A Successful Retirement — Is It in the Cards?
There are two distinctly different images of retirement that we see regularly portrayed:
Image A: The Golden Years: This is a healthy and attractive older couple, with the time and resources available to pursue their passions. Surrounded by loving grandchildren, and loads of friends and family, they are living out their dreams in their advancing years.
Image B: A solitary elderly person, struggling to make ends meet. In poor health with mounting medical bills. Lonely and alone.
Obviously, we don’t want to be in group B, and our own “Golden Years” image could be that described in A- or something else desirable. No one wants to be stressed about money, lonely, in poor health — unable to enjoy our older age. What can we do to influence how we experience our senior years?
1) Know what you can control and what you can’t. I think my mother illustrates this point very well:
She had dreamed when she was in her 40’s that one day she and my father would have the time together that they always struggled to find — life is very time consuming when you are working to make ends meet and raise a family. Unfortunately, he died at 49, so that part of the dream was forever shattered. We have no control over who lives and who dies- or when, and you can’t build your future hoping that this will pan out the way you want it to.
On the plus side- she is now in her 70’s and she has definitely taken the bull by the horns in having a fulfilling retirement. She works out every day to keep her body strong. She takes classes to keep her mind alert and to stimulate interests and make friends. She has hobbies. She loves to spend time with her kids, grandkids and great-granddaughter- but that is not all that her life is. She goes to church every day and cultivates her spiritual life. She does what she can with what she can control
2) Understanding the true costs. What will you need money-wise in retirement? How do you know? There are many retirement calculators out there. Most are woefully inadequate. Do you know what Medicare will cover? Do you know the cost of Medi-gap insurance or the likely cost of pharmaceuticals? If you downsized your home when the kids leave and move to a more tax friendly state, what is the impact on the quality of your retirement? Being able to work through these kinds of scenarios requires a lot of data and analysis- which most people have neither the time nor inclination to piece together. It is precisely for this reason that the founder of Pefin, Ramya Joseph, started the company six years ago- because she was helping her father understand his options in an early retirement, which were not readily obvious. Check out this video of Ramya telling that story.
3) Planning for disaster. As my mother’s story indicates, life is full of curve balls. We all know someone who has suffered a serious illness and had to stop working- or some other unanticipated event that impacts their life, their earning power, and their ability to live their life and their retirement the way they wanted to. We can’t guard against everything, but there are some really simple things that we can do, like:
a. Take the disability insurance at your job if they offer it
b. Get life insurance so your family isn’t completely destitute if you are the breadwinner and you are no longer able to provide
c. Build a base of support with friends and family before you need it
d. Run through as many “downside” scenarios as you can think about and figure out the contingency plan. I am viewed by most people as being eternally optimistic- and I am- but more than anything I focus on how to deal with the worst-case scenario, and once I have a plan around that, the rest is gravy.
4) Expense ratios throughout your life- the gift that keeps on giving. This is an easy one — just spend less than you make. The challenge is that for a lot of us we aren’t at a place in our lives when we have the flexibility to do that — there are fixed costs that we can’t eliminate when it comes to the essentials. But we can do a few things:
a. When you do start earning more money, don’t adjust your standard of living — or at least not by as much as the increase in earnings. Create the buffer and stick with that. Learn to save.
b. Understand how you could eventually spend less (the kids won’t be in daycare forever!) — and develop a plan today for how to save when the time comes.
c. Is there a way to earn more? Maybe — but also don’t get sucked into “get rich quick schemes” and other unsustainable ways to increase income. When I was in my 20’s and was a stay at home mom, I was always trying to figure out ways to generate some income. It was a different (pre-internet) time, but none of the “work from home” schemes ever made me a dime, and in general they cost me money (my favorite was a “make hair barrettes from home” business- where you had to buy the materials from the company and send back the hair bows. The claim was that it would take 20 minutes to make a bow and each one would net the craftsman a couple of dollars. The reality was that with the materials sent, it was not possible to make even one bow…)
5) Understand how the decisions you make impact your retirement. If you send your child to an expensive college, will you be able to afford to buy a home or retire when you want? How do you understand how decisions you make are interconnected? This is not always easy to analyze on our own but understanding the answers to these questions are critical in making the decisions that are best.
6) It’s not all about investing in the markets. We are barraged with advertisements that indicate that if only you had the right portfolio you could be an overnight millionaire. This is somewhat like buying the right lottery ticket- not impossible but highly improbable. It isn’t that making sound investments isn’t an important part of an overall investment strategy, but there are other important things to invest in:
a. Real Estate — should you buy a home? For those who do, this is likely the most valuable asset in your portfolio for retirement. How can you leverage this to enhance the quality of your life? If you downsize that is money in the bank, but what about exploring the sharing economy and considering putting it on Airbnb?
b. Pay down expensive debt — if you are paying above market rates on your debt, getting rid of it is a guaranteed benefit.
c. Health — For most people, fully 25% of retirement costs will be spent on health-related expenses. If you invest in good health, these costs go down — and you feel better. A win all around.
d. Hobbies and interests — If you can entertain yourself in a low-cost way, you can be happy with less.
e. Friends –Surrounding yourself with a wide circle of loved ones is the most important asset we can have.
There are many different ways to retire but keep in mind that true happiness rarely comes from material goods. It is also true that if you can’t provide for the basics for you and your family there is a huge amount of stress. Figure out what you need, and make a plan — as always, if you fail to plan, plan to fail. Hope is not a strategy. Remember also that work doesn’t have to end in retirement, provided that your health holds out. For many people, there is value in still having a job to go to, even if it is not full time.
Lastly, note that most of these ideas about how to have a happy retirement are also valid to consider on how to have a successful life before retirement. If you start developing great habits now, you won’t have to wait until retirement to reap the benefits! And if you need help in analyzing how all of these aspects of your personal finances work together, Pefin is here to help you Do Life!