In this episode, podcast host and author of “Control Your Retirement Destiny”, Dana Anspach, covers Chapter 11 of the 2nd edition of the book titled, “Working Before & During Retirement - Your Human Capital.”

If you want to learn even more than what there is time to cover in the podcast series, you can find the book “Control Your Retirement Destiny” on Amazon.

Or, if you are looking for a customized plan for your retirement, visit us at sensiblemoney.com to see how we can help.

Chapter 11 – Podcast Script

Hi, this is Dana Anspach. I’m the founder and CEO of Sensible Money, a fee-only financial planning firm. I’m also the author of Control Your Retirement Destiny, a book that covers the numerous decisions you need to make as you plan for a transition into retirement.

This podcast covers the material in Chapter 11, on your human capital - your ability to earn a living.

If you like what you hear today, go to Amazon and search for Control Your Retirement Destiny. And, if you are looking for a customized plan, visit sensiblemoney.com to see how we can help.

-------------

What is the biggest asset you have? Most of you will likely answer your home, or maybe your IRA or 401k account. If you’re a business owner, perhaps it’s your business that comes to mind.

This might be the correct answer, if you are about to retire, but what if you’re still 5 to 10 years away from retirement, or thinking about partial retirement? Your biggest asset could be your ability to earn income.

This is what we call your Human Capital. Traditional financial planning often ignores this important and valuable asset.

On Twitter, one podcaster who goes by the Twitter handle of “@ferventfinance” wrote that “95% of discussions, books, and articles on the topic of finances concentrate on budgeting, investing, and debt repayment. Yet, the one thing that will probably move the needle the most is increasing income.”

People are often surprised when we show them that the value of their future earnings can be in the millions. Even part-time work can be worth a lot.

Take the case of Marian, age 59. She works in IT with a stable job and a $140,000 per year salary that goes up with inflation like clockwork. To maintain affordable health care insurance, she plans to work to her 65th birthday. When you factor in the employer contributions to her retirement plan, and the health care benefits for her and her spouse, her remaining 6.5 years of work are worth a million dollars. Their total financial assets are $1.7 million, and their home equity is about $750,000. Her remaining human capital is a big asset. In percentage terms, it’s about 40% of their total net worth.

You would not be quick to walk away from a million-dollar account. Yet, some people walk away from a job without realizing the value of that asset. Once you walk away, in many careers, it can be difficult to get back in at the same level.

That means you want to give some thought to what retirement really means to you. For example, I have a client who is a CPA, in his mid-50’s, who asked me one day, “Dana, do you have clients who actually retire… and enjoy it?” He loves the business he has built and the challenges that come with growing a business. It’s hard for him to imagine getting up and not going to work each day.

I chuckled when he asked this question. Because, yes, I have many clients who retire and enjoy it. And a few who retire and end up back at work within a year because they found it so unenjoyable. Before you retire, you have to give thought to what makes you tick.

In this podcast episode, I’ll offer two different views on how you might think about, and use, your human capital. There is the “mercenary approach,” and the “thrive approach”. Then I’ll cover a few stories to help you figure out what retirement means to you. And I’ll wrap up with two tips on what to be aware of if you do work part-time in retirement.

I’ll start with the mercenary approach. This is about providing your time to the highest bidder.

I took the phrase “mercenary approach” from the book Die Broke, originally written in 1998 by authors Stephen Pollan and Mark Levine. I believe updated versions of the book are available. I read their original book a long time ago, and their concept stuck with me. In the book they suggest you maximize your career potential by going to wherever you can earn the most. Then you save as much as you can. In their book, if you follow their approach you slowly convert your savings into annuities to provide guaranteed income in retirement that replaces your earned income. I think this approach is interesting, and, no doubt, it may work for some.

It means potentially choosing work that is not fulfilling, in order to focus your human capital efforts to accomplish a maximum return on time invested.

This mercenary-like approach can be combined with an extremely downsized lifestyle to reach retirement far more quickly than you may think. This approach is currently referred to as the “FIRE” movement, F-I-R-E, which stands for Financial Independence Retire Early. Many blogs such as Early Retirement Extreme and Mr. Money Mustache cover this concept.

If your goal is to get out of traditional work as quickly as possible, following the FIRE movement makes sense. Financial independence can be achieved in a far shorter time period than you may think, but it requires sacrifice. The advantage is that once you reach financial independence, you then have the freedom to choose what type of work you might want to do—if you want to work at all.

Another version of the mercenary approach involves people who take high paying jobs overseas, or high-risk jobs on oil rigs, or in places like Alaska. Some workers choose this as a strategy. They want to make as much as possible as quickly as possible and then later on plan to “settle down” to a more normal life after hitting a specific financial target. Some might take on such a role for a year – others for five to ten years.

A more moderate approach is to spend time figuring out what academic programs, credentials, or certifications will help boost your income. Evaluate the financial cost of any program against the potential increase in income you might expect, and make sure you talk to many people in your industry to find out whether they think additional education will actually translate into increased income.

I went through this process in considering the CFA (Chartered Financial Analyst) designation. This is a designation held by many investment analysts, mutual fund managers, and institutional money managers. I am interested in the designation even to this day, but it involves a significant time commitment. The industry leaders I spoke with said that for the career path I was choosing, they did not think it was necessary for me. I listened, and instead, I have chosen other designations, such as the Retirement Management Advisor designation, that more directly correlate with the work that I do and the direction of my firm.

Overall, when I consider the mercenary approach and the FIRE movement, I respect it, but I don’t personally resonate with it. I prefer the thought of a life well-worked, which for me, means I need work that I thrive on. That takes us to the thrive approach.

The thrive approach is about finding work you love.

You start by figuring out what makes you tick and what type of work puts you “in the zone”. When you find a niche you thrive in, it changes everything. If you enjoy what you are doing, you are likely to work longer, and it won’t feel like work.

How do you find work you love? I’ve done all kinds of things. Career counseling, coaching, and online assessment tools to name a few. I want to share two big breakthroughs that I had.

The first was a coaching process called Rediscover Your Mojo designed by executive coach Lisa Stefan-Martin.

Lisa is one of my best friends, and she was my roommate for three years. So I had the benefit of daily executive level coaching conversations. Then, I went through her formal Rediscover Your Mojo process while it was in the design stage. At the time, I was frustrated with the direction of my business. I was looking for answers and hoping she could help me find them. To my surprise, what I got out of the process were valuable insights that have profoundly affected the way I operate on a daily basis. Professional coaching changed the way I make decisions. I didn’t get a nice neat “answer” about a career decision; instead I got tuned in to my internal compass. Now, it is far easier for me to find my own answers to tough decisions. I’ve worked with several coaches over my career, and I highly recommend it.

My second huge breakthrough occurred in 2010. I stopped trying to be like other people and started being who I was. And a funny thing happened: work no longer felt like work. Instead, each day it felt like I got to go play. Sure, there were tasks that I had to do that I didn’t love. It wasn’t completely Goldilocks. But it was different.

I owe the difference to the Kolbe A Index assessment tool. At the time I discovered Kolbe, I was struggling with one of my associates at work. I always had ideas and wanted to figure out how to do things more efficiently. I liked to follow the latest trends in financial planning and test out new software packages. My associate had more of the “if it ain’t broke, don’t fix it” mentality. One day, he said something to me along the lines of, “Why can’t you just be happy and leave well enough alone?” I thought about that for a while and wondered, “Well, why can’t I? Is something wrong