How do you choose between working full-time and doing everything else you’ve ever wanted to do with your life? When’s the right time to retire, and will you have the money to do it?
Today, we’re talking to Anne Lester. For 29 years, Anne was portfolio manager and head of retirement solutions for JPMorgan. Since leaving Morgan, she’s become a regular commentator on CNBC and Bloomberg, and you may have seen her writing in the Wall Street Journal and New York Times.
In our conversation, Anne shares the story of how she fell in love with finance, her thoughts on the FIRE movement, and how she’s been able to live a richer life while having the career and home life she always wanted.
In this podcast discussion, you’ll learn:
- Why the financial industry does such a bad job of recruiting and retaining women.
- Anne’s advice to anyone starting out in the financial industry.
- Anne’s thoughts on the FIRE (Financially Independent, Retire Early) movement.
- Why it’s so hard to convince someone who grew up poor or middle class to retire in their mid-50s.
- Anne’s three basic rules for financial planning.
- “It’s under stress that you really understand where your values are.” – Anne Lester
- “Society creates a very easy way for us all to keep score, but it’s meaningless. It’s kind of a game.” – Anne Lester
Read the Transcript
Matthew Peck: Well, welcome everyone again to our Retirement Road Map podcast, and today we have a very special guest. And I’m sure everyone’s probably sick of hearing from me or Derek or Keith or all the other guys and gals that we bring on. But today, I’m dressed, I’m looking really good, hopefully, and I have to impress our guest who is Anne Lester. And I can’t tell all of our listeners how happy and honored I am to have her here just to bring an independent mind towards things that we talk about every day of planning for retirement and overcoming the behavioral biases that we all have. I mean that they’re in our bodies, they’re a part of our DNA, and how you overcome them and how you deal with retirement planning, which is increasingly complex.
Now, before I do, and so, I’m not sure how long this will last, but I do want to make sure I let everyone know how, in fact, special she is. So, Anne Lester spent 29 years as a portfolio manager and head of retirement solutions for JPMorgan. She’s a regular commentator on an array of retirement issues for industry from CNBC, Bloomberg, Wall Street Journal, New York Times. And even so, it goes so far back to being a Fulbright scholar. I mean, it’s like usually to keep people that blow us intellectually, which is really good. So, now, it’s a different story.
Matthew Peck: But Anne Lester, thank you so much for joining.
Anne Lester: Well, thanks for having me.
Matthew Peck: Absolutely. Well, I love to talk about first, again, because I’m a history major, is tell me a little bit about how you got into finance. I mean, 30 or 29 on the JP side, at least, that’s a long time. So, yeah, how did that all come about?
Anne Lester: So, I don’t know how long you want to take. It’s a long story. But I kind of got interested in financial markets back in the 70s when I was a kid and my dad was getting an executive MBA. He was a college professor, a linguistics professor. And there was a guy who was writing, I call them airport books, the ones you see in airport drugstores with the shiny covers, right? So, this guy named Paul Erdman was writing financial thrillers, and my dad traveled a lot. So, I picked up one of these books and read it. It was called The Silver Bears, and it was a fictionalized account of, I think, the Hunt brothers trying to corner the silver market. And I just thought it was the coolest thing ever. It was interesting, and there was intrigue, and it was international and glamorous.
So, I kind of got interested in markets and ended up studying economics at Princeton, for a whole host of reasons, ended up moving to Washington, D.C., working for a senator, actually, for four years after I got out of college, but got a master’s degree in international economics and Japan studies, and from that master’s degree, ended up kind of focusing a little more on finance, trying to make a long story shorter, ended up getting a Fulbright Scholarship, moved to Japan, worked for a Japanese senator actually for a year, but while I was there, ended up doing an internship in the treasury trading arm of Chase, what was then Chase Bank in Tokyo, and started working with the trader and learning how to trade bonds. And I just absolutely fell in love with it. It was my first kind of real finance job.
And based on that internship, when I then moved to Italy because that’s where my then-boyfriend, now-husband was living, ended up getting hired by JPMorgan as a bond trader for the asset management group in Milan, Italy. So, I started my career at JPMorgan in Milan as the buy-side trader selling bonds and foreign exchange and buying…
Matthew Peck: But just to start to interject, but I mean, tell me what it was like and not to pigeonhole you into being a woman, of course, but from even today, you still have old boys club, you have an industry that’s dominated by males. I’m not saying it’s a good thing, just more saying that you have– not say franchises, but you certainly have the history there, to say the least. I mean, what was that like? And did you bump into that a lot? Or was your own experience not as bad as it can be portrayed?
Anne Lester: Well, it’s interesting because my first job in finance was in 1991 in Tokyo, and then I moved to Milan in ’92. And honestly, I mean, I don’t know, maybe I went to Princeton, and there had only been women there for, I think, a decade when I showed up. So, it was still kind of newish. I have two brothers. I was the only girl in the family. Like, I don’t know, I don’t generally pay attention when I walk into– I mean, actually, I’m much more conscious of it now when I walk into a room and I’m like, where are the ladies? Like, whoa. But back then, it was just kind of normal. I didn’t even think about it. And I always thought being a foreigner in Japan was a lot more important than being a woman was, like that trumped the womanness, if you will, it’s just like you’re a foreigner. So, your definition in this different category of being practical, and this again is a long time ago now, 30 years ago.
And the same thing in Italy, there were a lot of women actually at JPMorgan. In Italy, there were senior women, a woman who was running custody was a woman. There were very senior salespeople on the forex desk. So, I guess I never really thought about it much. And then when I got back to New York, I mean, I have to say one of the many, many things I liked about working at JPMorgan was just how many very senior women there have been. And I think that’s just been a focus of senior management in JP for a very long time. So, that’s something I’ve always felt pretty comfortable about.
Matthew Peck: Well, also, it’s something that we share that, right? And interestingly enough, and I think this is a little bit not to talk about SHP per se, but my mom is a very, very, very powerful influence on my life. And so, occasionally, she’ll look at the website, and like you don’t really have a lot of female representation. And the only thing that we bump up against is that we hire or we’ll hang our shingle and say, hey, we’re hiring, and we don’t really get as many candidates as we would like. And so, maybe it’s just because we’re south of Boston, and the allure of working downtown is very strong. But I’m trying to think if you’ve seen, in regards to your commentating and your writing and just the lectures that you do, have you been putting any of a spin towards that to try to get more female involvement? Or is it more like, okay, I’m speaking more broadly, regardless of male or female?
Anne Lester: I have to say, I think the finance industry, in general, continues to do a really poor job actually of recruiting and retaining, especially women. And I think, when I look back at corporate recruiting and in the work that I’ve done or I look at people, I work with college kids, and I was mentoring a bunch of kids, young women at Princeton who were getting undergraduate and graduate degrees in STEM and in financial engineering things. And I have to say that those classes tilted a little bit male but not dramatically, but I do think that there still continues to be, and like I said, I didn’t really ever pay attention to it, but I think I’m probably a minority of the women I know who would tell you that. I think the industry does a terrible job, frankly, of that.
And I was really struck. I’ll tell you a story. I wrote about it. I was interviewed about it, and something that came out in Authority Magazine a month or so ago. And some of it, I think, is that so many and don’t know your circumstances, but I was really struck, this is like 10 or 15 years ago. A colleague of mine never went to the morning meeting on Monday morning. It was like an all-hands must show up Monday morning meeting, and he was just like, I can’t come. My wife’s a doctor. And it’s her rotation Monday morning, and I got to stay home and make sure the kids get to school so I can’t get there for the o’clock meeting. And he was the only guy whose wife worked.
Matthew Peck: Wow.
Anne Lester: And so, it’s not that a lot of guys, and I think this is true in finance, right? People are well compensated, and I think a lot of men have wives who are not working, or when they get a little more senior for sure, different choices get made, but it’s pretty rare to see dual-career families juggling. And I think what that means is a lot of men, and this is just a small example, right? Don’t have an emotional understanding of the juggling that happens for most women who have families. It’s complicated. And I think that although the industry is getting a lot better at understanding the sort of academic contours of the problem, I don’t think there’s this like walking the walk thing yet, that enough people have experienced to really get it,
I do hope that actually one of the weird silver linings of COVID can be that so many more parents understand the 360 that’s involved with child care and seeing what that whole entire experience is like. And I do hope that helps open some eyes up to how much of this family unit is very vulnerable to small things going wrong. And so, I think a lot of, just historically speaking, women have often been quick to jump on those things, and it shows up in your career, right? So, yeah, I think that’s a real problem.
Matthew Peck: And I’ll certainly transition from that talk about how that affects saving for retirement and whatnot, but I mean, one thing is to go back about the– I’m Johnny Silver lining, by the way, because this is by nature, I’m like, oh, something bad happens, but there’s got to be some positives that we can find, right? That’s just, again, by nature, who I am. But to use that same idea of the silver lining and about how eye-opening it was, I mean, I like to think I’m aware and very forward-looking and progressive and try to put myself in empathetic and put myself in people’s shoes and whatnot. And it’s a terrible personal situation. And my wife is an absolute saint, and we have four kids. And so, I call her a full-time mom, by the way.
Anne Lester: And it’s a job. And it is a job.
Matthew Peck: Yeah, it’s just saying like I took such issue with a stay-at-home mom. It’s like, no, there’s no staying, there’s no sitting, she’s very active, to say the least. And so, in any timed mode, well, a couple of things, so back up and during when COVID was happening, I saw how much she was struggling because I mean, we’re doing okay, right? So, we had the devices, but she’s sitting there, managing four kids on four separate devices. I mean, my heart poured out to her, and then I’m thinking about, again, all the other single moms or dual-income families out there.
And then just recently, the Omicron wave hit over the Peck family a couple of weeks ago. And so, there was one day, since she was fine, we were all vaxxed and boosted and all that stuff. But she still just got knocked out for a day, about 24 hours. And then it was like mild to moderate, and she recovered quickly. But there was one day when I was having to work and watch after the kids. And I’m telling you, Anne, that one day, I can’t say it was the worst day of my life because that’s a little bit too exaggerating, but it was hard.
Anne Lester: Well, again, I think this is a totally personal opinion here, right? I give so much credit to so many men, but I’ll just say senior leaders who are really trying and intellectually get it, but there is something about not really seeing stuff until you walk in those shoes, right? And I think there’s more to go. So, from my perspective, what I see in financial services isn’t so much, and every once in a while, you read about something totally egregious and horrendous that ends up in a me-too kind of situation. But that has never been my personal experience, but I do see a lot of sort of unconscious assumptions about what it takes to succeed. And of course, you take the clients out after dinner. And of course, and it’s just like not doing that, like absolutely not doing that.
And for me, what was really important navigating, two kids, working full time, my husband worked and I, we both were engaged professionals, was having crystal clear priorities, if I think about the four things that at the time I was trying to prioritize in my life, it was work-life balance. It was actually enjoying what I did because if I didn’t enjoy it, why was I doing it? Husband worked, learning, and was I being fairly compensated? And that was my order of priority in the moments when I had young kids. And I’d add to that now, like having a social impact and doing some good in the world, which is where a lot of what I’m doing now and sort of advocacy about access to savings plans that I’m really focused on this come in. But if my number one goal is work-life balance, it’s really easy to say, sorry, I can’t take that trip out of town, even though it would be good for my career because guess what? That’s not my number one priority right now, but you make these decisions, and they have consequences.
Matthew Peck: So, let me kind of go back to that, and I’ll kind of do sort of almost like dual tracks, which is (A) what was your advice to sort of, let’s say, whether it’s a male or female first starting out, and obviously, knowing that their sort of careers can go one or two ways based on their own priorities like you were mentioning, but then also, how has that, if any, changed due to COVID? I mean, have you adjusted sort of your instructions or your guidance for whatever reason maybe? Obviously, there could be, but I could see it not being because certain things are just traditional and pay yourself first, I’m not sure.
Anne Lester: That’s a good question. I haven’t really reflected on, has it changed because of COVID? I think my advice just back to those four points to anybody, man or woman, has always been the more you understand your own values and how you would force rank them because everything’s great, what’s the Mike Tyson quote? Everything’s great until you get punched in the face, right? And you can have all the values you want, but like, it’s when you’re under stress that you really understand where your values are. And if you don’t have a lot of clarity around that, you will find yourself either making decisions and being unhappy about it and not really knowing why or constantly fighting yourself, right?
So, for me, I came back to work after my second child was born. I took six months off with both of them and came back in 2000. And the internet dot-com craze was going strong, and JPMorgan had this lab JPMorgan that they set up where executives were asked to do a rotation down there and think big thoughts and cook up cool things. And it was kind of like, you show up at 7:00, you leave at 10:00, and I kind of work there and I was just like, okay, hey, I’m not doing that. But I still remember feeling the pull of like doing cool stuff, right? And I really wanted to be there with my team and I was just like, I’ve already thought about this, and I’m not going to let myself get on this slippery slope of, well, I can just stay another half hour, I can just stay another half-hour because you know what? It’s six months. I’m going to look back and hate these choices that I’ve made.
But I had to stop and think about it, or I still remember turning down a trip to do a client meeting because I was just like, I actually want to be home and make sure I can put my kids to bed every night, right? And I really thought about it, though. And I do believe my career was a little “slower” than it might have been now. Did it impact my long-term prospects? I don’t think so. But it did mean for a couple of years that I was trying to manage multiple things. And when you have multiple priorities, often one of them doesn’t shine as much as you’d like.
Matthew Peck: Well, is that part of your sort of current teaching, if you will? So, whether that’s millennials and Gen Z now or wherever we are now, I’m losing track, I don’t know what I am.
Anne Lester: Gen Z. Gen Z’s are entering the workforce now.
Matthew Peck: Alright. So, millennials are just there, done that, I guess. But yeah, so is that where you start? Is it like the personal values? Or do you start with okay, no, no, no, let’s button up your financial values?
Anne Lester: Well, how are they different? Are they different? I mean, that to me is one of those big, big questions. So, when I decided to stop working, I will just be really honest and say we haven’t hit the number that I thought would let us maintain our lifestyle with zero, like dropping a beat, right? And I thought about it and I thought, I’m okay with that. Like, there’s a lot of stuff about my former lifestyle that I adored, but I certainly don’t need it. And I thought a lot about what would be a failure to me. And so, to me, I define two things as absolute failure, like, I know I will have failed financially when. So, number one was when I first moved to Italy, I didn’t have a job yet. My husband had just started a job. We were so broke. We would literally debate every week if we wanted to buy meat, or in English language, newspaper, which were super expensive. And we went to the grocery store and got something called a pollo tradizionale, traditional chicken, which looked like a chicken, right?
Matthew Peck: Yeah.
Anne Lester: Get it out of its little cellophane wrapper, and it has its head and its feet on it, and its little insides have not been taken out, right? So, it is like plucked, but that’s it, right? And I just look at this chicken and I’m like, I can’t take it back now because I’ve unwrapped it and got out my old joy of cooking, which had a section on how to clean game birds. And it was like firmly grasping the neck of the chicken in one hand, carefully reaching inside, right? And I’m just like, alright, here we go.
Matthew Peck: Alright, I have to go.
Anne Lester: So, I never want to be that poor again. That is too poor, like that is too poor. I mean, if you choose to go hunting and clean your own game, that’s fabulous. And maybe I’ll do that too someday, but like, that’s not what I want to bring home from the supermarket and then be stuck eating it. The second thing which is actually the point here is I also said, I love to travel and I certainly don’t need to travel in the style to which I became accustomed as a senior JPMorgan executive, right? I certainly don’t need to fly at the front of the airplane, I certainly don’t need to stay in five-star hotels, but I really want my own bathroom, like I seriously want a room with a bathroom like down the hall thing, I’m way too old for that.
So, last summer, I was going out to an island, a Monhegan Island, which you may know because based on where you are, with a college roommate who lives in Vermont and is kind of back to Earth kind of person. And we’re on this little ferry going out there, and she’s like, I hope it’s not too rustic for you. And I’m like, oh, no, it’ll be great. I want to do some hiking. And I said, as long as I have my own bathroom, it’ll be fine. And there’s this really long silence. And she says, “Well, it’s kind of like we’re sharing because there are five bedrooms and two bathrooms, so it’ll be fine.” And I was like…
Matthew Peck: Oh yeah.
Anne Lester: And then she said, “And I’m kind of sorry they took their pandemic protection money and used it to electrify the guest bedrooms because I’m really going to miss the oil lamps.” Right now, she’s like, alright, the oil lamps are where I would draw the line, but it was fine. I’d love to go back, I had a great time with her. And I’m like, yeah, the bathroom thing, whatever, I can share a bathroom.
Matthew Peck: Or weekend.
Anne Lester: Well, again, there is a really big gap between staying at a five-star resort and staying in a really humble inn where you’re sharing a bathroom down the hall. And I was perfectly happy. I was delighted to have been there and I’d do it again. So, like thinking about your values, my value is spending time with my friend and enjoying a beautiful spot. It’s not like having a fancy bathtub.
Matthew Peck: No, but is that a mistake that you see Gen Z and millennials making that they haven’t had enough time to reflect on what their values are and they’ve had the life experiences. And so, the mistake is sort of self-perpetuating because unless you might not be able to have had a chance to really define what that is to them.
Anne Lester: I think that’s a great point. And I talk about the hedonic treadmill, and that’s lifestyle creep. And certainly, when you’re starting out and you start getting your first raises if you’re anything like I was, I was making not well, I was on Capitol Hill too, which is notoriously poor paying but really scrambling to make ends meet. And certainly, the first couple of years we were in Italy, it was the same thing. And you do really want to enjoy those nicer things in life, and there’s been a ton of research showing that up to a certain point, having more makes you happier, certainly not having to clean my chickens makes me happier. And I don’t forget that. That’s stuck with me.
But after a while, the nicer thing doesn’t make you happy anymore. And it’s really, I think, especially for Gen Z, you haven’t probably lived up that curve enough to know where it starts flattening off. And like I was trying to think of an example, and it’s like, I remember my first car was this 12-year-old Volvo with 200,000 miles on it that I had to put a quart of oil, and every time I filled up the tank, it never broke down on me and it had manual windows. And I still remember the first time I got a car with electric windows, I was like, oh, my god, this is great. Like, I’d sit there playing with the windows, they go up, they go down, like, oh, it was really cool. Okay, so the pleasure it not having to create my window up and down whenever I had to throw quarters in the tollbooth kind of wore off kind of quickly. Like, I kind of forgot about it after, I don’t know, three weeks, like that did not last. So, that’s a great example of that hedonic treadmill.
And then, my husband got a new car, again, 10 years ago, and I was like, he’s got seat heaters in his new car. I want seat heaters. And that’s kind of creeping up, right? And it’s not nice enough anymore I need, and it’s really healthy to stop and think about needs, wants, and desires. I desire to go stay at five-star hotels, I want to travel, I need to have a roof over my house, right? I mean, let’s think about that. Those are three different things.
Matthew Peck: Right. Just a pause because it’s interesting because generally, I’m always breaking it down. So, let’s just say, the first step, for example, the client is 55, 60 years old. We spent a lot of time on budgeting. How much is coming in? And how much is going out? And usually, we talk about needs and wants, but what’s interesting is that you added a third layer to it, needs, wants, and desires.
Anne Lester: Well, I like treats. I think treats are fabulous. What are your desires? And how much do they cost? And you don’t have to frame all these things in terms of monetary things, either. I mean, it can be as simple as giving yourself an hour to take a nice walk or get an ice cream cone with your husband, or like whatever. But I do think that thinking about, and then it can also be a super motivator to say, like if you really desire something and it’s important to you, I’m not going to tell you that it’s a bad thing, or you shouldn’t do it. It’s just where does it fit? And how do you make room for it? And what are you willing to give up? To me, it’s all about do you understand you’re making choices in these moments where you’re making spending decisions or how you’re spending your time, like those are choices, and the opportunity cost of what you’re not doing as well as the maybe actual real cost in terms of money and time is a real, real thing.
Matthew Peck: Would you say that’s really the number one or where people start? So, as we kind of broadly cover the different areas, just trying to think of, for the listener, if they say, okay, alright, and is that kind of breakdown of sort of called needs, wants, and desires? Is that the first place to start? Or is it more logistical, and like, hey, no, no, you got to dive into your 401(k) to see what options you have? Do you see what I mean?
Anne Lester: Oh, man, that’s a great question. So, like the last thing you should be doing if you haven’t like started with is the money coming in more than the money going out. Like, there are some pretty basic places to start, I think. I guess, I personally have never been able to budget. I mean, it just makes me crazy because I immediately start trying to over-engineer it and try to end up building this spreadsheet that’s linked to all of my accounts. And then how do I categorize that? So, I’ve got some big buckets in my head. And I have a spreadsheet that I look at maybe once every two years and think, hey, how do those buckets work out? Let me check and see how they went. And obviously, you’re looking at your bank account and seeing if the money in and out is like– it’s pretty easy to tell pretty quickly if it’s going in or out at the right rate.
But I do think that the bucket approach, like new bucket things however you want lets you think about your priorities in terms of needs, wants, and desires pretty easily in categories, which I think is really helpful. Like you have to have a roof over your head and you have to eat, you have to have clothing, right? And if you’re working, you have to have a professional wardrobe of whatever kind it is, whether it’s Carhartt coverall because you’re an electrician or on a building site, or it’s wearing a suit because you’re working in an office, but within any of those categories, there’s this huge range of like, what do you value? Like, I really like going out to eat. Do I need to go out to eat to survive? Absolutely not. Do I want to go out to eat? Yes. Do I desire occasionally, like maybe once every two or three years to get to go to some really fancy restaurant?
And like, there is some crazy place outside of Washington, D.C. called The Inn at Little Washington that I’ve wanted to go there ever since I lived in D.C. in the 1980s. So, we finally went there last May, and it was the experience of a lifetime and it was just an obscene amount of money and I thought it was worth every penny, right? But it was like literally bucket list experience of a lifetime, so glad I did it. Would I love to go back if somebody invited me or it came up as a chance? Sure. Do I need to? Absolutely not. Like that scratch that itch, I’m done, like it was great.
Matthew Peck: Yeah. So, then in that case, and we talked a little bit about this off-camera, offline if you will. So, is that what the whole FIRE movement is?
Anne Lester: I think, yeah.
Matthew Peck: Well, I’m sorry to interrupt, and just to kind of bring it in. My joke around about millennials and Gen Z is because me and my older brother, we’re two years apart, so we basically almost live the exact same lifestyle. And then I have a younger brother who’s 10 years, and so, he is my guide when it comes to all cool things hip. And he lives out in San Francisco. So, I mean, he’s in gaming and so, he’s always coming up with what’s going on, like leading-edge stuff. And he’s like, oh yeah, because he isn’t obviously in financial planning. So, he’s like, oh yeah, the whole FIRE movement. I’m like, what’s the FIRE movement? And so, again, for all of our listeners, it’s Financially Independent, Retire Early. So, I guess, what are your thoughts on that? And was that the thought of like, okay, if someone is able to combine finances with values and they are able to be financially independent and retire early?
Anne Lester: It’s definitely a thing, and there are websites and there are social media people, and it’s like a thing out there. The typical sort of standard thumbnail sketch of fire is save a million dollars because you can live on $40,000 a year and then you’ll never have to work again because you can follow the 4% rule. Okay, so there are so many things wrong with that, just like my brain starts exploding, right? Like, (A) I don’t believe the 4% rule; (B) like really, $40,000 a year? I don’t know where you’re living.
But I think at the heart of the FIRE movement is a really good question, which is are you working to live or living to work, right? That’s kind of the big question. And it’s so easy to get on these treadmills and just keep going because that’s what you do because it’s in front of you and it keeps moving, right? So, I think at its heart, the FIRE movement asks the question, what do you really need? And asks you to think about your time as this really valuable thing and invites people who are into it to really start debating whether or not the freedom to know that you can meet your needs without a conventional paycheck or as some people call it, my W-2 job, that if you can meet your needs without that conventional paycheck, what does that then open up to you as possibilities?
And I think to me, that’s a more interesting way to frame it. And it’s kind of what I did, right? I mean, I’m 57, I decided to leave a job I loved. I mean, I told my boss when I was on my way out that I loved 90% of what I was doing, and he kind of looked at me like, why are you doing this then? I was like, well, because I want to do these other things more. But it’s to me, like, if you can see your way clear, so the way I thought about it was, can we keep the house no matter what? Yes. Can we pay our property taxes no matter what? Yes. Can we see our way with my husband’s job, with what I can bring in, working, being on board? So, like, who knows with the book that I’m working on is going to be like be a success or not, like hopefully, it won’t be a net negative, but, like, can we live the way I can create this baseline, which is frankly kind of fire movement, like eating rice and beans, right? Yeah, we can. Okay, great.
Okay, now, what’s the upside? Where can I build up from here that lets us do the things we like to do? Travel, enjoy a richer life. Can I do things that I find enjoyable on my time carving? So, it’s a different way to think about the conversation, and I think maybe one other really important thing the FIRE movement invites is this exploration of what does work mean because if we’re all going to live to be 100, maybe not me because I’m a little older, but people who are certainly in their 20s and 30s now can probably count on leading longer, healthier lives. This whole notion of 65 is some weird mic drop moment, where you go play golf, I mean, always was ridiculous, but it’s even more ridiculous now. So, what does it mean to think about having more chapters in your life that might be some combination of W-2 and non-W-2 work, right? I don’t think I’ll ever go back to work. I’m like, who knows?
Matthew Peck: Yeah, but that’s interesting because again, so think about the FIRE movement, think about sort of your personal experience, and I’m thinking of another client in my mind real quick. The overall question is, were there behavioral biases that you had to then overcome? Because here’s an example I want to share with you. And whether the FIRE people go through it or not, but I have many clients who grew up more poor or at least middle class to below-average middle class, and no matter how much they have, no matter how much I tell them, like, hey, you guys are going to be fine, you can retire in your mid-50s, you can do it, they can’t overcome it. They can’t say, no, I need to save, I need to do more, I need to do more.
And so, I’m doing everything I can to say, look, look, look, I’m going to run the Monte Carlo numbers and run this simulation and that simulation and all the number crunching that this beautiful, elegant software can do, still, it does not mean some people are able to put them out, great. But there’s definitely a lot of people that just still can’t overcome inside of them to say, look, I don’t want to go back there and I’m like, okay, no matter what happens, you’re not going back there, but they still don’t see it.
Anne Lester: I’m not sure I’d call that a behavioral finance thing as much as an emotional trauma, like that’s a response to trauma, that I don’t trust, right? There’s something they’re not trusting. And I mean, it was really hard for me to decide to leave Morgan, I mean, for a whole host of reasons, but some of it was just like this existential dread that I would drown if I let go of the edge of the swimming pool. I mean, really, that was finally the metaphor that popped into my head when I was thinking about this. And part of it was like, who will I be if I’m not Anne Lester at a retirement? Some of it was money and that concern, but it was all kind of bundled up like this identity. And again, that’s where I think for people to really– I mean, I think money is a means to an end, right? And it’s a means to live a life you enjoy living, and however you define that, whether it’s having time and energy to give back and volunteer or to write books or to go hiking or whatever your definition is, I think money is a means to an end.
And I do think our society creates a very easy way for us all to keep score. Like, how are we doing? Well, here’s how I’m doing. And it’s kind of meaningless, it’s kind of a game. You might as well keep score with poker chips. But it’s really seductive and it’s really easy to measure. This is another thing, I mean, we can talk about performance and target-date fund sometime. But like, I do think it’s really easy, maybe this is a behavioral tic, right? You end up putting a lot of credence and energy in things that are easy to measure, and finance in money is a thing that it’s really easy to keep score with. So, it’s like a default, like, well, I can see that, I can measure it. I understand how it works. And so, it gives you this weird sense that that must be the right answer. And what I’m talking about, and certainly, what I’ve been thinking about over the last probably five to ten years and longer is like, what is a life well lived? And certainly, the more money you have, the more comfortable you can be doing it and the less stress you have about it.
But there’s some minimum above which you can really let a lot of stuff go. And it’s really to me, the trick is figuring out where that line is, like, where is your bottom line in the this is not enough. And again, it’s like playing these games of thinking, like what is not enough for me as having to move, not wanting to move? That would be not enough, right? Having to clean my own chickens, right?
Matthew Peck: As an example?
Anne Lester: Right. But if people really struggle to embrace that notion philosophically, there are other things going on, then they’re not conversation about money, right? That’s about your own emotional attachment to something that is perceived to give you safety because you don’t feel safe.
Matthew Peck: A great point. But let me sort of bring this up, too, in regards to, you mentioned like easy to measure, and it’s also easy to watch, i.e., the stock market. So, just to say…
Anne Lester: As they’re feeling right now.
Matthew Peck: Right. So, with the recent volatility, I guess, what advice do you give to anyone for that matter? Should they just not look at it and just look at their statements quarterly or semiannually? I guess, what, if any, advice do you give people when it comes to volatile times just to make sure that they don’t sell and don’t overreact?
Anne Lester: So, I’m kind of a look at it on your birthday kind of girl, but…
Matthew Peck: I like that.
Anne Lester: Just kind of like really just why. Your answer can be a little weird, like, don’t look at your head. Honestly, it comes down to whether or not you’re right risked. If you’re right risked, you really should be thinking that you can ride through just about anything. And I mean, right risked for your age, for your circumstances, for your time horizon, for your own personal risk tolerance, which I think many people don’t understand very well whether it’s higher or lower but also right risked with cash flow because I just keep coming back to like this is just really all about cash flow at the end of the day. And if you’ve got a clear line of sight to five years of cash flow, like let it go.
Matthew Peck: Right. Well, it’s funny, just talk about a couple of risk tolerance, right? And everyone knows risk tolerance. Everyone is sort of somewhat familiar with risk tolerance. I love bringing the term of risk capacity to their minds, like the capacity for risk. Like you might be able to stomach this up and down, but can you afford to risk that? Some of the Monte Carlo, some of the financial planning software out there, they have at least, as I say too, on the risk side of it, I like all the innovation that’s been happening just to make a financial advisor like myself better because they have ways of just like backtesting portfolios nowadays to say, hey, here’s your up, here’s your down, and help a little plug for Riskalyze, but if they’re 100 on a scale of 1 of 100, then you’re all over the road. And if you are 2, you’re kind of walking, and here’s your up and your down based on past performance.
And so, by no means this affect the future, but I always love just telling the story where I can at least show people that where– I mean, I’ve been in the business now for 20 years, but 20 years ago, I’d be like, oh, so are you moderate or moderately aggressive? And I had to ask this like very subjective question.
Anne Lester: Such a stupid question.
Matthew Peck: Where they were at that time? And yeah, to your point, people don’t know if they’re moderate or if the conservative until they actually go through the fire. And then you end up learning the hard way, which is not exactly good, especially if you overreact.
Anne Lester: And I’ll tell you something else, like I ran money for a long time. I know a lot of behavioral science, and I was like last fall, going ooh, the market keeps going up, maybe we should put a little more in. I was like, no, no, no, don’t do it. But I get sucked into that stuff too, right? I mean, and I know better, I mean, I really know better. And it’s still hard. Like, I still have to create rules for myself to follow and a process and like do I have any insight, or not even insight, information, which is not what I meant. I meant, like, do I have any unique insight that makes me believe that I know something that the markets don’t? And like every once in a while, like, you go, hmmm, I am, go ahead and put something together here. Or like when the stock and bond markets disagree, like you can have a point of view on that, right? And like, if you want to be an active investor, you can lean. But I don’t know, I think rules are good because they will get you 80% or 90% of the way there with a much smaller chance of screwing it up and way less stress.
Matthew Peck: Yeah. So, that’s it. So, then is that’s something that’s very personal or goes back to that right risk when you develop rules for people?
Anne Lester: Well, I don’t advise individuals, right? So, I did this for the target-date fund complex.
Matthew Peck: I’m just more curious about what piece of advice would you have for people to then develop their own rules? Not so aware of the financial plan will do it, but I mean, it just a layperson that’s trying to do it themselves or whatever it may be.
Anne Lester: So, my three basic rules are number one, save automatically. Make sure the money never hits your bank account. It cannot burn a hole in your pocket. And that is because present bias is so strong that the second you ask yourself to sacrifice something for that future guy that’s like 30 years or 40 years away, like, forget it, you’re not going to do it. The second thing to do is to automatically or is close to automatically as you can increase your savings rate when your income goes up.
Matthew Peck: Okay, yep.
Anne Lester: Right. Because asking someone who– let’s just say you’re 25 or 30 and you’re saving 5% of your paycheck in your 401(k), that’s great. That’s awesome. Congratulations. You need to try to think about getting it to 10 or 15, right? But asking you to do that today right now is incredibly painful. And Nobel Prizes have been awarded for this, right? But this whole save more tomorrow thing make a commitment, and if you can do it on your workplace website or if you’re working with a financial advisor, have them help you do this, get a raise. Half of it goes into savings. Enjoy the other half. That way you keep yourself not sucked into buying a nicer car all the time because that pleasure is fleeting, and your savings gap is permanent.
And then the third thing, I think, for almost everyone really is most of your money should not be something that you play with. Like that is not where you get entertainment from. Like, most of your money should be in some kind of rules-based structure, a target-date fund, a balanced fund with a financial advisor that is following a process. If you have the discipline to set up a process for yourself, fabulous, do it. But how much time and talent do you have? And how steadily are you going to do it? And how well have you gone back and measured your own decision-making process and not just looked at the ones that worked out well, right? Because I mean, people tend to do that. So, those are the three big things. And the process to me, I mean, it really is as simplistic as if you get the big asset allocation picture right, you get your cash flow right and rebalanced, that’s really all you have to do. I mean, it’s really not that hard. This is not rocket science.
Matthew Peck: Yeah. And that’s obviously, you’re copacetic with exactly what we say. I mean we’re very proud of our financial planning process and not to kind of plug us, obviously, I mean, I guess I can, it’s our own podcast.
Anne Lester: Sure, go for it, yes.
Matthew Peck: But just the idea of, I was proud of getting the CFP designation now over many years ago and just applying that to each and everybody that comes in, through all of the advisors here at SHP, and just talking about that about being able just to say, as you were saying earlier about, hey, if you have three to five years of cash flow, just let it go, as best as possible. And sometimes I joke around and be like, hey, you’re paying me to stop just to save you from yourself sometimes, and to make sure that people again aren’t overreacting during difficult times. But I love the idea of a process of again a rules-based approach. And that’s why I wish everyone well that are do-it-yourselfers. I mean, a little bit biased because they’re not clients of SHP, but I’m also a little bit jaded too because I’m not sure if those individuals understand. They might understand investment planning. I’m not saying that they’re inadequate there, but just the idea of tax planning, of income planning, health care, legacy estate planning, I mean, there’s so much to it. I mean, I work however many, 40, 50, 60 hours a week at times doing it.
And so, if that’s what you want to do, then God bless you. But a majority of our clients, they don’t want to be worrying and wondering, they want to be living, living their lives and doing that type of introspective thoughts that you were talking about. I mean, I love that too, and about what is a life worth living? Or I’m not sure if I got it exactly correct, but what are those bigger questions about the time that we have on this blue dot? And if you’re not necessarily asking yourself those questions, eventually, as they say, no one gets out of this alive.
Anne Lester: Well, no one gets out of this alive and no one takes it with them, right? So, like asking yourself that question about what money means to you in your life, I think is always a good question. And you may not have any answers. But man, I think philosophers have debated this for millennia, but it’s a worthwhile topic to think about, but you said something else which is interesting, which is the value that a financial advisor brings or a financial planner brings to the conversation. And I have thought for years that a manager who designs a portfolio and picks investments, whether they’re individual companies and bonds or whether it’s a mutual fund portfolio, I do believe that that can and does add value, but I think it’s possible to buy out in the marketplace something it does a pretty good job for very little money, right?
So, the value that you’re adding, anybody is adding, is not in the wizardry of that, although I do think there is money to be made and lost there, it’s much more in all that other stuff, right? The Morningstar, I think David Blanchett called it gamma. I mean, it’s all this other– you can make such big mistakes if you don’t get some of the tax planning right or the account location right or the big savings and behavioral biases right. And that’s not like the 60/40 portfolio magic, that’s like somebody understanding your goals and helping you get there, so not to give you guys a plug, but…
Matthew Peck: I’ll take it in and I’ll end on that because there’s no better way. You said it yourself, no, but all joking aside, thank you so much, Anne, for joining us. I think all of our listeners, they know I’m better off for it, so I sincerely appreciate the time and the energy that you brought. And I look forward to talking to you in the future.
Anne Lester: Sure. Well, it was great fun. Thank you.
Matthew Peck: Thanks a lot.
No statements made during the Retirement Road Map® podcast shall constitute tax, legal, or accounting advice. You should consult your own legal or tax professional on any such matters. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk, and unless otherwise stated are not guaranteed. Our Investment Advisory Services are offered through SHP Wealth Management LLC., an SEC registered investment advisor. Insurance sales are offered through SHP Financial, LLC. Our advisors and insurance reps may offer clients advice and/or products from each entity. No client is under any obligation to purchase any insurance product.
Investment Advisory Services are offered through SHP Wealth Management LLC., an SEC registered investment advisor. Insurance sales are offered through SHP Financial, LLC. These are separate entities, Matthew Chapman Peck, CFP®, CIMA®, Derek Louis Gregoire, and Keith Winslow Ellis Jr. are independent licensed insurance agents, and Owners/Partners of an insurance agency, SHP Financial, LLC.. In addition, other supervised persons of SHP Wealth Management, LLC. are independent licensed insurance agents of SHP Financial, LLC. No statements made shall constitute tax, legal or accounting advice. You should consult your own legal or tax professional before investing. Both SHP Wealth Management, LLC. and SHP Financial, LLC. will offer clients advice and/or products from each entity. No client is under any obligation to purchase any insurance product.