How does money figure into a happy life? Behavioral finance expert Brian Portnoy delivers an inspired answer based on the idea that wealth, truly defined, is funded contentment. It is the ability to underwrite a meaningful life.
His latest work, The Geometry of Wealth, bridges the philosophical and practical gap in managing money in our lives.
“Money does buy more happiness when spent wisely, especially when directed toward experiences, others, and time.” -Brian Portnoy
You point out that millions of Americans have not saved a dime for retirement. Why is this? Will this eventually cause a crisis or is this typical and then people catch up?
The lack of retirement preparedness stems from a combination of opportunity and mindset. In the context of real wages for many Americans having not risen in more than a generation, many are barely able to make ends meet, let alone build a nest egg. Beyond that, financial illiteracy is a major problem. As a society we don’t take seriously the need to understand the many facets of saving, spending, and investing. Further, humans are generally wired with biases that undermine smart money decisions. This mix of factors is at the root of the looming retirement crisis in America. Far too many have saved far too little, and there are no obvious solutions that don’t involve quite painful decisions.
“Nothing is enough for the man to whom enough is too little.” -Epictetus
Your model is in three parts: purpose to priorities to tactics. Part one is purpose, which is not a typical starting point in many financial books. Talk about the importance of purpose in this context.
Let’s step back and ask, “What are we all trying to accomplish here?” I think an answer that mostly everyone would get behind is that we want to be happy; we want to lead a good life. Okay, fine, but how do you do that? It’s obviously a massive question, with countless angles from philosophy and religion and other domains. Money, for better or worse, is an inescapable part of the discussion. There are certain unavoidable practicalities of what we can afford and how those help to underwrite the lives we want to lead. By putting purpose first, by being thoughtful – not just once, but over time – about where we find joy, then we are much better able to have our financial decisions support that quest. This is the opposite of what many unfortunately do, which is let the desire for and experience with money determine what we do in life.
“True wealth is the ability to underwrite a meaningful life.” -Brian Portnoy
When you’re young, you feel like you will live forever.
Soon enough, you realize that time is both fleeting and speeding by at a faster pace with each passing year.
Living to age 100 was once incredibly rare. When I was a teenager, I regularly visited a local nursing home, and it seemed most were in their 80s. Today, I know many people in their 80s and even 90s not only living on their own, but thriving, going to exercise classes, and even still driving.
100 just doesn’t seem impossible anymore.
Turns out, it’s not only possible, but now so common that it’s changing everything from the way we think and plan our lives.
Written by Lynda Gratton and Andrew Scott, this book is full of surprising statistics and the implications for all of us. I recently spoke with author Andrew Scott, Professor of Economics at the London Business School about their new work:
Copyright Lynda Gratton and Andrew Scott, Used by Permission. Oldest age by which 50% of babies born in 2007 are predicted to still be alive.
It’s well known that we are living longer, and there are more old people. However there is less understanding that there is strong evidence that each generation is living longer than the previous and is in general healthier for longer. Life expectancy has been increasing by about 2-3 years every decade for the last 200 years. That means that each generation lives around 6-9 years longer than the previous generation. There are major debates about how long and at what rate this can continue, but the signs are that best practice life expectancy is continuing to increase.
In our view people mistakenly take the fact that we are living for longer to mean that we are older for longer. They focus more on aging than longevity. However longevity means we have more years of life and will restructure our life accordingly. Many of our economic, financial and social patterns of behavior are based on an outdated view of life expectancy of around 70. We need to restructure to account for the likely possibility of a 100 year life.
With a long life we will see the end of the dominant model of a three stage life of education, work and retirement. Just as the twentieth century saw the emergence of new stages such as teenagers and retirees, so longevity will bring about whole new stages of life. Further in a multi-stage life, lockstep comes to an end. There is only one way to structure a three stage life – education, then work and retirement. There are many ways to structure a multi-stage life, so we will see the end of a strong link between age and stage. In the future you could be an undergraduate and be 20, 40 or 60. You could be a senior manager and be 30, 50 or 70. To support this multi stage life we will, and are already, seeing changes in how society structures itself. When life extends you reach previous milestones (such as marriage, having children, etc.) at different times, and ages are redefined.
“The antithesis of vitality is stress.” -Gratton / Scott
Work-life balance may become more important. What’s emotional spillover and how do we positively impact it?
If you take a 100 year life seriously and calculate how much you need to save for a pension, it’s likely that people will have to work in some form into their late 70s. This is why we think a three stage life can’t survive as it involves a 60 year career. While working for 60 years may solve your financial problems, it does nothing to solve the deeper issues. We emphasize that living a good life requires investing in intangible assets – productive assets such as skills and knowledge, vitality assets such as health and friendships, and—of growing importance—transformational assets, the ability to deal with change and transitions. While working for longer solves your financial problems, it means your productive, vitality and transformational assets are run into the ground. This is why we think a multi stage life with breaks and transitions is inevitable, with people spending time in between stages recuperating and rebuilding their strength and talents. A longer career also means that at some points you may well take on a traditional job where financial assets are your main focus but at other points you will seek jobs that better balance life and work.
Stress at work is associated with a 20% increase of heart disease.
Talk about education and how its value may change.
If working life extends over 60 years, it’s hard to think of any education you can learn at 20 that can last that long and remain that relevant. This is especially true if you believe the stories of technologists and the rise of Artificial Intelligence. Either because your industry becomes obsolete or because your knowledge becomes outdated, you will need to seriously reinvest in education at different stages later in life. Perhaps this education will in part be provided by traditional sources, but it is also likely that we will see new organizations develop to fill the gap.
It is an interesting question then what you should learn when young if you know that at some point this knowledge will become obsolete. One common sense prediction is that when young you learn how to learn, how to think creatively and critically, and how to evaluate from a broad-based disciplinary perspective. Then you may add to this with some detailed specific technical knowledge knowing, however, that in a decade or more this may become irrelevant.
“In the end, long life is the reward, strength, and beauty.” -Grace Paley
What are the implications for retirement? It seems daunting enough today to save with current lifespans.
As currently understood retirement is a product of three stage life thinking. It is already being undermined with a century long downward trend in those aged 65 staying on at work reversing itself. More and more people are either working past retirement or working after retirement.
Copyright Lynda Gratton and Andrew Scott, Used by Permission
In a multi-stage life you will need to prepare not just for eventual retirement but also for career breaks and career transitions, all of which will require financing. Lifetime planning will not just be about end of life planning.
Retirement will still exist, e.g. a time when you stop work, but it will occur later. At traditional retirement age you will see more varied behavior. Either people will choose to carry on in their existing roles and continue to earn if their skills and firm allow, or they will break and do something different. We are seeing a rise in entrepreneurship in people in their 60s. Becoming what we term “an independent producer” is an interesting option. In this stage of life you do something that blends work and fun together, earn just enough to cover your expenses and so keep your savings intact.
“If you want to live a long life, focus on making contributions.” -Hans Selye
Most of us are looking forward to retirement. When that day finally arrives, what’s next?
Do you know someone who has recently retired and is struggling with lack of purpose?
How do you make the rest of your life meaningful and impactful?
Bestselling author Ken Blanchard of The One Minute Manager and psychologist Dr. Morton Shaevitz don’t believe in chance meetings. When they met on a flight from San Diego to New York, the two discussed the issues of aging. Instead of the “best years are behind us” approach they decided to write a book about making life in your later years more meaningful than ever.
“Retiring suggests shutting down. Refiring means engaging in life.” -@DrMHShaevitz
Many people think “retirement” is the happy destination. Your new bookRefire! Don’t Retire gives different advice. What does it mean to refire?
Refiring is a process where the primary focus is not on career advancement, financial gain, or specific types of achievements, but rather, healthy living, warm and significant relationships, continued learning and cognitive growth, vitality and meaningful involvement, and the development of a personal sense of spirituality. Retiring suggests shutting down. Refiring means engaging in life.
You start with “refiring emotionally.” Why is that first?
There isn’t any particular reason this was first, but being socially isolated has been shown to contribute to emotional and physical decline. So that makes it a good jumping off point. Identifying those people who are meaningful in our lives, building stronger connections, reaching out to new people, opening up, and getting close can also sometimes help to establish a good foundational support system for your refiring process.
Fact: Being socially isolated contributes to emotional and physical decline.