We don’t think about retirement the way our parents did. Whether it’s money, part-time work, leisure, staying healthy, or leaving a legacy, we want to put our own mark on things. At HCM we have seen many different approaches to planning a successful, financially independent retirement. The following are some of the key attributes successful retirement plans have in common.
Retirement Spending Patterns
It is generally accepted that retirement typically has three distinct phases, each with different spending patterns. Early in retirement, people tend to be healthy and active and have uncompleted adventures on their list that were postponed during their working years. Over time, even the most adventurous retirees will see all the rivers in Europe they care to and will begin a second phase when they become comfortable spending more time at home. As activity slows down, so does spending. For some, the final years of retirement begin a third phase where things get more expensive as health care and possible long-term care needs arise. This basic model of retirement spending follows this general trajectory:
While everyone’s retirement spending pattern is unique, HCM starts with this cash-flow model when designing financial independence plans for our clients. We then customize based on unique situations, like:
- Family/Friend support
- Education funding
Basic ingredients for long-term happiness
Joseph Coughlin, PhD, Director of the MIT Age Lab suggests pre-retirees answer three straight-forward questions to see how prepared they are to enjoy a successful retirement now and decades in the future. According to Coughlin, they are:
- Who will I have lunch with?
- How will I get an ice cream cone?
- Who will change my light bulbs?
Lunch is more than a meal—it’s an occasion. Who you have lunch with may be a good indicator of your social network. This is not the social network of “friends” you have online, but actual friends who you see on a regular basis. These are the people who help reinforce a healthy and active lifestyle and who you and your significant other can depend upon if you need help.
Even with adequate finances, living alone without a robust circle of social support can threaten healthy aging. Today, more than 40% of women over 65 years old live alone in the United States. Consequently, planning where and with whom to retire may be as important as how much it will cost. For example, a home in the mountains may be alluring as you approach retirement, but it may lead to an inadequate network of friends or even complete isolation in old age.
Baby Boomers are facing a different retirement than their parents. They’re more likely to live alone, to have fewer children, and to live in suburban and rural locations that may not provide easy access to active and livable communities.
Imagine it is a hot summer night—a perfect night for getting an ice cream cone (preferably chocolate). Quality of life is about being able to easily and routinely access those little experiences that bring a smile to our faces.
While getting an ice cream cone when you want it is not a financial strain, the capacity to have that cone on demand does raise questions such as, “Do I have adequate transportation to go where I want when I want?”
If driving is no longer possible, “Are there seamless alternatives that enable me to make the trips that I want— not just those I need?” Moreover, “Will I age in a community where there are ample activities, purpose and people to keep me engaged, active, and having fun?
If your father is 85—even if he is in good shape—do you want him on a ladder changing light bulbs? How about your mom living alone and maintaining her home well into her eighth and ninth decades? Given that Baby Boomers have fewer children than their parents and have the highest divorce rates in history, help at home may be in short supply.
Now think about your own retirement years. Changing light bulbs is more than a simple repair. It is a question that asks, “Do I have a plan of how to maintain my home long-term?” Well into the second phase of retirement, most of us take for granted our ability to do daily house cleaning, maintenance, and basic repairs—even home modifications. However, identifying the costs as well as the trusted service providers necessary to maintain our homes later in life may be as critical to aging independently as the health of our retirement savings.”
None of these require substantial financial resources but having easy and obvious answers is key to a happy life as we age.
Retire with purpose
There's a difference between moving on to the next exciting chapter of life and quitting. Some can't wait to leave their job. If only they could escape – wouldn't that be great? But permanent relaxation can lead to inertia, boredom, listlessness, and even depression. It is important to retire to something rather than from something.
If retirement is on the horizon (or you are already there) and you don’t know what you are retiring to, you have some work to do ASAP.
For example, imagine a well-paid finance manager at an auto dealership whose personal identity is closely tied to her job. Her best friends are all at the dealership. She retires, and suddenly her friends and sense of purpose are gone. She finds that she has no compelling reason to leave the house, nothing to look forward to when she gets up in the morning. Guess what? She hates being retired.
On the other hand, if she plans her retirement before her farewell party by exploring an encore career, volunteer options, social organizations, renewing old or starting new hobbies, she can retire with a promising future.
Live Where You Feel at Home
Home is where your future memories will be made. It could be where you live now; a nearby place where the scenery and people are uplifting, where your grandchildren live, or on a sunny beach. If you can maintain your social network and “change the light bulbs,” then it’s probably a good place to spend your retirement.
Retiring successfully presents financial, social, emotional, and physical challenges. With proper planning, foresight, and dedication, the last phase of life can be your best!
| Mike Hengehold, CPA/PFS MST RICP®
Mike is the President of HCM Wealth Advisors. Over the last 30 years, he’s provided financial planning guidance to a myriad of families to help them realize their financial dreams. Mike is an avid homebrewer and animal lover, and when he’s not at work you can often find him on the golf course working on his short game.