Financial Lessons from a Group of Retirees
March 04, 2011I have had the opportunity lately to talk with a number of people who have been retired for at least a decade. I asked them to take a look back at their financial lives to see if there were any lessons they had learned that today’s workforce could learn from. All of these people were comfortable financially and had successful careers in their chosen fields. I did not expect to hear so many comments about what they would do differently if they had the opportunity to turn back time. They had some advice for their grandchildren’s generation, and here are just a few of their observations and recommendations:
1. No matter what you earn, always save at least 10-15% of it. Don’t buy into the belief that you don’t make enough money to start saving. The earlier you start, the earlier you can retire. One of the gentlemen in the group said that if he had started saving 5 years earlier than he did, he would have had enough money to retire 10 years earlier. He thinks he worked 10 years too long, and he isn’t a man who exaggerates.
2. Don’t keep up with the Jones’. Live below your means. One of the men in the group said that he worked full time until almost 70 years old because he always needed a bigger house, a newer car, and his wife needed more jewelry, handbags and shoes. They got caught up in the consumer economy and could not afford to stop working (they owned a small business that had no sale value without him) because of their desire to maintain their high cost standard of living. They earned a fantastic income, but lived “month to month,” which is a rich guy’s version of “paycheck to paycheck” (his words). His biggest regret was moving out of a house that he and his wife loved and were on track to pay off early in order to move into a much more expensive neighborhood on a golf course. He got a bigger house, a bigger mortgage, a country club membership, and all of that added many years to his working life. He wishes they hadn’t moved and that he continued to play public golf courses.
3. Don’t get greedy. Everyone around the room had a story about how they lost a boatload of money by “getting greedy.” Trying to cash in on a boom (Examples: Dotcom stocks, Real Estate) a little bit too late was responsible for the loss of tens or hundreds of thousands of dollars for most of the people in the room. The Dotcom bubble burst in 2000 (followed by Enron and 9/11), and it was responsible for many people exiting the stock market for an extended period of time. The lesson that they learned is that they were chasing returns that were extraordinarily high. The expression “trees don’t grow to the sky” came up repeatedly. Realizing that if “everyone in the world” is pumping money into one particular thing (tech stocks in 1995-1999), that values would rise well beyond what the prudent investor would want to pay and that doubling your money in just a few years is not sustainable would have saved a lot of people a lot of heartache and lost money. They realized that the big investment mistakes they made were when they suspended logic and reason and jumped into something based on emotion. Greed. In this case, unlike the words of Gordon Gekko, greed is NOT good.
4. The flip side of the greed issue is fear. The biggest regrets of the group were that at times they passed up golden opportunities because they were afraid of the consequences of taking some kind of action. Either their “dream job” that they turned down because they didn’t want to relocate, or the stock that they didn’t buy (because after all that Microsoft company is just a passing fad and people don’t really even like computers…), or the business idea they didn’t follow through on that ended up being a multimillion dollar idea for someone else 10 years later. The interesting thing was that they were far more critical of themselves for allowing fear to let them take no action than they were for letting greed help them lose money. Greed caused an actual loss of money, while fear prevented them from an outlay of cash that might have been turned into a bigger pile of cash, yet the actual loss of money created far less regret than the perceived loss of a sizable fortune. That observation still puzzles me.
There was an enormous amount of combined life experience in the room during this conversation, and all of their stories had common threads. An old expression that I heard somewhere is that “whenever an old man dies, a library burns down.” That was the expression that I thought of when talking with this group. There was such a vast amount of knowledge and experience in the room and the lessons they learned about money and personal financial management should be passed from one generation to the next. Their advice seems like common sense, but it’s amazing how uncommon that is becoming.