For instance, with the rise of Monte Carlo analysis, it’s become increasingly popular to talk about the probability of success, leading retirees to naturally want to minimize the probability of failure as much as possible, given the catastrophe that implies. Yet the reality is that for most retirees, a “failure” doesn’t just mean running off the retirement spending cliff, but instead a gradual spenddown of assets that necessitates adjustments along the way to get back on track. So what happens if “probability of failure” is reimagined as a “probability of adjustment” instead, to reflect what actually happens in the real world? All the sudden it doesn’t seem so bad; it simply raises the question of how much of an adjustment will be necessary, and when or under what conditions.
Similarly, the focus of generating retirement spending from retirement “income” creates other unnatural distortions, as retirees potentially stretch for income (especially in low-yield environments!) and introduce new risks, not to mention possibly confusing-yet-appealing-sounding retirement “income” products that are actually just returning principal and not income at all! If we talk about retirement “cash flows” instead, and move away from an income-centric conversation, it opens the door to looking more holistically at the retirement portfolio and how it can support retirement spending.
But perhaps the most crucial change in our language of retirement planning is simply to rename “retirement” itself. After all, when the concept of “retirement” was originally created, it wasn’t really meant to be an entire multi-decade phase of life without work, and recent research has found that stripping away work can for many retirees leave them devoid of purpose altogether, actually reducing happiness and well-being! Of course, that doesn’t necessarily mean “retirees” want to do their current job; it simply means they may want to choose work that is independent of the financial compensation it provides. So maybe it’s time to rename the goal of retirement planning altogether, and to recognize that “financial independence” from the need to work for money is the real goal of saving and investing?