For those who have engaged with our firm in the last couple of years, it’s likely we have exchanged ideas about how the concept of retirement, as it was defined in the post-World War II era, is experiencing its own make-over. In the following text, we will walk through some of our thoughts on the topic, and then separately try to get in front of some of the market worries that may be catalysts for the inevitable market volatility that we are likely to see in the year ahead.
With deference to Mitch Anthony, who writes often about this topic, we have learned that the idea of institutionalized retirement is nothing more than an Industrial Age social experiment that, for many, has run its course. Chancellor Otto von Bismarck in the 1880s in Germany mandated that the age for retirement was 70, while the average German worker didn’t live past 46. The legislation was imported to the United States during the Great Depression as a lever to move older workers out and younger workers into the workplace. At the time (1935), the average worker lived to be 62.
More than a few of us have noted people retiring with some means but very little meaning. Is having $2 million in the bank with nothing significant to do with your day a compelling vision for life? A recent Rand study noted the “diminishing law of returns on leisure” as a chief capstone of an emerging “un-retirement trend.” What the leisure/life propagandists failed to realize is that leisure seems to draw its merit and meaning from work. What makes leisure fun is the fact that "You're not working at the moment.” Remove work, and leisure may become monotonous and boring.
The reasons for working are not purely economic. In fact, studies show that the predominant reasons for meaningful work have more to do with social, intellectual, physical and personal challenge factors than with pay stubs.
“Successful aging” is replacing “growing old” and “meaningful pursuits” are supplanting “pursuing means.” Where retirement in the past sent people in their 60s to the sidelines, the next generation of those in their 60s is headed to the frontlines of cultural and world needs, of making a difference, of participating in loved ones’ lives. Getting a gold watch and watching time tick away is no longer as attractive. We will do what we can while we can.
In the Industrial Age where this idea was born, people traded physical capital (raw physical labor) for a paycheck. And, it made some sense that, once they passed 60, their physical ability and endurance might be waning and could be easily replaced with that of a 20 year-old. Today however, we trade intellectual, experiential and relational capital for our paychecks. There is then only one question to answer about the appropriate time to retire: “What is the expiration date on my intellectual capital and on my experience?” What many still working in their 70s and even 80s would likely tell you is that they would be dead if they had not continued to engage their intellectual faculties towards a worthwhile pursuit.
Indeed, traditional retirement is being replaced by financial freedom, where individuals have the opportunity to pursue interests and efforts without the burden or constraints of continuing to accrue financial capital. Perhaps this summer, as you are vacationing on a beach, a mountain-side, or a quiet porch, you will have the opportunity to ponder what your financial freedom years might hold in store.
Summertime Market Thoughts
As we enter the summer season when trading volumes tend to ease, we thought we would provide insight regarding what might lead to the inevitable market volatility for the year ahead. Thus far, markets have held up relatively well, which, of course, doesn't always happen following successive growth years.
Professional investors have learned to create a mental "watch list" of possible market-shaking events, and they were helped recently when Mr. Noriel Roubini, chairman of Roubini Global Economics, former Senior Economist for International Affairs at the U.S. Council of Economic Advisors, compiled his own “worry” list:
1. Roubini starts off with China (in addition to having significant unresolved territorial disputes with its neighbors - Japan, Vietnam, the Philippines), is also trying to shift its growth away from exports toward private consumption. Chinese leaders tend to panic whenever China's economic growth slows toward 7% or below in a given year, at which time they throw more money at capital investment and infrastructure, creating more bad assets and a lot of industrial capacity that nobody can use.
2. The Federal Reserve could cease its massive purchases of real estate mortgages and government bonds too quickly, causing interest rates to rise and sending financial shockwaves around the world.
3. Alternatively, the Fed might keep rates low for so long that the U.S. experiences new bubbles in real estate, stocks and credit--and then experiences the consequences when the bubbles burst.
4. Roubini also mentioned the risk of emerging market nations being able (or not) to manage their debt and capital inflows in a rising interest rate environment.
It goes without saying that the situation in the Ukraine has significant market-spooking potential. If and when one of these events grabs the global headlines, it might be helpful to remember that stock markets have weathered worse and come out ahead (e.g. World War II, a presidential assassination, two wars in the Middle East, 9/11 and a Wall Street-created global economic meltdown).
If we can survive and even grow portfolios from a disciplined investment approach through the above mentioned events, then we should be able to weather the next big headline on (or off) the worry list.