How much is enough? In survey after survey on retirement planning, how much we actually need to retire appears to be the number one question pre-retirees have. We are fixated on the fear that we’ll outlive our savings.
And that’s not surprising since the currency of our working lives is money. How much we earn, what we’re able to buy and do with our money — the houses, cars, vacations, toys, etc. – it’s often how we judge ourselves and others.
In retirement, money still matters, but the currency that is most important is time. Of course, how you spend that time is impacted by the amount of money you have. But it’s a cyclical equation – you can only do so much with a set amount of money, but you won’t know what set amount you need if you don’t first figure out how you want to spend your time.
I strongly encourage my clients to work with a financial advisor to get a clear picture of their finances for retirement. Asking yourself a number of questions about what you want your life to look like in retirement before you make that appointment, will give you a head start. Here are some questions to consider:
- What types of activities do you want to do in retirement?
The possibilities are pretty much endless, and all activities are not created equal, so figuring out what is of interest to you will help you determine what financial resources you’ll need. For example, walking or jogging is a lot less expensive than golfing; travel is more costly than gardening; taking out library books cheaper than registering for a university class; writing your family history is less costly than restoring old cars.
Thinking about what activities and hobbies will add value to your life vs. costing you money to do them is key. Leisure-time pursuits that are purely escapist are often less fulfilling, less healthy, and create more boredom than hobbies that are creative and allow for learning. Activities that involve spending time with others, giving back to others or learning a skill are considered the best for your well-being.
Spending money on experiences rather than material things tend to make people happier in the long run. Although it can be a stereotype, an example of a well-rounded retirement activity is golf. Research shows that golfers tend to have a 40% lower death rate than their counterparts (of the same age, sex, and socioeconomic status). Why? Golfers are meeting many of their basic human needs: getting physical exercise, socializing with others, are passionate about what they are doing, and are challenging themselves. If golf isn’t your thing, find another activity that meets these criteria. It could save you money on health care later on.
It’s a cyclical equation: You can only do so much with a set amount of money, but you won’t know what set amount you need if you don’t first figure out how you want to spend your time.
2. Where do you want to live?
Most of us want to stay in place, but does that mean you are going to have remodel your home? If you do downsize or move to a new community, will you actually be saving money? Think of strata fees, taxes, cost of living, transportation costs, etc. Do you want to spend your winters in a warmer climate? If so, will you rent or buy a home? Or does life on the road appeal to you – will you be buying a motor home or 5th wheel? Do you live in the same city as your children and/or grandchildren or will travel costs to see them impact your financial bottom line?
3. At what age do you want to retire?
With mandatory retirement a thing of the past, age 65 is just a number, rather than a timetable on which to base your retirement. If you’ve figured out the first two questions and your financial portfolio falls short of meeting your goals, are you willing and able to work longer? Alternately, you can retire at a younger age but you will have to determine what compromises you are willing to make about your life in retirement and still meet your financial obligations. Some advisors recommend figuring out what is the least amount of money you can live on and going from there.
4. Will you work?
Seems a little counter-intuitive, but many boomers are returning to work after they retire or entering retirement in a phased approach. Encore careers are also surging in this age group. Some need the money; others are bored and want to have the mental stimulation and social connection a job brings and work full or part time; others turn a hobby into a side business; some consult, volunteer or start a non-profit for a favorite cause to give back, and a good percentage live the traditional retirement of leisure. Determining whether you intend to generate some form of income in retirement can impact when and how you decide to retire.
5. What could change?
While we don’t have a crystal ball, many people planning for retirement focus on the immediate future. But it’s often 10-15 years after we retire, when we start to recognize other factors that impact our financial portfolios. We’re often more active in the first part of retirement, spending more on travel, entertainment and activities. As we age, we spend less on those things, but could be spending more on prescriptions and health care. It’s helpful to think in five-year increments and plan your spending accordingly.
6. What does your spouse/partner want?
If you’re married or have a partner you want to spend your retirement with, you’re going to have figure this all out yourself and then again with him/her. Approximately one third of couples have different ideas of what constitutes an ideal retirement, making conversations about what that means to each necessary. Do you both want to travel? Move or stay put? Participate in a variety of activities? Give back to a charity? Donate part of your estate?
Finding the answer to that universal question – how much is enough? – only comes when you’ve determined what’s important to you and how you will spend your time in this next phase of your life. Taking the time to do that now can alleviate a lot of the fears you might have about outliving your money in your retirement.
We offer a variety of coaching programs and workshops for individuals, couples and groups to help you assess your readiness to retire and how you can create a smooth transition from the workforce or enhance your current retirement lifestyle.