What Is Your Idea Of The Best Question?

Any good question will take you places that are unexplored. Some of them provide fertile areas for growth and learning. There are even formal techniques.

My personal favorite question is, “Okay, what then?”

How did I come to that question you ask?

Four answers.

  1. It is supportive of the proposed action, assuming it is likely to be productive, and
  2. It helps people to avoid “greedy” solutions. See the Greedy Algorithm. and
  3. Once answered it reduces the likelihood of unexpected outcomes.
  4. It helps you to understand some simple relationships. Things you punish, you will get less of and things you reward, you will get more of. It will be best if you know generally what more or less means to you

In a world with finite resources, choosing one thing always means not choosing some other thing. Often, people ignore other possibilities because they are in love with their preferred answer.

Suppose your best friend says, “I have lost my job and I am going to bet all my money on one spin of the roulette wheel. ”

Okay, what then?

“If I win, I will have enough money to go back to school and develop my skills.”

“And if you don’t win?”

“I will not be able to pay the rent or buy groceries.”

Time to push reset.

Sometimes there are deeper outcomes.

  • A strong Tenant Rights Act will reduce the amount of rental property available. That is a problem for tenants. Who could have seen that coming?
  • Diverting corn to make fuel will cause a rise in the price of every commodity dependent on corn. You may recall food riots in Haiti, Bangladesh, Egypt and Mexico in 2008. Kind of obvious.
  • If mortgage rates fall, could you reasonably expect to see house prices rise. If mortgage rates go back up, do you think house prices will fall? An easy one.
  • The government raises tax rates, and people work harder at avoiding taxes. Who knew?
  • I an going to quit my job and start a business. There are quite a few what then’s to ask.

It usually helps to find a way to organize complicated decisions. You can do a lot of profitable business thinking with a pencil, well I suppose a computer today. Here are two techniques that I find useful. Your mileage may vary.p

Build a decision tree. Decision trees are commonly used to help identify a “best in the circumstances” strategy. There is software available to help.

You might also find “mind mapping” useful. I have used NovaMind and have found that it helps.

Well-meaning decisions that are only examined for their next outcome are potentially dangerous. It is like chess. If you only look ahead one move, you will seldom win. Never win against someone who knows more than how the pieces move.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Is 99% Good Enough?

The Mexican government recently stated that the country is 99% safe. Do statements like that have any value?


If I am capable enough to recognize that 100% safe is not possible anywhere, then I suppose 99% safe is pretty good. The problem is I don’t understand the Mexican standard. Is their 99% the same as mine? Most likely not.

It would make more sense if they said 99% of the geographical places in the country are safe. I can work with that, if they supply detail of what is not safe. Then I might want to know if the areas are contiguous or random. How can I tell which? Do they ever change? Does it mean the other areas are 100% safe? If less, how much less? On the basis of geography I think 99% safe is not meaningful.

Perhaps it means that for a randomly selected tourist group of 100 persons, only 1 will be murdered during the course of their stay, while the other 99 will be unharmed in any way. No chance that this representation of 99% safe is good enough for me.

Essentially, their statement is meant to accomplish a goal. They want to convince you that 99% safe is acceptable; very good even. You should visit and spend money.

Upon examination, 99% safe does not say anything useful.

Percentages are, typically, meaningless. They are almost always used to confuse rather than illuminate.

If I tell the truth 99% of the time and lie to you 1% of the time, do I claim 99% credibility? I think not. If I lie or mislead you a small portion of the time, then I will have no credibility whatsoever. It is like the famous boxing promoter Bob Arum’s statement, “Okay I lied to you yesterday, but today I am telling the truth.”

The Rasmussen Report on 29 January 2013 pointed out that the congressional job approval rating is 9%. I think it is safe for us to assume that most people think that congress has putting it politely, over-promised and under-delivered. Low credibility for sure.

I don’t suppose it is possible for a politician to tell the story exactly the way it should be 100% of the time. The world is too complex. Simplification is necessary. Be careful. Selected simplification is not measurably different from lying. They call it “spin.” If you are spun, I think it is at least partly your own fault.

Weak observation and analysis skills will serve you badly. I recall one of my sons coming home with 88% in calculus and thinking that was pretty good. I asked him about the class average. His well-informed response was, “It is 81, but that probably doesn’t matter. Most of them cannot figure out averages or percents.”

Learning to use statistical information is important. There are too many people willing to take advantage of your weakness. Learn the fundamentals at least.

Here is one fundamental. If you are trying to understand a percentage, understand the population of observations from which it was drawn. If you do not pay attention to the population, true statistics, presented by selecting the population incorrectly for the purpose, can easily fool you. For example, the average Canadian has slightly fewer than one testicle, is a meaningless statistic. Nonetheless, it is true.

Watch for populations where very few observations are like the average observation. I once thought about changing telephone carriers. I found a voice-over-IP service that had a an average satisfaction of about 6. Not so different than how I imagined my current carrier but much less expensive. Upon examination almost no one rated it a 6. They rated it 9 or 10, or 0 and 1. You love it or you hate it and there is no convenient way to find which will be my experience. I passed.

Some show you an arithmetic average when a geometric average would be appropriate. A 10-year accumulation at 5% will yield $1.63 for each dollar invested. The simple average is 6.3%. 6.3% looks better than 5%. I wonder why they would show you 6.3%. It is right but not the accepted way to report this sort of result.

End point bias is another trick some will use. By carefully picking where the statistic starts and stops, you can get some amazing spin. An investor needs to know that the period reported is likely to be governed by the same rules as the current period. For example, a fund that went to cash inadvertently, in August 2008 and got back in the market 6 months later will have a great 10 year track record up to 2019. It will be, with certainty, unable to recreate the conditions that gave them their return. So what does their average return really mean?

I have wondered if presenting statistical information to clients has any useful value. The people who do not get statistics will not benefit, and the people who do get statistics will assume you are trying to influence them in some way.

Statistical information is like circumstantial evidence. To be useful, it must connect to the event described and it must not reasonably connect to any other event. Like, “We found your fingerprint in the victims blood on the murder weapon.”

As a guideline, if you can explain how the statistic came to be, how this representation is appropriate for the purpose used, and what it means to the client, go ahead and use it. If not, then you should likely leave it out.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Make Big Money Working Half Days

Many years ago I received good advice from an old pro in the financial services business. “You can make big money working half days and it doesn’t even matter which 12 hours you pick.”

This related piece [The site is down.  See below]  makes other but similar points. The life of Ang Lee, the director of the film “Life of Pi” is super instructive.

  • It will make you more realistic about what it takes to be successful.
  • It will show you that good people can do well.
  • It will show the value of a cheerleader in your business life.
  • It will demonstrate the value of persistence.

It is like Kenny Rogers comment on his overnight success. “I suppose it is overnight, if you ignore 14 years on the road doing one night stands.”

It takes skill and courage to be successful. Please read it.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Ang Lee and the uncertainty of success  February 23, 2013  jeffjlin

Recently I was going through some old things I had put away for safekeeping, and I found these:

ang lee card and asudio tapeBusiness card and interview tape, circa 1993.

In 1993 I interviewed film director Ang Lee before the US premiere of his second movie, “The Wedding Banquet,” at the Seattle International Film Festival (at the time I was editor of the International Examiner and we were one of their media sponsors). At the time, Lee was an unknown in the U.S., an anomaly as a Taiwan-born immigrant director in the United States, mostly notable for having been the NYU classmate of the more famous director Spike Lee.

Nearly two decades later, it’s Ang Lee who’s up at Sunday’s Academy Awards for Best Picture (his fourth nomination) and Best Director (his third), for “Life of Pi.” And in terms of overall tally, “Life of Pi” (11 nominations) trails only Steven Spielberg’s “Lincoln” (12 nominations).

It’s hard not to root for Lee — an unassuming, down-to-earth guy that sends his kids to public schools, does the cooking and shuttles his sons to cello lessons when he comes home. I have always had a personal affinity for him, partly because he was super-nice to my parents (they were seated next to him at the premiere of “The Wedding Banquet”); partly because he was gracious both times I interviewed him; partly because he’s from Taiwan (he has the same accent as my parents) and is kicking ass but not in semiconductors, manufacturing or medicine. Those are all factors.

But the thing that I perhaps relate to most (and the part that you hopefully find as inspiring) is the part of his story that’s between the lines, specifically these lines:

1984: Graduates NYU, signed by William Morris agency after winning the Wasserman prize with “Fine Line”
1990: Wins prize for two scripts in a contest sponsored by the Taiwanese government. Gets backing to direct his first feature, “Pushing Hands”

From age 30 to 36, he’s living in an apartment in White Plains, NY trying to get something — anything — going, while his wife Jane supports the family of four (they also had two young children) on her modest salary as a microbiologist. He spends every day at home, working on scripts, raising the kids, doing the cooking. That’s a six-year span — six years! — filled with dashed hopes and disappointments. “There was nothing,” he told The New York Times. “I sent in script after script. Most were turned down. Then there would be interest, I’d rewrite, hurry up, turn it in and wait weeks and weeks, just waiting. That was the toughest time for Jane and me. She didn’t know what a film career was like and neither did I.” It got so discouraging that Lee reportedly contemplated learning computer science so he could find a job during this time, but was scolded by his wife when she found out, telling him to keep his focus.

Put yourself in his shoes. Imagine starting something now, this year, that you felt you were pretty good at, having won some student awards, devoting yourself to it full time…and then getting rejected over and over until 2019. That’s the middle of the term of the next President of the United States. Can you imagine working that long, not knowing if anything would come of it? Facing the inevitable “So how’s that film thing going?” question for the fifth consecutive Thanksgiving dinner; explaining for the umpteeth time this time it’s different to parents that had hoped that film study meant you wanted to be a professor of film at a university.

It wasn’t until 1991 that Lee finally got a chance to helm his first movie, “Pushing Hands,” which wasn’t even released in the U.S. But after “Pushing Hands” came “The Wedding Banquet,” the film that would be his U.S. breakout and net him a Best Foreign Picture nomination; two years later, “Sense and Sensibility” would bring him into worldwide prominence; then a string of hits: “Crouching Tiger, Hidden Dragon,” “Brokeback Mountain,” and now “Life of Pi” that have made him a common figure in the Oscar proceedings and the box-office charts ($576 million and 11 nominations for “Life of Pi” alone).

Of course, looking at the Ang Lee story now, who wouldn’t want to trade places: what’s six, seven, ten, even more years if you knew it would result in massive worldwide commercial and critical success? It’s common to hear “follow your bliss” or “do what you love and success follows.” Sounds great, right? Except here’s one small detail: You never get to know if it’s ever going to happen. You don’t get to choose if and in what form the success manifests; you don’t get to choose when it arrives.

It’s not as if you say, “Okay, universe, I’m ready for my turn! Any day now!” For some people it happens immediately; for others they get steady bits of success over time; and for others, they have long, long stretches of nothing over years. Another detail that I’ve always wondered about: during this long period at home, his NYU classmate Spike Lee releases three films, including the commercially successful and universally acclaimed “Do The Right Thing” in 1989. Having been in similar situations I can only imagine it stirred a very complex set of emotions.

If you’re an aspiring author, director, musician, startup founder, these long stretches of nothing are a huge reason why it’s important to pick something personally meaningful, something that you actually love to do. When external rewards and validation are nonexistent; when you suffer through bouts where of jealousy, wondering “How come so-and-so got signed/is successful/got a deal/etc?”; when every new development seems like a kick in the stomach, the love of what you are doing gives you something to hang onto.

Much is made of genius and talent, but the foundation of any life where you get to realize your ambitions is simply being able to out-last everyone through the tough, crappy times — whether through sheer determination, a strong support network, or simply a lack of options.

On Sunday, as they announce “Life of Pi” as a contender in its 11 categories, make a note to remember it the next time you hit another rough patch — a series of rejections, a long stretch of nothing. Your achievements of tomorrow may be very well be planted with the seeds of today’s disappointments.

P.S. “Life of Pi” is an adaptation of Yann Martel’s 2001 Man Booker Prize-winning novel of the same name. It recently surpassed sales of 3.1 million volumes. Of course, first it was rejected by five London publishing houses before being picked up by Knopf Canada.

Why Are There So Few “No-Fee” Restaurants?

Why does a meal in a restaurant cost more than the same meal at home?

First of all, you will need to define “same meal”  A steak dinner off my barbeque and a steak dinner from a fine restaurant will be different.

  • My steak was probably purchased from someone who does not pay the same attention to aging, selection and cut as the restauranteur.
  • I don’t have a choice of several different steaks
  • At home I could not, spur of the moment, switch to fish
  • My culinary skills are more limited than those of the chef
  • I don’t understand seasoning and marinating very well
  • My vegetable choice is less well prepared at home
  • I have either one or none as an appetizer course.  I need to eat the appetizer at the barbeque to make sure everything works out properly.
  • My equipment is less capable
  • My home servers are not
  • The ambiance is more limited at home
  • My liquor, liqueur and wine list is inferior.
  • I don’t have a dessert choice
  • My bus staff is not at work
  • I have to do my own dishes
  • My dishes and cutlery are not as nice
  • I have to pay for hydro, gas and other consumables
  • I don’t have linen napkins
  • I have to do the shopping

There are more, but that list should be enough to make the point.

The message – For the same investment of resources, I cannot get more at home.

If I go to a restaurant, to get my meal I should expect to pay at least 3.3 times the cost of the ingredients.  Do I resent that?  Not usually.

By the same reasoning, do you really think that do-it-yourself investing and financial planning will get you the same thing as using a professional adviser and money manager?

If you do, it is for several possible reasons:

  1. You don’t know what the adviser and manager team add to your situation and as a result, value it at little to nothing
  2. You value your risk, time and effort at zero.
  3. You have never done order entry, custody, tax accounting and reporting for investments.
  4. You must believe that you are at least as skilled as experienced, trained, full-time practitioners.
  5. You must believe that you are as well-informed.
  6. You must believe that you can cut a better deal on costs and reporting expenses than can a large provider.
  7. If you actually keep track, you compare results incorrectly
  8. You believe pundits who do not know how to do it either
  9. You are content with looking at  apples and oranges and believing that the comparison is valid.
  10. Everyone likes something for nothing, why shouldn’t I get some of that?

You cannot get something for nothing.  Do not try.  The best you can hope for is something for something.

Find out what your adviser/manager team does and then decide how much it is worth.  No fee bars and restaurants do not exist.  No fee golf courses do not exist.  No fee gyms?  No fee car repair and no fee accountants, lawyers and pharmacists are uncommon, but do exist in some circumstances.

No fee advisers do not exist and they should not exist.

There is a reason.  You get more when you pay.  Sometimes, if you shop carefully, as much as you pay for.  Do not expect others to provide something to you for nothing.  The world is not organized that way.  The only way you can get something for nothing is if someone else gets nothing for something.  They don’t stay in business long.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

What Can You Learn From George Carlin?

It is coming up on five years since George Carlin passed on.  His influence still remains.  He was the master of clear communication.  “I don’t want to get on an airplane, I want to get into an airplane.”

Satire teaches us well and usually in a way we can remember.  “We have a partial score from the west coast, Dodgers 5,”  makes it abundantly clear that we use words imprecisely.  Bad habit.

Our current world is dominated, perhaps completely taken up, with spin.  Spin is intentionally misleading language.  We can do with less of it.  You will find that clients, children and employees learn faster when they have clear instruction.

In your business and in your life be more clear.  Clear language is not flowery, it is not too detailed, it is without buzz words and acronyms, it is simple.  It does not use secondary definitions.  I am growing tired of politicians who have recharacterized spending as investing.

Who has time for making things clear?  Short letters take longer to write than long letters.  At the other end though communicated once is communicated forever.  Poor communication adds the certainty of downstream work.

Microsoft Word has a grammar checking feature that can remind you how to behave.  It will come up with a readability index and offer to fix all the careless habits to which we have grown accustomed.  Passive sentences are my biggest weakness.  Well, maybe fragments.  Pushing F7 will clear up your written communication immediately.  In a little while, you will be able to clear it up without checking.  Things will simply look wrong.

Try to communicate meaning more than factual detail.  You will have no tendency to do something like this, again courtesy of George.  “Now a quick rundown of today’s football scores.  37-28, 24-21, and in a real blowout 28-0”

True statements are not necessarily useful statements.

Poorly written material is difficult to read and to understand.  It diminishes your image.  This article appeared on LinkedIn recently and makes the point fully.

Read it and take it seriously.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Fail Fast – Good Advice for Entrepreneurs

Fail faster does not sound like good advice, but according to Jason Bailey, a principal at start up accelerator, GrowLab, failing fast is crucial.

There is a good story in the Financial Post on 4 March 2013 about Toronto-based Uberflip, a rare tech start-up that has used no venture capital. They have relied on sales to get where they are.

Every newish business and every salesperson should read it.

A piece of interesting advice. Do not have a brochure? A customer asking for a brochure is merely trying to get your sales people off the phone. An online demonstration or personal visit is more likely to result in a sale than is a mailed brochure. So, why have a brochure?

A wise observation from Greg Gianforte of software firm, RightNow. Sales are bullets. “It’s like war. In a war there are only two jobs: making bullets and shooting them,” Mr. Gianforte says. “Everything else should support those two things.”

If you can’t sell what you make, you will need more warehouse space. Factor that cost into your plan.

A principal message in the story is don’t over-think the opportunity. Mr. Bailey again, “Anybody who comes to me with their start-up idea that they’ve been working on for three years — I don’t want to hear their story. You’re not capable of failure. You need to fail faster than that.”

Trying things in the marketplace and gravitating towards what has worked is an effective way to grow. Darwinian even. It is good strategy to quit doing stupid things sooner.

The article adds considerable depth to a blog I wrote a while ago. The advantage of failure is that it leaves you in a place where you can act. The space between failure and success is the most important area to avoid. You get stalled there. Eventually you run out of time and time is the scarcest resource. Strategy or Tactics

You can apply the ideas in the Post article immediately. Pay attention, please.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Will You Buy This Life Insurance Policy?

Suppose I offer you a life insurance policy with a level premium for life, that cannot be cancelled, has no cash value, does not pay anyone if the beneficiary dies before you, disallows you changing the beneficiary, cannot be assigned to anyone else, and has a decreasing death benefit.  

That would be a tough sale.  I expect that even the least insurance savvy among us would say no thanks.

Yet, there are thousands of these policies issued every day.  How does that come to be?

Because they don’t call it life insurance.  They call it a survivor option on your pension.

Suppose you could have a pension of $3,000 per month, guaranteed for 120 payments if you die sooner, and payable for life otherwise.   Wife suggests that you might want to reconsider that choice.  So you check back and find that, instead of $3,000 per month, you can have $2,432 per month as long as either of you are alive.

What does than mean?

If you give up money while you are living so that someone else can have money after you have died, you bought life insurance, regardless of what it may be called.

Compare the joint life annuity to the theoretical policy above.

  • Cannot cancel.  It is a pension annuity and all the terms are set at the beginning
  • Has no cash value.  You cannot stop and get the capital
  • Does not pay anyone if the beneficiary dies before you.  Pays until the second death regardless of the order.
  • Disallows you changing the beneficiary.  All the terms are set up front
  • May not be assigned to anyone else.  Pension law typically prevents assignment
  • Has a decreasing death benefit. The price of the annuity to the surviving wife decreases each year because annuities on older people cost less than annuities on younger people.

That is a poor plan by any measuring system.  Now the planning option.

$2,435 per month is about $1,700 per month after tax and that is what the survivor needs to replace.  The government can look after themselves.  To get that at age 65, the surviving spouse would need about $350,000 of tax paid cash to buy a life annuity paying something around $1,700 per month after taxes.  But the original choice has a 10 year guarantee so we don’t need to buy anything until age 75.  At 75, the annuity would cost about $250,000.  Recall declining cost to buy.

If wife had a $250,000 life insurance policy on husband, then they could take the $3,000 monthly income and use the extra $565 monthly to pay the premium.  There are many variables here and you will need to work out each case on its own merits.

The essential question is, “Can you get an appropriate insurance policy for the after tax value of the foregone pension?”  If you can, an individual policy would neutralize every one of the defects in the joint survivor annuity and at no cost to you.  Go ahead and check.

If you wait until the last minute to do it, you will likely have trouble making a perfect fit.  But you might want to consider creating the insurance when you are younger.  That almost always provides you with a valuable option.  Having the insurance paid for before 65 is a supplementary retirement plan that will produce $565 monthly in this particular situation.  That is an investment that you can readily analyze.

If wife is medically impaired and husband is not, there is no objective reason to take the survivor annuity, but husband might not outlive the sick spouse.  Who knows for sure?

Things are a bit different if the wife is the pension recipient but the concept is identical.

If you have a pension in your future, talk to an adviser now to give yourself the most control over this decision.  Successful people do better because they know their choices and they create options before they need to make a decision.  That is a good habit for you to begin if you have not done so already.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

What Can You Learn From A Trout?

A recent blog article pointed out that you should be a little humble.  You can learn more by being polite and with open ended questions than you can learn by being demanding and asserting your knowledge and expertise.  Student 1, Professor 0

Every adviser, sooner or later, will get an arrogant/demanding letter or email from a lawyer or accountant.  How should they respond?

Responding in kind is a poor idea.  Suggesting that anyone smarter than a juvenile monkey would know the answer, or maybe my favourite, “It appears that the idea, there is no such thing as a stupid question, is not universally true.”  These replies may make you feel better momentarily but they will not serve well in the end.

The better approach is to answer factually and without unnecessary adjectives or adverbs.  It is very difficult to spread invective without using adjectives and adverbs.  Your client will appreciate that you are professional.

As a further consideration people often become arrogant when they are feeling insecure.  Maybe an offer to explain the fundamentals of the situation to the professional will be well received.  In a perfect world, the professional will have another client with the same problem and/or opportunity to use your services.  It never hurts to offer.

The lesson from the trout.  Even a fish won’t get into trouble if they keep their mouth closed.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

A Retirement Planning Process

Retirement planning is not as hard as many think.  It involves two simple processes.

  1. From now until retirement, each month, collect little pieces of money and accumulate them until you have a big pile.
  2. Beginning at retirement, each month, turn the big pile of money back into little pieces so you can spend them.

The rest is details.

  • How big should the pile become?
  • How long should the pile last?
  • How will it be invested to grow to the retirement point?
  • How much is this month’s little piece?
  • What control do I need over that process?
  • Can I use my taxes better?
  • Can I split income?
  • What if things change?
  • How often should I revisit the assumptions?

Think of it like driving from home to work.  Sometimes your regular route is blocked and you need to take a detour.  Sometimes you need to buy gas on the way.  Sometimes all the lights are red, other times not.  No matter what, you will need to move the steering wheel.  Sometimes a lot, like to avoid that darned cat.  Sometimes to turn or to change lanes.  Sometimes a little just to keep the car moving in the middle of your lane.

We all make driving adjustments automatically and we make them much more often that we think.  Your financial plan can be like that too.  Many tiny adjustments, a few big ones and a little feedback from the passenger seat.

Try to make your retirement plan as instinctive as driving to the office.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Convergence Points Are A Planning Requirement

Many financial plans go astray because events happen at the wrong time.  Unexpected early retirement and divorce are probably the most common, but there are others.

In the early retirement case, people are suddenly inserted into the retired space while they had been working on educating children, reducing debt, and building financial assets.  In an ideal world, the retirement space has none of these requirements.

How to make the transition?  It is difficult unless a plan B is available.  Plan B usually starts by recognizing the possibility.  Pay attention to others in your workplace and assume that what happens to them will happen to you.  Flexibility is your friend.

If there was no plan B then go back to basic principals and start over.  It is universally wrong to try and adapt an incomplete plan that was based upon a different reality.

If the forced retirement scenario seems scary, then at a minimum build your own plan so that you do not inadvertently impose similar problems on yourself.  Getting sick is a form of the same problem.  You might want to consider disability insurance or maybe life insurance.

The principal behind this is that life priorities change at predictable points.  There is a very different set of priorities for people who are working and accumulating assets when compared to people who are retired.  Managing the inflection point is an important skill.

Have as few items as possible that fall on both sides of the dividing line between life stages.  For example carrying debt into retirement is usually a failing move. As an extreme example suppose you invested all your retirement money in a plan that comes due on the 15th of June 2016 and is completely illiquid prior.  Another part of your plan has you retiring on 1 January 2016.  Six months of chaos because the plan parts did not converge at the inflection point.

There are several clear inflection points.  Each needs to be managed.  Be aware and prepare for the skills needed once you pass the inflection point.  Very simplistic overviews are below:

Student becomes worker.  Change from borrow and spend, to earn and spend and repay debts.  Build priorities.  Build a vague long plan.  Learn about insurance, wills, budgets and the like.  Find value of repaying debts soonest.  Buy Assets you use.  Things like cars, furniture, a home and so on.  Preferably with a lot of cash down.  Learn how to shop for value.   Continue debt reduction.

Debt reduction ends.  You need to know what to do with the now investable money.  Tax issues, investment options and compound interest.

Accumulation     for retirement, education, weddings and child start-up issues.  Some end.  Portfolio mix changes.  Saving rate changes once children are gone.  No more $200 running shoes or designer jeans.

Accumulation ends and retirement begins.  Tax, liquidity, predictability, health issues

First death       Ease of management, taxes, high predictability

Second death  Liquidity, taxes, ease of transition, clear instructions, proper documentation

Try to build you plans so that change points are met with a convergence of the important assets, the skills to needed operate at least the next section and the inclination to change your priorities.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

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