What Will Retirement Look Like for You?
Written by Mark Jaeger, CFP®
For most of the last century, people either worked their entire lives (as long as they were physically able) or else they “retired” at around age 65 and lived out their few remaining years at home in rest and relaxation. Today, retirement is different. People commonly live 20 or 30 years in some form of retirement.
Retirement is not, however, a single state of existence that lasts all those years. Because people live longer, when their traditional careers end, they actually transition through several phases. Although retirement is different for everyone, and these phases don’t occur at specific ages, each phase does have its own quality of life and financial characteristics that are worth examining.
During this phase, your work life probably hasn’t changed. You still likely work in a traditional full-time job. You’re paying down your mortgage and getting kids through school/college.
You increasingly think more seriously and frequently about retirement and make more of an effort to save money for it. The government helps, providing extra incentive from age 50 on in the form of higher allowable “catch-up” contributions to 401(k) and other retirement plans. If you’re over 50, try to find a way in your budget to take advantage of those higher contribution limits.
Toward the end of this phase, you’ll need to be financially and—just as important—emotionally preparing for the transition to the next phase. That transition is from the well-defined work world to more undefined roles and open goals.
In this phase, you also have enough time to proactively develop a plan for the retirement you want, seeking help with the financial planning process as needed. Research shows that preparation for, and satisfaction in retirement are far better when you have good advice to help you through the process.
This transition period—which involves doing more of what you enjoy, after your “first act” is over—begins the day you first stop working like you’ve always done. While your old work identity and routine was clear, your new “retired” identity and routines may not be clear at all. That might feel odd at first, and your new daily routine (either without work or with less work) will take some getting used to until you reach your full stride. If you have a spouse who is used to having the house to himself/herself while you’re at work, having you around will take some getting used to for both of you.
The Encore phase can easily be one of the most active and enjoyable times of your life. During this phase you still have your health, time and money to do more of the things you want to do. You will probably be as busy as you ever have been, with a multitude of options available to you. Whether you choose more travel or become more active in local organizations and activities, your focus can be on things that are emotionally rewarding, not just things that bring in a paycheck.
Your financial resources, as well as your cognitive and physical abilities, are likely to be higher during this phase than they will be later on. Even so, far too many people enter this phase unprepared for the important needs of retired life, including relationships, personal meaning, and long-term goals and plans.
Relationships and social activities take on new importance during this phase. Others in your life may have their own ideas on what the Encore phase looks like, and their views might not be the same as yours. So be sure that your plans take their perspectives into account.
During this phase, you might choose to work, either full or part-time, but it is likely in an area other than your prior career…perhaps doing something in which you’ve always had an interest. You might want to travel, take up a new hobby, go back to school, volunteer, and/or spend more time with family and friends. And, of course, there’s always golf.
In this phase, you are likely to be on the go – a lot.
Big Decisions Phase
You move into the Big Decisions phase when your body starts reminding you that you are not as young as you used to be. You no longer work, you travel less, and being a full-time grandparent sounds increasingly nice. You are still young of mind, but you don’t have the same get up and go you used to. Your body lets you know that it’s time to slow it down a bit. You are more selective about what you do, when, where, and with whom.
As you spend more time around your big empty house (the kids are all gone), you might decide that downsizing to a smaller house makes sense. You might also decide to move closer to the kids, to a warmer climate, and/or into a retirement community.
While it might seem too soon to consider a retirement community, this is exactly when you should start checking them out. If you wait until you need assisted living or skilled nursing care, your choices will be far more limited, since many retirement communities won’t accept you into those facilities unless you first live in their independent living units (apartments, houses, or townhomes). You might not decide to move in yet, but at least do enough research to narrow the choices for later.
Part of your income in this phase will come from Social Security, but your income sources should also include personal retirement funds (e.g., IRA Rollover) or a company pension. It probably does not, however, include income from working any more. This means that you now live, more or less, on a fixed income, which means that budgeting and creating investment income take on a new significance.
You might choose to stay closer to home, pursuing intellectual pursuits, looking for ways to reinvent yourself, and redefining your future. You will also become more reflective during this phase, thinking about the legacy you will leave—for your family, friends and community.
You are still on the go – just not as often and not as fast.
Longevity and Complexity Phase
This phase begins when taking care of your health starts to feel like a full-time job—managing medications, frequent medical appointments, and mobility challenges. Time and expenses related to your health care increase significantly. Social opportunities and activities with friends may occur less, as they are forced to manage their own health issues.
It’s estimated that over 90% of older adults are managing at least one chronic condition, and almost 80% are managing two or more. More than 80% of those over age 65 take prescription drugs, with more than half taking four or more medications on a regular basis.
Your health, mobility and cognitive abilities will not be what they once were, so suitable housing becomes more important than ever, as you begin to need assistance with the functions of daily life. If you haven’t already moved into a retirement community or facility, this is the time to seriously think about doing so. If you do move to smaller quarters in a retirement facility or community, you may need to give away some of your possessions. Your legacy to family, friends and community will probably begin to include an element of gifting.
Hopefully, you haven’t waited until this phase to review and update health care directives, powers of attorney, and wills/trusts, but it remains important that you and your attorney continue reviewing them every five years or so during this phase, not just to stay current with evolving laws, but to make sure that these documents reflect your current wishes. Make sure that you select trusted people to serve as your executor/executrix, trustee, power of attorney, etc. You need to do so while your physical and cognitive functions are adequate, and while your desires can be communicated clearly.
Living With Assistance Phase
Health and physical issues are typically front and center during this phase. A fall, stroke or illness can have a profound impact on your living arrangements. Moving in with family or to an assisted-living or long-term care facility may be a good option.
Serious illness or disability of a spouse can greatly impact your well-being and quality of life. The loss of a partner also becomes a real possibility. Because women typically outlive men, women make up almost 70% of elders living alone. Thus, ensuring that adequate resources will be provided is a real family concern.
If you haven’t already addressed the legacy and estate planning issues touched on earlier, do that now. This phase will progress much smoother if those discussions have occurred, decisions have been made, and proper documents are in place.
You can probably see that these phases are not neatly compartmentalized or clearly defined by age or length of time, and that’s because everyone ages differently. Phases may overlap for some periods of time as you progress from one to another.
A significant portion of your lifetime will be spent in these phases of retirement. Getting good advice and planning ahead can greatly enhance your quality of life and satisfaction as you “graduate” from one phase of retirement to another.
Mark Jaeger is the Chief Operating Officer and a shareholder at Viridian.
Viridian provides tax, financial planning, and investment management services. The above is meant as general information, and we encourage you to seek advice from your tax and financial advisers regarding its applicability to reaching your financial goals. Everyone’s situation is unique, and your complete financial picture should be considered before making major financial decisions.
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