42.769 First, you have the strain on the pension systems. 00:26:43.049 --> 00:26:46.250 But second, you have this huge brain drain from 00:26:46.250 --> 00:26:49.369 the workforce. The economy is losing all this 00:26:49.369 --> 00:26:52.349 skill and experience. So the working retiree 00:26:52.349 --> 00:26:55.250 trend actually helps to soften that blow a little. 00:26:55.390 --> 00:26:58.150 Let's talk about the emotional side. We tend 00:26:58.150 --> 00:27:00.450 to idealize retirement, but the research shows 00:27:00.450 --> 00:27:02.529 it can be a really vulnerable time for mental 00:27:02.529 --> 00:27:05.829 health. It can be. The newly retired are a high 00:27:05.829 --> 00:27:08.549 risk group for depression. And that transition 00:27:08.549 --> 00:27:10.990 often happens at the same time as other major 00:27:10.990 --> 00:27:12.869 life stressors. Like your own health declining. 00:27:13.170 --> 00:27:15.789 Exactly. Or suddenly having to take on major 00:27:15.789 --> 00:27:17.630 caregiving duties, either for your own aging 00:27:17.630 --> 00:27:20.130 parents or for your grandchildren. You lose your 00:27:20.130 --> 00:27:22.609 work identity and routine right when these other 00:27:22.609 --> 00:27:24.950 huge pressures are building up. But there is 00:27:24.950 --> 00:27:27.049 a silver lining in the data, right? For those 00:27:27.049 --> 00:27:29.869 who adjust well. A big one. The longitudinal 00:27:29.869 --> 00:27:33.670 studies show that healthy, engaged, retired people 00:27:33.670 --> 00:27:36.990 are often just as happy. or even happier than 00:27:36.990 --> 00:27:40.069 younger working adults. The key word is engaged. 00:27:40.809 --> 00:27:44.150 Success isn't about stopping. It's about shifting 00:27:44.150 --> 00:27:47.009 your engagement to new things. So what are the 00:27:47.009 --> 00:27:49.450 key ingredients for a fulfilling life after work, 00:27:49.630 --> 00:27:51.750 according to the research? The sources lay out 00:27:51.750 --> 00:27:54.869 about six core factors. You need physical comfort 00:27:54.869 --> 00:27:57.630 and security, of course, but you also need social 00:27:57.630 --> 00:28:00.869 integration, a feeling of contribution, a sense 00:28:00.869 --> 00:28:05.109 of autonomy, and simply enjoyment. A good plan 00:28:05.109 --> 00:28:07.549 has to account for all of those, not just the 00:28:07.549 --> 00:28:09.809 money. And to wrap this up, the researchers have 00:28:09.809 --> 00:28:11.910 formal models for studying this whole process. 00:28:12.170 --> 00:28:14.029 They do. There's the multilevel model, which 00:28:14.029 --> 00:28:16.130 just reminds us that you can't look at retirement 00:28:16.130 --> 00:28:18.630 as just an individual choice. It's shaped by 00:28:18.630 --> 00:28:21.210 societal forces like government policy and by 00:28:21.210 --> 00:28:23.710 organizational forces like your company's pension 00:28:23.710 --> 00:28:25.829 plan. So it's an interaction between the person, 00:28:26.049 --> 00:28:28.549 the company, and the country. Right. And then 00:28:28.549 --> 00:28:30.730 there's the temporal process model, which looks 00:28:30.730 --> 00:28:32.890 at it as a journey through distinct phases. What 00:28:32.890 --> 00:28:35.380 are the phases? First, there's the planning phase. 00:28:35.480 --> 00:28:37.460 Yeah. And then the decision -making phase. And 00:28:37.460 --> 00:28:39.519 finally, the transition and adjustment phase 00:28:39.519 --> 00:28:42.440 after you actually retire. It treats it not as 00:28:42.440 --> 00:28:44.880 an event, but as a long, structured process. 00:28:45.420 --> 00:28:47.869 Hashtag Hag Outro Undertale. What an incredible 00:28:47.869 --> 00:28:50.710 journey. We started in a world where a 40 year 00:28:50.710 --> 00:28:53.809 life expectancy made retirement a fantasy. And 00:28:53.809 --> 00:28:56.569 we've ended up in a world where it's this incredibly 00:28:56.569 --> 00:29:00.549 complex calculation of psychology, economics 00:29:00.549 --> 00:29:04.369 and some pretty serious math. It really is. It's 00:29:04.369 --> 00:29:06.970 a social right that now has to be earned through 00:29:06.970 --> 00:29:09.269 a financial plan that demands incredible precision. 00:29:09.529 --> 00:29:11.750 And the central theme, the thing that runs through 00:29:11.750 --> 00:29:13.789 all of this is that massive transfer of risk. 00:29:13.930 --> 00:29:16.329 That's the whole story. The risk has moved from 00:29:16.329 --> 00:29:18.119 the the institution, the company, the government 00:29:18.119 --> 00:29:21.019 directly on to the individual. And that means 00:29:21.019 --> 00:29:22.960 sophisticated planning isn't optional anymore. 00:29:23.160 --> 00:29:25.019 You have to use these advanced tools. You have 00:29:25.019 --> 00:29:26.799 to. You need things like Monte Carlo simulation 00:29:26.799 --> 00:29:29.180 to handle market uncertainty. And you have to 00:29:29.180 --> 00:29:31.359 think seriously about things like annuities to 00:29:31.359 --> 00:29:33.880 handle longevity risk. It's an active, ongoing 00:29:33.880 --> 00:29:37.160 process. Absolutely. So I want to leave you with 00:29:37.160 --> 00:29:40.059 one final provocative thought based on everything 00:29:40.059 --> 00:29:42.740 we've unpacked today. If four out of the six 00:29:42.740 --> 00:29:45.259 defined American retirement lifestyles now involve 00:29:45.259 --> 00:29:48.500 continuing to work, are we actually seeing the 00:29:48.500 --> 00:29:51.180 end of total retirement as we used to imagine 00:29:51.180 --> 00:29:54.160 it? Are we instead just moving into a sort of 00:29:54.160 --> 00:29:56.640 permanent state of pre -tirement where the financial 00:29:56.640 --> 00:29:58.839 need for income and the human need for status 00:29:58.839 --> 00:30:01.779 and contribution just blend together forever? 00:30:02.019 --> 00:30:04.019 Something for you to think about as you may be. 00:30:04.269 --> 00:30:05.650 explore some of those concepts we mentioned, 00:30:05.750 --> 00:30:08.390 like downshifting or the fire movement. A fascinating 00:30:08.390 --> 00:30:10.789 question for the entire future of work. That 00:30:10.789 --> 00:30:12.809 is all the time we have for this Deep Dive. Thank 00:30:12.809 --> 00:30:14.410 you for joining us. We'll see you next time.