WAVE STRENGTH PODCASTI Didn’t Sign Up for This: Don’t Let High Expectations Ruin a Perfectly Good Retirement 

For some of us, what we think our retirement is supposed to be like could lead to a big letdown. On the latest episode of The Wave Strength, Dr. Qi Sun and host Shea Frates highlight the new issue of Qi’s newsletter: I Didn’t Sign Up for This: Don’t Let High Expectations Ruin a Perfectly Good Retirement. Listen in as they discuss the generational shift in retirement, financial education, and retirement planning. Catch it now, on The Wave Strength.

About Dr. Qi Sun

Dr. Qi Sun is the Financial Economist for Pacific Life’s Institutional Division. Her research focuses on longevity insurance, household asset allocation decisions, and financial well-being. Qi holds a bachelor’s degree in Finance from Donghua University, a master’s degree in Personal Financial Planning from the University of Missouri, Columbia, and a doctorate in Personal Financial Planning from Texas Tech University. 

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Voiceover: Welcome to The Wave Strength: Innovative Solutions for a Secure Retirement. Presented by Pacific Life.

Shea Frates: Hi, and welcome to another episode of The Wave Strength Podcast. My name is Shea Frates, Digital Media Strategist for Pacific Life's Institutional Division. And back with us today is Financial Economist Dr. Qi Sun.

Qi Sun: Hi Shea. It feels good to be here again. And as always, I'm very excited for this episode.

Shea Frates: Absolutely. And this is the third article that you've written for us. I know it's a continuation of your first article. This one it's called "I Didn't Sign Up for This," which is very cute. "Don't Let High Expectations Ruin a Perfectly Good Retirement." So, I know today we wanted to talk about that retirement planning process. We wanted to talk about our process as millennials, talk about our parents, and how your parents are currently retired; my mom is planning for retirement. And, of course, just wrap this up back to the importance of financial education. So, Qi, as a millennial and as a doctor of financial education, how are you currently planning for retirement?

Qi Sun: So, here I want to share my personal experience. So, I always say because I work for Pacific Life, which is an industry company, so I know that 401K, which one types of the defined contribution plans will be my main saving vehicles. But I do plan that when I reaching the income peak period, I may also use IRA too as additional funding for my retirement plan. And in terms of a retirement age, so, I'm thinking age 65, as you know, very normal retirement age. But my plan is I don't want to make 65 as a cutting point like, oh, immediately enter retirement after 65. I want to make it like a smooth and gradually transition. So, I probably will kind of easing my working load and maybe transferring to part-time job like five, seven years between 65. And 65 will be my officially definition for start receiving retirement income.

Shea Frates: Okay, I have a personal question. At what age do you plan on investing in your IRA?

Qi Sun: So, I think that's a very interesting question. It's all according to theory because, you know, I learned this from my Ph.D. program. So, according to the lifecycle theory, people's income normally will reach the peak period around like 35/40. So, that's kind of the time thinking to set up IRA for both retirement savings purpose and income tax saving purpose.

Shea Frates: That is good to know because I have been wanting to invest in an IRA for quite some time. Personally, I'm not quite there yet; I have my 401(K) through Pacific Life, and then, of course, the company does match your contributions up to, I think, about 6%, so, I personally take advantage of that. I have an HSA; I unfortunately, I've had some health issues this past year, so I haven't been able to invest in my HSA as effectively as I would have wanted to. But an IRA is my next step. So, this is good advice for me and, of course, great advice for our listeners as well.

Qi Sun: Yeah, sure.

Shea Frates: Do you have any other tips or tricks?

Qi Sun: Not tips and tricks. I think it's like people have different occupation. They work for a different industry. Their retirement story will be definitely different from us. But I do want to share a story from my friend. So, he works for a university; he's a university professor. So, his retirement savings story a little bit complicated because he has, I think the normal word will be the pension plan from the university. And because the university provide a pension plan so their defined contribution plan will not be as generous as the industry firm. So, that's kind of force him to start citing the IRA earlier than what I just said before. So, that's why now he has three source of retirement savings. So, that's kind of very interesting. Different from us.

Shea Frates: Yeah, definitely. And I know that your parents are currently retired. They also have a pension plan. And how is that working out for them?

Qi Sun: So, yeah. I am happy to share this story from my parents because both of my parents have already retired. They have already started receiving their first check, first paycheck of their retirement, right? So, I would say my parents, they are very lucky because they are fully covered by the pension plan. Yeah. So, they have this guaranteed lifetime income until the last day of their life. And the best part, I would say, for their pension income is this income is actually adjusted by inflation rate.

Shea Frates: Oh, awesome!

Qi Sun: Yeah. So, that's kind of very unique feature; it's not very common for pension income, actually. So, their income will be adjusted like every five years, I'm not quite sure, but it sounds like that, every five years according to the inflation rate. So, that's why my mom the other day, she told me, "Oh, my income increased." I was like, "Yes because income is adjusted by inflation." So, that's kind of my happy parents. And I would say the good thing for the pension income is I feel like they have a really good understanding about how much are going to receive even before retirement because they know this is a paycheck they are going to receive from the pension plan, right? So, that's kind of make their transition, their retirement transition, very smoothly. And they did not actually increase our living standard to a luxury retirement life. And they did not kind of tight their living expense because this reduced the income because everything kind of stayed the same.

Shea Frates: Yeah. So, it sounds like they set those realistic expectations ahead of time.

Qi Sun: Right.

Shea Frates: But they were also educated properly on what retirement life was going to be like.

Qi Sun: Right. So, that's kind of one of the main points I talk about in the article that a lot of people, they kind of fall into this behavioral trap called effective forecasting like people will think the future you want to be extremely good or bad, then it turns to be. So, people will actually have this unrealistic expectations on their retirement. And this kind of gap between their expectation and the reality cause they have this kind of unhappy retirement life.

Shea Frates: My mom, I had this conversation with her this morning. It's like, "Hey, mom, how are you planning for retirement?" And we had a really interesting conversation about it. We kind of went on a couple of different tangents, but she was pretty much telling me she has a 401(k) set up. We recently got her on an HSA as well because I was telling her the benefits of that; she's very excited about her HSA. And my mom is so good at saving money; she is like a super saver. She has a high-yield savings account, so she's going to continue to save money there. But I think her biggest regret, and I feel like so many other older adults, this is their concern, is they wish they started sooner. My mom says, "Oh, I just wish I started my retirement savings process so much earlier." But life got in the way like the recession back in 2008 got in the way. So, there's just a lot of obstacles for so many different people, and it's challenging sometimes. How can we set realistic expectations when maybe a hard challenge comes across, and how can we get people back on track?

Qi Sun: Yeah. So, I think that is a really good question. And this is not only your mom's question; I guess this will be a very common question for the coming generations of retirees. The main reason why I say this because I also mentioned this in the article that we do see the retirement income structure is changing right now. So, for our grandma, they, like the normal people, they have the pension plan, right? They used to the pension plan and then back to the 70s, and I think 80s, around that time, like we do see the pension plans start to disappear, and they're replaced by the defined contribution, which means people need to save the money and manage the money by themselves. So, you mention your mom is a saver.

Shea Frates: Yes.

Qi Sun: And she is very happy about saving money, but that can now put us on this pending question. Okay, people are so used to saving, but when they get a stage, they need to spend the money; how they spend the money, right? So, this is something I think very is kind of why we're here, why we're doing the lifetime income, why we're so enthusiastic about promoting the lifetime income for people. Because when people get into retirement stage, they face a lot of risk, not only from the financial market but also from this uncertain life expectancy, right?

Shea Frates: Yeah.

Qi Sun: So, that's why we think that bring the pension back to the defined contribution, that's kind of a new concept, very popular recently, is very important to help defined contribution participant, the 401(k) participant, to secure their retirement life, and also help them to set this realistic expectation before the real retirement starts.

Shea Frates: Yeah, definitely. And I know we wanted to talk about the importance of that financial education.

Qi Sun: Yeah.

Shea Frates: My mom, she worked in the insurance industry; it must have been like 20 years ago. So, she had a really great understanding of the value of a retirement plan, of a savings plan. Again, life gets in the way; not everybody has a luxury to continually invest in that retirement. So, how can we set people up for successful retirement?

Qi Sun: Yeah. So, I think this is you mentioned that this is kind of why we want to talk about the importance of financial education. And I think we have already kind of start doing that. You do see a lot of employer and also universities that provide a financial education program or courses to help people to better understand why I need to start saving earlier, why I need to plan the distribution during my retirement. Saving is not only the task; you also need to plan to how to spend the money, right? So, I also mentioned this in the article, right? So, we know that because people are kind of heavily rely on for 401(k) right now. So, the employer, they have, I would say, a heavier burden or, you know, responsibility, more responsibility to educate the participant because we do not expect every participant they have a financial advisor they can work with, right? I would say the main education will still be or from the employer. And I think I heard this concept from the webinar I think on Wednesday, last Wednesday; I really like this concept. So, the speaker talked about we need to actually change the fear-based approach to the hope-based support approach, right? We don't want people to fear about their risk, their retirement; we don't want people to fear about running out of money doing the retirement. We want them to put this hope that they will have a really happy and secure retirement life. That's how I think we need to change our mindset a little bit through the financial education.

Shea Frates: Definitely. I am petrified of retirement. I have such a long ways to go, but I'm in a much better position than a lot of people. You know, I match my contribution, my employer's contribution to my 401(k), I have the HSA, could be saving a little bit more, you know. But even I'm afraid, and I still need education on to how to best prepare. So, it's so great that we're talking about this, we're thinking about this, and we're getting that message out there for people to have a great retirement because it's so important.

Qi Sun: Yeah. I think this is also, you know, I studying this field is also my personal mission, trying to get more people educated about their retirement saving, planning. So, just help people to feel released from this fear.

Shea Frates: I might schedule a session with you sometime if you don't mind?

Qi Sun: I'm happy to, but I may charge for you.

Shea Frates: That's okay! No worries. Qi, it was so good talking with you today. Again, you provide so much experience in this area and so much knowledge. We're always so happy to have you on the podcast, so please come back next time, and we're looking forward to it.

Qi Sun: Definitely. Would love to do that.

Shea Frates: Perfect. Thank you so much.

Qi Sun: Thank you.

Shea Frates: And again, thank you so much for watching The Wave Strength, and we'll see you next time.

Voiceover: This has been another episode of The Wave Strength presented by Pacific Life. Don't forget to catch us on YouTube and make sure to subscribe. Although this podcast is presented by Pacific Life, the opinions and views expressed are those of the hosts and participants and do not necessarily reflect Pacific Life's views on any of the topics discussed. Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products. Pacific Life, its affiliates, its distributors and respective representatives do not provide any employer sponsored, qualified plan, administrative services, or impartial advice about investments, and do not act in a fiduciary capacity for any plan. Pacific Life refers to Pacific Life Insurance Company (Newport Beach, California) and its affiliates, including Pacific Life & Annuity Company. Insurance Products, are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products at issues. This podcast was recorded on January 20th, 2023.

Jim Breen: Thanks for joining us on today's show. We'd love to hear from you. Join the conversation below and leave a comment on your thoughts on what the industry can do better for participants as it pertains to lifetime income solutions. And if you'd like more interesting content. Click one of these links over here.