Both my sisters are retired now. My buddy Shawn from University retired two years ago, and Kev is set to go at the end of 2021. The one thing they all have in common is they spent their careers with one employer and were members of a defined benefit pension plan for the entire 30 year (or so) run. I have argued elsewhere that generous early retirement subsidies in pension plans are bad public policy and an unfair form of cross subsidization from the less fortunate to the lucky. But none of that is important for today’s commentary.
If your friend jumped off a bridge, would you?
My dad retired at age 58 and so did my friend Bill, both with a mix of DB and DC driving their ultimate income in retirement. My dad at the time, and Bill today, argue that retirement was the best thing ever and in their own way have urged me not to put off retirement too long. As I have grown older and come to see that I have more years behind me than ahead, I have started to think hard about retirement.
For most workers, retirement can’t come soon enough – a combination of two things. First, a job for which ‘love’ is too strong a word and ‘like’ is still an aspirational idea. Second, a defined contribution account that does not appear to afford maintaining the desired lifestyle without employment income. I am one of the lucky ones that have savings on track to ‘afford’ retirement in the next few years. At the same time, I am convinced that I wouldn’t be as happy today as a retiree as I am still working.
The problem I face is two-fold. First, having spent the last thirty years working in ‘knowledge work’ I have honed my obsession for accumulating knowledge. If retirement means stopping that process, I am not sure that I am ready. Some say that you can keep learning in retirement, but I am skeptical that I will enjoy learning if there is no hope of applying my knowledge in a practical sense. Many retirees I know play away with their DC investments which can easily be equivalent to a full-time job. I repeatedly remind clients that given my track record with investing, they don’t want investment advice from me, and Paula is wise enough to realize the same thing.
The other problem is that I have spent my career driving ahead – it is hard for some to tell because of my somewhat irrevocable choice to leave the mainstream and go on my own almost a quarter century ago – but the truth is that I am not good at sitting still and relaxing. Even my hobby of golfing is more like a job than a pastime. I take lessons and practice to get better, I play to win, and I mark my score carefully so that I can do a post-mortem on what can be improved – and so the cycle continues. If retirement is a time of relaxation, then I am not ready – and maybe never will be.
When I was a kid there was the myth of ‘semi-retirement’ – working half-time and retired half-time. I say myth because I didn’t know anyone that did this. Over my career there have been calls for pension reforms to allow ‘phased retirement’ which is an actuary’s way of turning 50-50 into a polynomial curve with slope and convexity to match the personal needs of each worker. Talked about for years – we have made next to no progress other than the CPP now allows Canadians drawing a pension who go back to work to keep contributing to earn more pension. As I understand it, Ontario’s proposed rules on phased retirement from a decade ago are about to become defunct as a result of a failure of the legislature to proclaim the law. I have no idea why – was this a controversial subject?
I recently caught up with an old friend Chris. As we discussed phased retirement, he said the new language is ‘transitional retirement’. The expression really struck me. What almost every worker needs, is a way to transition out of working and into retiring. The old model of ‘today I am working and tomorrow I am retired’ is as outdated at the ‘30-and-out’ defined benefit pension plan. The rise of the Walmart Greeter is clear evidence that retirement isn’t a black and white affair any longer.
My other observation about transitional retirement is that for someone like me transitioning away from my current job doesn’t have to mean transitioning towards rest and relaxation that many covet at the end of their careers. What it can mean is transitioning to a slower pace of work or transitioning to a different type of work that might pay less or not at all.
Making ends meet
The experts will tell you that ‘decumulation’ is the new problem facing the DC industry. The truth is that decumulation has always been the problem. DC plan members are reluctant to lock in a lifetime pension with a life annuity which is the perfect decumulation mechanism. The reason for this reluctance is that in order to manage the risk of not running out of money, savers must take less investment risk in retirement and most retirement plans are built around continuing to take investment risk during retirement and in some cases all the way until a retiree’s final years.
All this risk taking in retirement, in actuarial terms, requires building margins to protect against the times when risk doesn’t equal reward. Working backwards to the accumulation phase, everyone needs to guess how much is enough. This is a question with few good answers.
Transitional retirement is the perfect hedge against the risk of retirement planning failure. If you can spend 5 years starting to ‘save less’ or even spending ‘a little’ without an all-out assault on your savings while your earnings from working partially hold up, then you have an opportunity to calibrate spending in retirement. Transitional retirement also lets someone test drive full retirement without waking up a few months later with buyer’s remorse and no way to get their old job back.
My friends René and Leslie are trying this transitional retirement road and have encouraged me to see it as a modern alternative to the on-off switch of years gone by. For this approach to get greater traction we are going to need more employers to sign on and allow workers to reduce their time in the office. Perhaps the pandemic will accelerate employer acceptance of these ideas – better pension legislation and plan design would surely help too.
So here is the news – starting in January I plan to work less. What I mean is that I plan to work less at Actuarial Solutions Inc. No one should worry – I am a worrier, and this is one place where I am not worried at all. I have taught Matt, Jason, and Dean everything I can about ASI, about pension administration, about consulting, and about client service. Jason and Dean know more about actuarial science than I could ever teach them. In addition, Jason has been in charge of ASI for close to three years and as challenging as 2020 was, our clients and our staff report the highest satisfaction ratings ever, so with all humility the stats show that ASI’s new leader is the right person for the times.
What I am going to do with my time? Although I am confessing that I am not ready to retire I have started to cultivate other priorities outside of the job I have had since 1998. The highest priority is my exercise and maybe someday soon I will do a better job of prioritizing my diet. Because these things take not only time, but mental and physical energy I will be using some of my newfound free time on trying to improve my health. More on this subject in January. Some of my time will go to volunteering at the Canadian Institute of Actuaries and the Society of Actuaries while some of it will go to speaking at industry events as I pursue my mission of ‘Retirement Security for Canadians’.
My guess is that if I didn’t write this commentary no one would notice. I am still going to be around ASI about every other day and more importantly whenever I am needed. I will still be watching my email about 16 hours a day / 7 days a week, which is more than most. The few clients that still like to call me will always be able to find me – and ironically my availability may increase.
Most exciting, in recent months I have connected with a few tech startups that could use my help in different ways – I am signing on with them because these organizations and their leaders are where I was twenty-something years ago – building something from scratch with no clear road map of how it will work. Some would find that scary, however, I find it exciting. I’ll be around if you need me – reach out anytime. If we don’t talk, happy holidays!