Retirement Advice From Active Retirees

Most working people imagine retirement with wonderful visions of being on permanent vacation, sleeping late every day, and travelling. That is not the reality for most retired people. There are 10,000 baby boomers per day turning age 65 in the United States. Most retirement advice is focused on the financial side of retirement. It is also helpful to think about the “softer” issues related to achieving a happy retirement. The following advice on retirement is focused on advice about living happily in retirement, not just paying for it. It seems to us that people who enjoy their retired years are as focused on achieving their life goals, as they are their financial goals. The advice here comes from actual experienced retirees, and from our observations about our clients who are retired. The emotional aspect of leaving the workforce can be jarring, and many new retirees have a tough time feeling productive with their new-found free time. A comprehensive retirement plan addresses money, health, life goals, family, and social issues. How can you still feel relevant in retirement? For many people, much of their own personal identity is tied to “what you do” for a living while working. That changes in retirement. For many people retirement can last 25-30 years. According to the Society of Actuaries, there is a 63% chance that at least one member of a 65-year old couple will live to age 90 or more. What is your plan for those 25 years? What will you do with all that extra time? One of our clients mentioned that in retirement your 60’s are the “Go-Go” years, your 70’s are the “Slow-Go” years, and your 80’s are the “No-Go” years in terms of how many activities and how much travel you are able to do. Plan your retirement accordingly. Below is the retirement advice we got from current retirees.

Retire TO something you are passionate about, rather than retiring FROM work. People who retire to something they are excited about seem to be the happiest in retirement, and are able to make the easiest transition into retirement. Those who retire from work without a game plan, a passion, hobbies, etc. often have a tough time mentally and emotionally making the transition. What are you passionate about outside of work?

Continue to work and expand your interests for as long as possible. By continuing to stay engaged in important regularly scheduled activities you retain your sense of purpose. You have a reason to get up in the morning. Working part-time, family support and/or volunteering can continue to provide purpose and meaning for your life. Retirement should not be driven by age but by a desire to do something else with the rest of your life. The people we see that seem to be the happiest are very busy in retirement doing many different things, including social interactions on a regular basis. They say “I don’t know how we had enough time to work before we retired!” Your work week provided a great deal of structure to your days. It is a good idea to create structure in your days as a retiree as well. One retiree recommends having a purpose in life beyond just having fun. Get out there and get involved!

Take care of your health. Keep moving and stay fit. Manage your health in a daily and disciplined manner as much as you manage your finances.

Have a plan for healthcare costs. Healthcare costs increase significantly as people get older. A typical 65 year-old couple retiring now needs roughly $230,000 to cover medical expenses in retirement, not including long-term care costs, according to Fidelity Investments. Those numbers could increase as Medicare is poorly funded now, possibly resulting in reduced benefits or increased “means testing” for benefits in the future. What is your plan for future healthcare costs and possible long-term care costs?

Establish a strong network of friends and family. Develop new social connections. “Invest” in your friends and family. Having strong social connections is a critical element of a happy and healthy retirement for most people. Don’t let financial or tax considerations dominate your decisions or get in the way of keeping your social/family network strong. When you retire you will not miss the work as much as you will miss the people and the relationships.

Discuss retirement with your spouse. Is your spouse really ready to have you around the house full-time? Is your spouse’s vision of retirement the same as yours? For many couples there are things each of you will want to do separately, and some things you will want to do together. Retirement by one or both spouses can significantly impact the relationship you have with each other.

Create a budget and stick to it. It is smart to practice living on that budget before you retire. Many people have difficulty mentally adjusting to no longer having a regular paycheck coming in to cover their monthly living expenses. They think every dollar they spend is one dollar closer to running out of money, and they live their lives frugally and often well below their means. It’s OK to spend the money you have worked so hard to create. It’s time to enjoy the fruits of your labor. We help our clients come up with a strong financial plan, a retirement budget, and we can create a “retirement paycheck” that gets transferred to their checking account every month.

Pay off your mortgage and other personal debts before you retire. It is easier to enjoy a stress-free retirement without a mortgage hanging over your head. If you are planning to retire and you still have a mortgage, it may be a red flag that you really can’t afford to retire yet.

Decide how much of your wealth you will share with your children, and when. How much is too much. These are difficult and personal decisions that differ with each family. Many retirees enjoy sharing some of their wealth with their children and grandchildren while they are still alive. Don’t bail out your kids repeatedly if it puts your own financial security at risk.

Perhaps the best retirement age is never? Some people may need to work forever for financial reasons. Others may be so passionate about their work that it doesn’t seem like “work” to them, and they may decide to stay working as long as they possibly can. These work lovers may be type-A personalities who can’t imagine doing anything else or enjoying anything else as much as working. Many people are now working into their 70’s because they love what they do. There is absolutely nothing wrong with that.

We think a complete and comprehensive plan for a happy retirement goes beyond financial security. It requires a plan and concerted effort to remain active, healthy, busy, and socially involved to live happier and better in retirement, not just longer.

The Downfall of Retirement Planning

Why is it so hard to plan for retirement? The problem is people are not wired for long term planning or for the risks involved in retirement savings. They tend to be optimistic, but fail to plan for incidents that could happen in the future. For example, wining the lottery occupies a person’s mind, due to its positive effects on life, more than retirement preparation. As people age they increasingly push negative thoughts aside, and procrastination then becomes a problem, due to the illusion of more time in the future ahead.

More Barriers

If it’s not enough that people aren’t wired for long term planning, the short term tends to get in the way. Many people site day-to-day expenses and cost of living as the reason they can’t save for retirement. Distractions mount, as families grow and the interests of the children start to take center stage. Companies continue to cut retirement plans or stop contributing to them all together. Before long, life has leapt into the future and the time to start savings seems to have passed by. Getting the retirement planning advice is key to making up time and finding the right retirement plans.

Understanding Life in Retirement

Life brings about many unforeseen changes and taking them into consideration will help with retirement preparation. Retirement is long these days, lasting two to three decades or more. As time goes by, so often do interest rates, so it’s important to understand the worth of those dollars in the future. If interest rises 3% every year a $10 pizza today will cost.30 cents more next year. It’s best to be prepared for unforeseen things, for example stock market declines, a very long life, long-term care for unseen illness or even assisted care. Medicare will not cover a retiree’s entire healthcare, plan accordingly for a supplemental plan.

Develop a Plan

There are many things people can do to prepare for retiring, but the most important thing is to start saving now. At the age of 50, a worker can contribute more to their 401 (k) and IRA to increase their savings. Working past the age of 62 will help them save more money. Delaying Social Security benefits from age 62 to age 70 will increase a retiree’s base benefit by about 75%. Once retired, down sizing to a smaller house will cut down on taxes and utilities. Getting retirement planning advice through one of the many mutual fund companies like Fidelity, T. Rowe Price and Prudential will help a worker understand stocks, bonds and annuities that can contribute to their fixed income in retirement.

Understanding Is Half the Battle

There are many challenges people face every day that contribute to the downfall of retirement planning. A person’s inability to plan long term, see future risks, and ability to procrastinate are big obstacles to retirement preparation. More barriers cross a person’s path, as families grow, companies cut back benefits and time speeds ahead. Understanding what retirement looks like will help in its planning. Working longer and delaying Social Security benefits will help to increase savings and benefits. Finding the right resources is essential to assist the retiree’s savings and potential contributions to a fixed income.

Keeping Retirement Simple

It seems as though over the last couple of months there are three factors that have had control over the market fluctuations. Three factors outside of your control that can have you gravely concerned about your future nest egg in a matter of seconds. First, the concerns over the Russia – Ukraine crisis. How many times has the market gained and receded based on a one or two line quote from Putin? Second, the ongoing crisis in the Middle east, particularly issues in Israel and Iraq. As much as we hate the reality of it, this crisis has been going on for centuries, it is not going to change any time soon. Lastly, the falsified security of the federal stimulus. It is almost an automatic reaction, stocks take a hit and Wall Street looks to the Federal Government for more monetary assistance (Quantitative Easement III). Remember, the more we spend now the more we pay in taxes moving forward. How many of these concerns are in your control?

Obviously none of the mentioned concerns are in your control. Yet the future of your nest egg is dependent on what happens on a daily basis in the market. It does not have to be that way. You can take control of your own destiny regardless of external events. Assuming there is an American Flag flying over our country moving forward, guarantees are possible in retirement. It is quite simple. Don’t focus on a dollar amount you are trying to reach (example: “I need $1 million to retire”), instead focus on a cost of the lifestyle you want to pursue in retirement. Ask yourself how much monthly income will you need in retirement for life, regardless of how long you may live. Everyone is living month to month. Those monthly expenses do not go away in retirement, instead they hopefully go down. Nonetheless, there will be monthly bills throughout each of our lifetimes. This is my recommendation of focus.

Think of it this way… Which scenario do you think hurt an investor more with their nest egg in 2006, prior to the financial crisis? The investor who’s nest egg was dependent on day to day activities in the market, or the investor who knows they will get the same result regardless of the outcome? Now ask yourself the same question in today’s volatile financial arena. This is the #1 reason why many future retirees, and retirees alike, are looking for protected income results independent of external market events. With hindsight being 20/20, how many of those investors would go back and trade the daily risks of retirement for a guaranteed result? If your goals can be met without risk, why would you roll the dice? Granted, you may miss out on a huge market rally; however, you would bypass the huge market falls as well. I believe this comes down to how much stress you are willing to endure in your lifetime.

To reiterate, turmoil in the market will always be there. This is a constant phenomenon. You will rarely, if ever, have control of these events; hoping the current will take you to shore. Unfortunately, there are many still at sea who thought they would hit land long ago. This is a risk you do not have to take on. There are viable solutions that will guarantee your results of lifetime income, regardless of what the market may throw your way. It is imperative to explore these solutions that have been available now for decades. I believe the only way to eliminate the stresses approaching or within retirement is to remove yourself from the situation. On a closing note, make sure to explore these options with a trusted licensed professional who thoroughly understands the ins and outs of lifetime income solutions.