We have all prepared for at least a few significant events in our lives, such as studying for a major exam, interviewing for a dream job, rehearsing for a big performance, training for a marathon, even getting ready for the birth of a child. We’re familiar with that build-up of anticipation, the pre-event jitters, and the pleasure, satisfaction, even joy that comes with crossing the proverbial or literal finish line.
For just about every one of these experiences, the preparation – whether for an exam, a competition, even parenthood – occurs over a matter of months. What’s it like to prepare for something you’ve been anticipating for likely 30+ years and, when the big day comes, realize you’re not sure how to proceed?
We are, of course, talking about getting ready to retire. If you have been diligent and disciplined, by the time you reach “normal” retirement age (we’ll call that 65, although “normal” is more of a range from 62 to 67+), there is a good chance you will have been saving and investing in preparing for this event for at least 30 years. Even if you have accumulated sufficient financial resources and decide to retire early, say at 55, it has been a long process of working and putting money aside. So first off, congratulations! Some sources say that fewer than 20% of Americans are saving “enough” for retirement. Now that you’re nearing the finish line, it’s essential to be mindful and deliberate about what you do next.
Spending Your Money, Spending Your Time
We won’t mince words about this critical fact: your spending in retirement will affect whether or not you outlive your savings. If you have been working with a financial advisor, you have undoubtedly created a financial plan designed to fund a comfortable retirement, whatever “comfortable” means to you. Naturally, that plan is not likely to be successful if you do not stick to your assumptions about your spending in retirement. Tracking your expenses in retirement and reviewing your plan annually with your financial advisor will show you if you need a “course correction.” Remember, even if you have saved millions of dollars before you retire, you could blow a big hole through that comfortable retirement if you are not mindful of your spending.
When you start thinking about retiring, we recommend you track what you have spent, by category, for the past three years (Gold Medal Waters offers a detailed Expense Tracker to help you do this). It is likely to be an eye-opener. Contrary to the popular notion that expenses go down in retirement, most people do not reduce their spending for the first few years or more. There is more likely to be an increase in spending. Retirees travel – often for long periods – because “vacation time” is now unlimited! Some of these trips visit grandkids, but some are big, bucket-list items: an African safari, skiing in the Alps, or spending a month in an Italian villa. You may want to overhaul your wardrobe because work clothes are not “retirement” clothes. You may eat out more often because, after 35+ years of meal prep, you may not want to cook that much anymore. After spending more time in your home, you may decide the kitchen looks tired or want a deck outside the master bedroom, so you embark on home remodeling projects. Or you may need to prepare your home to sell and move. These retirement activities become sources of spending that you may not have anticipated.
Getting ready for retirement is not just about predicting how you will spend your money; it is also about planning how you will spend your time—in other words, retiring calls for both a financial checklist and an emotional checklist. Retirement can be emotionally tricky – you have not only left behind your work, your colleagues, and your daily routine, you may also be parting with the notion of your identity. If, for the past 30 years, you have been saying, “I’m a doctor/lawyer/teacher/etc.”, now who are you? We can offer real stories from clients who have confronted these issues and have transitioned to retirement differently.
Four Clients – Four Different Ways To Retire
Client #1: Instant retirement, with outside interests. One of our clients retired “on schedule” while his wife planned to keep working for another five years. He had various things he wanted to do – for example, as an avid deep-sea fisherman, he planned to take solo trips to pursue that passion (and had figured the cost into his retirement spending plan). As a couple, they discussed that plan in advance and had shared expectations about how much he would travel. They both maintained their identities, and the transition was relatively smooth and rewarding.
Client #2: Instant retirement, no outside interests. This client had a career that had not given him much time to pursue hobbies, so he made a plan to take a “gap year” upon retiring. He intentionally (emphasis on that word) discovered what hobbies or activities he might find interesting without committing to any of them. He made a commitment to try various things rather than lying on the couch working on crossword puzzles. He took a cooking class, volunteered, and investigated other possible interests. After a year, he was ready to commit to pursuing two fulfilling recreational activities regularly, giving his life structure but still leaving plenty of time for R&R.
Client #3: Gradual retirement to develop interests while still working. As a physician in private practice, another client’s working life consumed most of her time, and she had no particular hobbies or interests. A couple of years before she planned to retire fully, she cut back her work schedule and started doing other things two days a week. She found she derived great emotional rewards from volunteering and was able to take on some responsibilities in that role that gave her a great sense of purpose. One caveat: organizations know when they have an intelligent and capable volunteer, and they can end up taking more of your time than you expected, leaving you feeling drained. Set boundaries on how much time and money you plan to give as a volunteer.
Client #4: Permanently semi-retired. A fourth client officially retired from her firm but continued to work on retainer - which she still does, over 12 years later, to stay engaged with something she loves. Her career as a publisher had led her to establish personal relationships with authors who are now her clients. She brings their new projects to her former publishing house. Similarly, a physician client says he never expects to retire fully but has become involved in mentoring young men to help them figure out their path in life while still working part-time.
Client #5: Forced early retirement. Sometimes your retirement date is chosen for you. It can be devastating when you plan to work for two or three more years, only to have that choice taken away from you by being laid off. If you have not built up sufficient savings, you may have to decrease your spending while dealing with the emotional stress of losing your job. Suppose you have saved diligently over the years. In that case, you may be able to take some time to evaluate whether you want to look for a new way to generate income. Alternatively, you may decide to permanently retire if you can be comfortable with the level of spending that your savings will accommodate.
I married you for better or for worse, but not for lunch.
If you are part of a couple, an element of being emotionally ready to retire is to understand that you and your partner do not have to retire at the same time and do not have to spend all of your free time together. Note also that if one partner has not been working outside the home, the one who is now retired and spending a lot of time at home may start “managing” things around the house, something that the at-home spouse has been handling for years. That can cause a good deal of friction.
Retiring means leaving behind interactions with other adults, interactions that should be replaced, at least to some degree – and your spouse cannot be the sole replacement. If you were an executive used to managing numerous people, it could be challenging to change your mentality overnight now that those skills are rarely applicable. Interacting with others supports overall emotional wellness, which is essential for a healthy retirement. Volunteering, or auditing classes at a local university, are ways to meet new people. Note that staying mentally active reduces one’s risk of developing Alzheimer’s and perhaps other forms of dementia – and have your hearing checked. As we age, many of us have trouble hearing conversations and studies show that hearing loss can lead to dementia.
Humans Need Purpose
The brilliant Russian novelist, Fyodor Dostoyevsky, wrote, “the mystery of human existence lies not in just staying alive, but in finding something to live for.” Work gives people a sense of purpose, and the desire for a sense of purpose does not disappear the morning after your retirement send-off. The best advice is to retire TO something, rather than retiring FROM something. Be intentional – it won’t just happen on its own. One of our clients, a successful entrepreneur, retired at age 55, with plans to travel and golf. After four years of that, he said he regretted not starting another company because he was bored.
Gold Medal Waters provides clients who are nearing or starting to think about retirement with thought-provoking exercises. We help them address the financial aspects of retirement and how they will spend their time, day in and day out. The goal is to focus on the central issue of what we do as advisors: helping you figure out how your money can help you do things that give your life meaning. Reach out to us if you are nearing retirement and have any questions.
