36 Saving for retirement – the professional view

In a previous post (34 Retiring comfortably, or your lifetime savings plan) I referred to a pretty nice book by one Paul Westbrook, JK Lasser Institute (Saving for Retirement, Wiley, 2003), which deals with these questions in a professional manner. I’ll run through his main conclusions and see how my own home-spun analysis stands up.

First, the main points about the arithmetic of saving.

35 Passion versus pension

People sometimes make light jokes at my passion for a safe pension! The usual choice that become-great books advocate is: Passion over pension. This means, you are asked to follow your passion even at the cost of a regular income, because guaranteeing a pension essentially requires a long-term savings plan, which requires a steady income, which comes from a steady job, and so on.

Of course there are people who have made it good the hard way, after years of struggle and dedication, and we all admire them. Indeed, all the great things in the world have probably been achieved precisely by such driven souls – all the inventions, the great treasures of art and literature, great empires and also, sadly, great atrocities and disasters. These few thousand individuals in history have literally defined what it is to be human. The present series of homilies is obviously not meant for such individuals, who are quite unlikely in any case to be stumbling around the Web searching for stuff to browse. On the other hand, single-minded pursuit can often turn into an unhealthy obsession. What we are discussing here is meant for the remaining great majority, people who have a variety of likes (and dislikes), who have different expectations from their jobs, their hobbies, their pastimes, their leisure and work, and so on. For such of us, working a steady and long life at our jobs, our work organizations, and our careers or (if we are lucky) our professions, literally defines us. We do not get to define the world, unlike the thousand greats of history.

The wake-up fact for us is that there is rarely just one thing that we are meant to be doing in our lives. Interestingly, very few actually stick to the professions they got their education in. I haven’t come across the statistics (if I do, I will incorporate them here), but when I look at all the classmates in my chemistry batch at college, only a handful actually became chemists (professors, manufacturers, inventors, researchers of chemistry). Others turn up in unexpected places – one was finance secretary in the central government at the same time I was the head of the forest service! There are bankers, artists, activists, authors, analysts, managers… very few chemists. You get the drift… so what you did in college need not become your defining qualification, and you will probably end up doing a bit of many things over a lifetime.

When you are not destined for greatness in one particular field, you have the challenge of creating meaning for yourself in whatever you happen to be doing at a given period in your life. Even in a profession, where you would expect to be doing the same thing over a lifetime (thinking of surgeons or lawyers here), circumstances may conspire to give you breaks and changes in between. I was a chemist-turned-forester myself, and expected a lifetime of planting trees (this is meant a bit tongue-in-cheek!), but ended up doing many other things: cutting them, for a start, but also teaching, researching, managing companies, sitting in secretariats… even sitting in a foreign university doing a PhD (about which I will share my experience shortly!).

Instead of sitting and moaning about having to abandon one’s passion, why not get down to whatever is going on in our lives at the moment and applying ourselves to it with passion? Of course this can seem a bit synthetic and even heartless at times, as though passion can be poured out of a bottle, but at least dedication, enthusiasm, commitment to the organization’s goals and to the best interests of our co-workers and clients, can be good substitutes for the so-called passion we have to leave aside.

Here's another thought: there is a favourite ploy of greatness salespersons (self-actuation writers, that is) of posing the question: when you're dead, and find nobody at your funeral, what are you going to regret more: that you spent less time at the office, or at the home? (OK, that's a bit of a caricature, because when you're truly dead, there are obviously other things you're going to be worrying about; but only a little, because the question is ususally posed at your deathbed!). Now I know of very few persons who would be willing to swap a career of jobs outside the home, of business trips and parties, assignments and challenges, for a sit-at-home lifetime. There has to be a balance, of course, but the first thing every young person wants as they grow up, is to be rid of the control of the parents and relatives, and strike out on their own (financial assistance, however, being always welcome if it comes with no strings attached).

So when the question is posed in training programmes and public sessions, which will you choose – your passion or your pension – I usually cause some giggles by emphatically voting for the latter. With a pension secured, I may still be able to follow my real interests after retirement – like writing that masterpiece (which we all thought we would produce once we bought our first word processer!), but without the pension, there would be neither. So the  advice to those wanting to strike out on their own and follow their star, is to think well before giving up the “day job”… or abandoning the spouse with the day job! Which is why our talk about retirement necessarily involves long-term savings and investment plans, growth of savings over long time periods, and other such unexciting things!

(You could say I have a ... passion for pension!)

34 Retiring comfortably, or your life term savings plan

We’ve been talking rather glibly about retiring and having a ball (see Post 29 Retirement as “The Freedom Years”, Post 28 Managing retirement). But this sort of assumes that we’ve managed our savings and investment strategies, during our working life, sensibly. How much do we have to save to achieve this?

28 Managing retirement

I’m getting back to this blog after a hiatus of two years, during which time I’ve retired and returned from Delhi to my home and family in Bangalore. So I guess the first thing is to share the retirement experience!

First of all, I absolutely do NOT miss the job at the ministry in Delhi, and all the meetings and hustle and bustle and dealing with irritable and irritating people! I do not know whether this is a special feature of government jobs, but very few persons in similar circumstances have expressed any regret or longing for he old days after retiring. This has been a very pleasant experience, because the feelings of regret or nostalgia for the past seemed to have been a common thing in my father’s generation (I may be mistaken!).

One difference in the situation of persons retiring now may be that there are just so many more things to do, thanks to modern technology and the communications and information revolutions. There are more channels to watch, more web sites to browse, and many of my colleagues and contemporaries have taken to Facebook and such things with gusto. My generation has probably been the luckiest in human history (born in the 1950’s, we would be just post- the baby boomers, I guess): this is the generation that grew up in many countries at the beginning of the brave new era of self-determination and democracy (some countries like South Africa had to weight a while longer), a faith in ideals and in the promise of technology, and many new institutions and initiatives to take part in. In India, the middle class soared, with limitless possibilities through new institutes for specialized higher education and development  of science and technology; the performing arts, commerce and so on. This generation went all over the world,  and laid the foundation of the diaspora in the technological frontiers of the world, like Silicon Valley. The social scientists and intellectuals had not yet cast gloom on the party by their predictions of doom and mayhem, the shadow of religious fundamentalism had not fallen, rationalism and the scientific approach still held out promise and had not been eroded by the doubts of relativism and post-modernism.

Coming back to the post-retirement phase, a friend had offered the view that you can do anything you wish after retirement:  you can relax, or travel anywhere at your sweet will and fancy, you can read, write, take up courses, engage in voluntary effort, join clubs and societies, and almost anything else. All this, of course, assuming that you have prepared yourself and the family for the decrease in income and the withdrawal of support from the office or company. 

One way of doing this is obviously to plan your savings strategy right from the start of the career; some people say that you need to save only 15% of your income during your working years, but I am not sure it is enough; better to save the very maximum you can spare, so that compound interest rapidly builds up the reserves and soon makes up through interest for the inevitable halving of the pension or other official retirement income. The human tendency is to discount the future (termed myopia or short-sightedness in anticipation of the future);  so extra effort is needed to pay attention to distant future needs.

The other issue is, of course, to do with what is called life cycle planning, since one is not sure how long one is going to be alive; if one has a general pessimism about the life span, saving for eternity may not have much appeal. The only sensible approach, I feel, is to assume that you’re going to have a pretty long life (an eternal life, in fact); there is no use regretting vainly in the sunset years that you’d put by more. The problem here is, of course, that you may have to carry the accumulated savings to your last day, since you need the regular interest to see you through without seriously troubling your descendants. The corollary is that you will have to leave the accumulated capital to them, which is good in many ways, as it reduces your own temptation to splurge wildly and spoil your health, and it makes the heirs a bit kindlier and indulgent if they can look forward to a reward for putting up with your terminal foibles and troubles.

Retirement gives an opportunity to do all those things you never had time for: so enough of the excuses, get up and get going. A friend gave a novel way of looking at it: he calculated the number of days required for each activity, say personal health and hygiene, entertainment, managing the finances, drawing up income tax returns, attending to family get-togethers and social events, hobbies, and so on, and came to the conclusion that here would be no time to sit and brood! Of course, one thing to avoid is getting too closely involved in household matters and the personal lives of your family, especially the next generation; best to keep a wary distance and proffer advice only when asked.

So that’s the thing to do after retirement, of course always keeping in view that there’s going to be a long way ahead. Retirement is a start of a new journey, not the end of everything. As far as the erstwhile job and all its glories, let us comfort ourselves with the gratitude for having had it as long as we did, rather than pine for its loss; what’s more, all those who came after us are also going to be retiring soon, and within a few years the people we knew in our working lives would all be in the same boat with us, so the pain of comparing our lot with others will diminish and disappear.

(As a token of abundant personal disclosure, I have to add that I am improving my initial retirement years  by taking up reading and writing, which I could not develop systematically during the busy years on the job. Going to an institute solves the problem of being all dressed up with nowhere to go; I anticipate the need to travel to a work spot outside the home will diminish over time).

26 The downslide starts at… the pinnacle

When you were kids, would you take your bicycles out into the country-side and wander at will? The blue hills in the distance beckon, but as you crest hump after hump and coast down the other side, they seem ever farther away.  But those free slides down the downslopes are all the fun!

This is a metaphor which breaks down at this point, because sliding down the hill is not pleasant in real life! But have you noticed that in so many cases, the downslide starts soon after something has reached a pinnacle? Just when people heave a sigh and think they can now relax the rest of their lives playing golf or something, that’s when life has this nasty trick of pulling the rug from under their feet, and throwing them back into the pit.

I’ve noticed it often enough in technology. Look at music recordings, for instance: in the mid-1980s, LPs (vinyls) had reached some sort of peak of technical excellence, what with the digital mastering, transfer through ‘state-of-the-art’ audio equipment and tapes, and hi-fi playback models. And then quite suddenly they became out-moded. I remember one firm (I think it was Chevron) which was practically giving away the last digitally mastered LP free to anyone who cared to send the postage.  Then for a long time cassette tapes replaced the low end, while CDs took over the top. By the 2000s, tapes started fading away, CDs ruled. By this decade, even CDs have become passé. The internet and mp3 files rule the roost. A similar thing happens with computers, and computer media: look at the way floppys and micro-discs have evolved, till now we use the internet and chip-based memory sticks. At every stage, it appears that just as the technology seemed to have solved all the problems and you had a more or less perfected product, there were developments taking place in the shadows that suddenly came out and engulfed the ruling party!

Perhaps this is a character of Western technological society, with its constant drive to improve and invent, whereas the Eastern civilisations tend to keep doing the same thing over long periods of time. In administration, the old British colonial systems were so strongly ingrained into us (in India), that even today the lower functionaries still faithfully fill up the same forms and go through the same procedures. Only now, with increasing computerization, are we having to learn new ways.

On the other hand, perhaps this is a basic nature of change and development in human beings. Cultures which persist in doing the same thing over generations are seen as stagnant, unresponsive to changing environments, unmindful of fresh opportunities, and in the long run, unsuccessful. Some such thing seemed to have befallen the Neanderthals, for instance, despite their brawnier bodies and bigger brains compared with Cro-magnon (modern) man.

 It is when things are going really well, then, that the wise look around for newer and better things to do. They are not fooled or blinded by a period of success, which as we know is rarely a permanent state ascribable to our virtues alone (chance plays a huge part!). Constant paranoia and skepticism is the price for success. It is when things are going well, that the tough get going!

09 Building up your life’s credit balance

I like to think that each of us starts out with a certain credit balance, bestowed on us by dint of membership in the human race. As we grow and travel through life, we are constantly interacting with our fellow humans, other living things, the forces of nature, and negotiating with the Fates and the Furies… playing our percentages, juggling our few chances, giving and taking.

Each one of these interactions has the potential of adding to this balance… or of drawing it down. When we are very small, the human race looks on us with a bemused tolerance and affection, finding us charming and lovable, even when we gurgle or worse down their shirt fronts. We can safely keep taking at this stage in our lives, without drawing down much of the bank balance. As we grow, however, the community becomes less tolerant, more critical. If we persist in being childish, we will soon find our credit dwindling. At sixteen, the plainest Jill or Joe looks winsome and handsome, with all the promise of a lifetime ahead. Anyone can find admiration and romantic attachments at this age, a quirk of adaptation to propagate the species. Gradually, however, we find that this potential contracts, options grow ever smaller and fewer, and soon we have to start putting back into the bank by serving others, kowtowing to the community, conforming to the rules, and serving in our slots in society.

Children are one-sided consumers and demanders, but even they have to start replenishing the balance one day, if at least by making themselves less dependent on their families and more self-sufficient, and finally independent.

As we pass through our working and family life, we have a choice at every moment. Every meeting, every interaction, every discussion, can be the source of increasing and replenishing your balance of credit, or if you convert them into adversarial confrontations, arguments, or contests, you may well be drawing down the balance at every step. This is brought home in today’s web world by instant feedbacks that establish and grow your reputation in the community, no matter that you don’t actually come face to face. The question is, how do you replenish the balance, increase the credit,  and reduce the downdraft? How do you arrive at the later stages of your life with a huge credit balance to last you through your sunset years, when your capacity to add to it may be much less?

The answer is that you’ve got to put in, during the years of maximum productivity and influence. In many ways, this is no different from building up your pension fund! The more you let go, give away, or let go during the years of maximum activity, the less you will have to worry about at the later stages. The less you stand around for immediate recompense, the more the stock is going to grow, and the richer you are going to be in your years of need.