Reimagine retirement by focusing on 'future self,' new book urges

It’s not all about the money when it comes to retirement. It’s about your whole life.

In his new book, “Reimagining Retirement — 9 Keys to True Wealth,” Eric Weigel, a fund manager turned author, explains why Americans who spend their working days fixating on the value of their “retirement numbers” instead of their own self-worth will likely fail on both accounts.

Not that money is not important, Weigel stresses. But it’s more a means to an end, with the goal being a happy and fulfilling retirement.

InvestmentNews caught up with Weigel to better understand his vision for retirement, including his advice on transitioning from work, envisioning one’s “future self” and his so-called “bucket system” for building the funds to get there.

InvestmentNews: There have been a lot of books and studies about retirement, so how are you 'reimagining' it differently?

Eric Weigel: It’s about not falling prey to following a cookie-cutter approach to retirement and instead figuring out what type of life you want to lead and then working backward to the specific action steps you need to take to close the gap between where you are today and where you want to be in the future. The quest to define your own journey involves figuring out who you want to be, what you aspire to, and why you want this life. I call these the three pillars of your 'future self.' From this vision of your future self, you can then start drilling down into what I call the “9 Keys to True Wealth,” which encompass all important aspects of your life — money, for sure, but also relationships, your health, where you live, your emotions, learning, how you spend your time, your work and goals that are important to you. The 'reimagining' part is about thinking of your whole life rather than just focusing on money.

IN: Beyond the money issues, how does somebody know when they're ready to retire?

EW: Retirement is a big deal. Most people underestimate the implications of moving on from their primary career. In fact, according to the Holmes-Rahe stress test, retirement is the 10^th most stressful event in people’s lives, but most people don’t realize this or prepare for it before they actually retire. The two biggest nonfinancial adjustments revolve around your identity and how you spend your time. After three or four decades of work, it is hard to suddenly switch gears to not thinking of yourself as “I’m a software engineer or managing director of a large financial services company.” I always tell my clients that they have to figure out who they want to be when they retire and that they need to shed that old identity as soon as possible. People also need to retire to something more concrete than playing golf and taking long walks on the beach. You need to fill your time with activities that are both fun but also meaningful and fulfilling.

IN: How does envisioning your 'future self' help you make better decisions in the present and improve your odds of having a happy and fulfilling retirement?

EW: Research has shown that people that have a clear vision of what they want their future lives to look like behave in a manner that improves the odds of creating that reality. For example, people that see themselves playing T-ball with their grandchildren are probably taking good care of themselves by eating well and exercising. Same thing with savings. If you actually envision yourself being retired decades before you actually retire, you will probably find saving and investing much less difficult as compared to somebody that is just dealing with what’s directly in front of them. The first step is always awareness. You have to know what you want and then figure out the steps required to get there. For most people in retirement, making more money becomes secondary or a nonissue, giving way to meaning and purpose as the most important drivers of happiness and fulfillment. By understanding what gives you meaning and purpose, you are more likely to align your actions with your goals and the life you want.

IN: Why do people underestimate the difficulty of transitioning away from full-time work?

EW: Our cultural context treats retirement as the beginning of the end rather than as the beginning of yet another phase in life that often lasts two or three decades. It also presents retirement as the culmination of everything you’ve been working for but does not replace the void left by now having full control of your time. You would think that that is great but you now also have full responsibility for how you spend your day. People are not accustomed to having so much free time and need to look within to what makes them happy and gives them a sense of purpose. The other aspect that people often don’t realize is just how much of their identity is tied to their work life. Your identity drives your perspectives and behavior but when that identity no longer fits, people feel lost and confused. They are not sure what they want out of their lives. Retirement is a big change, and not all of it is easy or pleasant.

IN: How does your proposed bucketing system for managing money help deal with stock market corrections?

EW: Theoretically, it is more optimal to design one big portfolio that is customized to your risk preferences and target holding period. Most institutional portfolios are designed this way and it works well for them. Individuals, on the other hand, are much more emotional about their financial resources and are often a lot less sophisticated than institutional investors. They are more prone to behavioral biases such as focusing too much on recent trends and events.

I have found that most individuals prefer to set aside money in different accounts for different purposes. For example, people may have a 'vacation' account separate from everything else where they stash money away every month. In today’s retirement landscape, where most people need to rely on investments to fund their lifestyle, people worry a lot about running out of money.

Stock market corrections are extremely stressful for all investors but are doubly painful for people that need to withdraw money from their investment accounts to fund everyday living expenses. A young person can ride it out because they don’t need the money. A retiree does not have that luxury.

The bucket system that I use for my clients allows them to sleep better knowing that their living expenses for the next three years are taken care of. That’s the first bucket – three years of living expenses invested in really safe, short-term instruments such as money market funds, CDs, and high-quality, short-duration corporate bonds. The probability of losing money in such investments is low. The second bucket managed with a target horizon of four to 10 years out consists of a balanced stock/bond allocation. The purpose of this bucket while taking more risk than the first bucket is to outpace inflation. You’ll still have to white-knuckle stock market gyrations, but because you don’t need this money to fund your lifestyle in the near term you can take the pain, knowing that stock market corrections do not typically last beyond three years. Markets do recover but one must be patient and willing to take the pain for the greater rewards of stock ownership.

The bucket approach helps people deal with the emotional toll of stock market corrections. They know that their standard of living will be okay over the next three years. The approach allows people to sit back and be more patient. It removes anxiety. It makes them feel in control of their lives even when equity markets are falling apart.