With retirement funding being the complex area of financial planning that it is, it’s easy to focus only on matters such as choosing an appropriate annuity, selecting an underlying investment strategy, or choosing a suitable rate of drawdown to ensure liquidity throughout retirement. With so many technicalities to contemplate, we often find that pre-retirees don’t spend enough time considering more personal factors relating to their pending retirement, nor the financial implications attached to these. As such, before proceeding with the more technical aspects, we like to explore a range of questions together with our clients that help to construct a uniquely personal retirement plan.
Understanding your reasons for retirement
Possible questions: Are you ready to stop working? What do you like best about the work you do? Do you want to retire or are you trying to escape a job that you hate? Do you want to continue working in some form after formal retirement? What would your ideal day look like?
Many retirees find the transition from work to full-time retirement a difficult one to navigate for several reasons. Besides traversing the financial shift from earning an income to drawing an income, there are several psychological, logistical and emotional issues that many retirees struggle with. An important line of questioning for those contemplating retirement is to establish the reasons for wanting to retire, keeping in mind that age 65 is relatively young when contemplated in relation to life expectancy. Planning financially, emotionally and logistically for a retirement that could span multiple decades is not easy and it’s important to fully understand your reasons for wanting to retire before doing so. While job dissatisfaction may be a factor in your decision to retire, keep in mind that there may be other options available to you such as a staged or transitioned retirement, negotiating reduced or more flexible working hours, continuing to work on an outsourced basis, or completely reinventing oneself. While formal retirement may mark the end of one life stage, it could also mean the start of an exciting new life stage, so allow yourself to be audacious when designing your retirement.
Distilling your vision of retirement
Possible questions: What are you most looking forward to in retirement? Describe an ideal day in retirement. It’s 10h30 on Wednesday morning. You are 65 years old. What are you doing? You have 168 hours each week in retirement. How would you like to allocate your time? What aspects of your pre-retirement life do you want to retain in retirement?
The word ‘retirement’ can be used to describe both a single event and an entire life stage, and our advice is to be intentional when it comes to planning each. Retirement as a single event involves making a set of important decisions to ensure that you can enjoy a financially comfortable future. Retirement as a life stage can realistically account for one-third of your life and planning how you intend to spend your time is an important part of the process. Many retirees fail to appreciate just how much time they will have on their hands in retirement and the extent to which boredom can affect their emotional well-being. An exercise we commonly conduct with our clients is to ask them to flesh out their post-retirement diaries and to account for every hour of the day over the course of a week. Extrapolated over a retirement that could potentially span thirty years, that’s a lot of weeks that need to be accounted for!
Considering your retirement accommodation realistically
Possible questions: Where do you want to live in retirement? What happens if you can no longer care for yourself? Who will care for you when you are older? Will you have access to frail care or assisted living services? What will happen to your spouse if you need to move to frail care? How accessible are important amenities such as doctors, hospitals, clinics, libraries, shops and banks?
In our experience, deciding where to live in retirement is as much an emotional decision as it is a financial one. Many retirees find themselves torn between their reluctance to sell the family home and their desire to simplify their lifestyle by downscaling their accommodation. While there are naturally financial implications associated with such decisions, it’s really important that retirees unpack and understand the emotions behind the decisions. While a retiree may want to live independently for as long as possible, her desire for the social engagement, convenience and better security that comes with living in a retirement complex may be greater. Retired couples very often have disparate views on where they want to live in retirement and, as such, the planning process may involve making certain compromises or finding a hybrid solution that satisfies each party. Remember, the accommodation that works for you at age 65 is not likely to be suitable for you at age 85, so be sure to understand how your accommodation needs are likely to develop over the course of your retirement.
Knowing the people in your retired life
Possible questions: Who would you like to spend more time with during retirement? Who makes up your support system? You are no longer surrounded by work colleagues and associates. How do you remain socially connected? What aspects of retirement will make you feel purposeful and engaged with society? What charities do you care most about and how would you like to support them in retirement?
Without the social stimulation provided by work colleagues and associates, give careful consideration not only as to how you and your spouse will remain connected with those around you, but who you want to be connected with. Having a reliable support network is essential, especially as you age and become more susceptible to ill-health or injury. Consider the proximity of your adult children and close family members in relation to where you choose to live in retirement. Further, consider the proximity of the clubs, gyms, Churches, shopping centres and other entertainment facilities that form part of your life to ensure that they remain easily accessible to you.
Homing in on your specific retirement goals
Possible questions: What is one life goal you have yet to fulfil? What makes you feel fulfilled? What new skills would you like to learn? What would you like to spend more time doing in your spare time? Can you afford to pursue your hobbies and interests? How does your spouse feel about your goals? Does he/she share your vision?
It’s easier to remain motivated and positive if you’re working towards a clear set of goals, so take time to get specific about your retirement goals. Avoid framing your retirement objectives in broad strokes such as ‘to live comfortably’, ‘to enjoy free time’, or ‘to spend more time with family’. Rather, get specific about what you want to achieve in retirement by fleshing out your goals more vividly. For instance, if your goal is to spend more time with family, provide the detail. Which family members do you want to spend more time with? When? Where? What would you like to do with them? Where would you like to travel with them? What memories would you like to create with them? If your goal is to live comfortably, unpack what that actually means to you. Do you want to live in an upmarket retirement village with a golf course and fine dining? What vehicle do you want to drive? How often do you want to travel overseas? How often do you want to eat out? To what extent do you want to spoil your grandchildren?
Being honest about your retirement fears
Possible questions: What are your fears for retirement? What healthcare challenges are you currently facing? What is your plan should you begin to lose mental acuity? What happens if your spouse dies before you? If your spouse outlives you, is she/he adequately provided for?
The phrase ‘stress-free retirement’ can be somewhat of a misnomer because one’s retirement years can be particularly stressful. It’s important to be honest about your retirement fears including the fear of outliving your retirement capital, being diagnosed with dementia, losing a spouse, death anxiety, and being unable to care for yourself. These are all valid fears that, while they may not be avoidable, can be mitigated against through effective planning. Your retirement plan should account for eventualities such as mental incapacity, a terminal illness diagnosis, the premature death of a spouse, and progressive physical incapacity as one ages so that you have some peace of mind about the future. Mitigating against these risks is an important part of the estate planning process, keeping in mind that there are several effective tools that can be used to ensure better outcomes in the event that any of your fears are realised.
Being true to the legacy you wish to leave behind
Possible questions: What financial legacy do you want to leave and to whom? How would you like to be remembered by your loved ones? To what extent have you planned your legacy?
Think of your legacy as a multi-faceted gift that is intentionally crafted for those you leave behind. Your Will and estate plan are the primary tools available to you to ensure that your financial legacy is appropriately structured and actionable in the event of your death. Not drafting a valid Will or developing a workable estate plan can result in an undesirable legacy for your loved ones to be burdened with. Give thought also to the non-financial aspects of your legacy such as your value system, the moral or religious beliefs that you have demonstrated to your loved ones, the value you place on education and continuous learning, the importance of family unity, and your charitable giving.
Retirement as a life stage can be long, unpredictable, stressful and enormously difficult to plan for. But in our experience, conversations that open the way for meaningful discussions into the more granular aspects of retirement can help retirees structure a more satisfying map for their future.
Have a wonderful day.