The Purpose of Retirement and How to Avoid “Abusing” Your Golden Years

I was listening to a sermon by one of my favourite pastors while working this week. Yes while most people listen to music and some bob along to the beat, I sometimes listen to podcasts and sermons. Don’t judge. Different strokes for different folks, as they say.

He mentioned a pastor friend, Dr Myles Munroe, and a principle Dr Myles taught in the 90s that made me stop what I was doing. The principle goes like this:

“If the purpose of a thing is not clearly understood, abuse is inevitable.“
– Dr Myles Munroe

“Abuse” can be understood very simply as “abnormal use”.

For example, if the purpose of a wife (or husband) is not clearly understood by the husband (or wife), it can result in the abnormal use of that relationship, aka “wife abuse” (or “husband abuse”).

If the purpose of an organisation, a relationship, a tool, or an object is not clearly understood, abuse is inevitable.

And you probably know where I am going with this.

To avoid the “abuse” (abnormal use) of retirement, we need to answer a very fundamental question: What is the purpose of retirement?

Now, I do not pretend to have the answer – hence this L-Plate newsletter. We are all on this journey of learning, exploring and discovering. But this is a question worth wrestling with, because purpose shapes how we spend our time, our money and our energy in this next chapter.

What is the purpose of saving and investing?
What is the purpose of eating healthy and staying active?
What is the purpose of the extra time we suddenly have?

And most importantly, what is YOUR purpose in this stage of life?

We ask questions for two reasons: to get information, or to provoke thought. My hope today is that this one provokes a little thought in you.

Here’s to retirement years that are used well, lived fully and pointed toward something that actually matters.

Your Turn:
What word or phrase comes to mind when you ask yourself “What is retirement for?”
Which area of life do you feel most ready to redefine – health, money, time, relationships or work?
If you chose one tiny action this week that aligned with your purpose, what would it be?

👉 Hit reply and share your thoughts – I’d love to hear what’s resonating with you.

☕ If today’s musing made you rethink what it means to retire, you can shout me a coffee on Ko-fi.

Derivatives – High-Octane Tools (Handle with Care!)

Alright, L-Platers, take a deep breath. We've journeyed through various investment vehicles, from the relatively straightforward stocks, bonds, and real estate, to the more accessible ETFs and mutual funds. Now, we're entering the more adventurous and complex part of investing: Derivatives. These financial instruments derive their value from an underlying asset, like a stock or commodity. They're powerful tools, but like a chainsaw, you need to know what you're doing, and they are generally not suitable for most L-Plate Retirees due to their inherent risk – a concept we explored deeply in Risk and Return Fundamentals.

Let's start with Options. An option gives you the right, but not the obligation, to buy or sell an asset at a set price by a certain date. A Call Option is the right to buy, a Put Option the right to sell. Think of it like a deposit on a house: you lock in the price, but can still walk away (losing your deposit). Options can be used to speculate on price movements or to protect existing investments (hedging), which is a form of risk management. However, the leverage involved means potential losses can be significant, directly impacting your Personal Financial Assessment if not managed carefully.

Next are Futures. A futures contract is an obligation to buy or sell an asset at a predetermined price on a specific future date. Unlike options, you can't just walk away. If you buy a futures contract for oil, you're committed to buying that oil (though you can usually sell the contract beforehand!). Farmers and airlines use futures to lock in prices and manage risk, but for individual investors, the risk is substantial due to the high leverage and mandatory settlement.

Then there are Swaps, agreements to exchange cash flows. Most common are Interest Rate Swaps, where one party exchanges a fixed interest rate for a floating one. Big institutions use these to manage debt and interest rate exposure. These are typically far too complex and illiquid for retail investors.

Finally, in some regions, you'll find Contracts for Difference (CFDs). These let you speculate on an asset's price movement without owning it. You're betting on whether the price will rise or fall. CFDs are highly leveraged, amplifying both gains and losses, making them very risky. They're even unavailable to retail investors in some countries, like the US, precisely because of the extreme risk they pose.

Derivatives are complex and not for the faint of heart. They're primarily for sophisticated risk management and speculation, requiring deep market understanding and a very high risk tolerance. For most L-Plate Retirees, it's enough to know they exist and to be extremely cautious. Focus on building a solid foundation first, as discussed in Foundations of Investing.

L-Plate Takeaways:

• Derivatives are complex tools: They derive value from an underlying asset and carry significant risk, making them generally unsuitable for new investors.

• Options: Right, not obligation: Give you the right to buy or sell. Can be used for speculation or hedging, but involve leverage and potential for substantial loss.

• Futures: An obligation: Commit you to buying or selling an asset at a future date, carrying high leverage and mandatory settlement.

• CFDs: High-risk speculation: Bet on price movements without ownership; highly leveraged and often restricted for retail investors due to extreme risk.

• Extreme caution advised: New investors should stick to basics and understand their risk tolerance before considering these advanced instruments. Prioritize the foundational principles.