Sushi Money

     How do you define retirement? How will you finance your retirement? A recent article by SmartMoney.com explores the major themes for those who have retired, or those considering the retirement journey.  The key focus these days seems to indicate that retirement is more like reinventing oneself.  Another definition might be leveraging one’s career and lifestyle for another.  In many cases older adults are continuing to work both for personal goals and financial need.  Whatever the situation, the lives of older adults have as many, if not more, of the concerns and considerations of people at younger ages. 

“People simply aren’t going to retire. They’re going to readjust their lifestyle.”

                                                                                         Harold Evensky

     That quote is pretty self-apparent, but that’s the key… it’s the “readjust” part that most of our questions and challenges are about.  And while the article above makes some excellent points about retirement considerations while managing your financial life, a lot of it is about getting there in the first place.  For many people, retirement is a far off goal, and something they didn’t really consider until middle age.  Like so much in life, it can sneak up on you, especially in terms of financial well-being.   So that’s really the first goal for most of us- ensuring enough money and cash flow is available to meet one’s needs for living expenses.  If cash flow must be increased, many people will certainly be working part or full-time, even during retirement.   The media often paints a rosy picture of the ideal retirement scenario.  I think we must be careful not to judge our situation against a fairy-tale metric that we read about in magazines.  Most people will work hard to have enough cash flow in retirement to meet their needs and goals, but often it’s other factors such as health care, or caring for a spouse or family member that increases our need for money over time.  This article from 2004 offers an excellent look at how to estimate cash flow for retirement.

     Sometimes net worth doesn’t even matter, but rather how much income is coming in on a regular basis to meet your living expenses.   I know of an elderly woman who is land rich.  She sits on more than a million dollars of real estate, but she lives frugally on social security as her only income each month.  Whether she doesn’t really want to sell it, or whether she wants more for the land that it’s worth, I don’t know.  She has not had any serious offers for the land these days, yet turned down a reasonable offer just a few years ago.  At this point, regardless of her real estate wealth, she has very little disposable income to meet her needs. Ideally, as we approach retirement we try to prevent or remedy a scenario that may take place such as this.  And that’s also where a good financial planner can help. 

     Many textbooks and articles cite retirement living expenses as 60% to 80% of pre-retirement living expenses.  That may be true, and it may not.  Each situation is unique, and while one individual or couple may find 60% more than enough, another individual or couple may actually be spending more money in retirement than they did in earlier years.   I think there are a few specific things we should consider before and during retirement:

1. Make a realistic assessment of your financial situation and a needs analysis for retirement.  Look honestly at your net worth, the budget for expected living expenses, and a desired standard of living in retirement.  Conduct an annual review and update the financial need analysis over time.

2. Continue to set aside at least 10% of income for saving and investing throughout our lives.  And work first to achieve an emergency fund of 3-6 months normal living expenses.

3. When considering future withdrawals from investments and savings, think about  how much you’ll need.  Annual withdrawals of no more than 4% of assets are often necessary to fund a lengthy retirement.  Real determination of withdrawal rates and asset comparison must be done with analysis of such factors as life expectancy, forecast cash flow, investment portfolio growth and expected income needs.  But 4% is often a realistic number for many people.

4. As many authors emphasize, diversify financial assets!  If you don’t know how to do that, then read, research or get help.  Diversification is very important.  This site from the SEC  has excellent information for those trying to understand diversification and asset allocation.

    Where do you fit in?  If you’re thinking carefully about your financial needs then you’re probably ahead of the pack.  And there’s lots of help out there. 

• Here’s a great article about strategies for a successful retirement. 

• AARP has excellent resources and information.  

• Two of my favorite sites are RetirementLiving.com and the 360FinancialLiteracy.org retirement section .   

• For social security concerns and information, you can research your expected social security retirement benefits online. 

• There are even inspirational retirement sites such as Retirement With a Purpose.

     Whatever your situation, it’s worth noting that there are many, many other people facing similar challenges and decisions as they approach retirement, and exploring new options in retirement.   Finding ways to increase cash flow is becoming a focus for many businesses, such as those offering reverse mortgages, specialized annuities, etc.  Be careful with whom you do business!  While there are many good companies out there that work with seniors, there are also many unscrupulous individuals.  Just don’t jump into anything without a good second opinion.  I’m a firm believer in finding an independent certified financial planner for a first and second opinion!  The good news is that most people believe their retirement years, even while working in a new field or living a new, sometimes very different lifestyle, is probably the best they’ve experienced in their lifetime.   I don’t know where I’ll be, or exactly what I’ll be doing in the decades ahead.  But suffice it to say that my goals are set to achieve a lifestyle that will meet our needs in a variety of circumstances.  Now all we have to do is work towards them and stay the course.  But having goals in the first place is really important- it helps frame the vision for what we want to achieve.

     P.S. Don’t forget estate planning!  Getting our financial lives in order includes making sure our wills are up-to-date, and that we have thought about what happens after we’re gone.  It will sure make things easier, and less expensive, for family members and others!  Have you heard of the Five Wishes?

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