Many of our readers may be nodding their head in agreement. In fact, over the years I’ve heard more than a few people tell me that retirement is without exception an “Unnatural State”.
Of course, many of us have seen the retirement research that evaluates these findings. The truth of the matter is that very few people get it right out of the gate which is completely normal. As a result, we all should regularly assess our progress, both financially and psychologically.
We often ask our clients, “How are you going to spend your time in retirement?” Everyone has a different answer, but generally most clients and/or new prospective clients have a fair sense of this in the near-term. However, there is less conviction in the response when we ask, “How are you going to pay for it?”
Everyone wants to have a good strategy that will generate retirement income and properly invest to meet ongoing needs. Earlier this year, we wrote a short blog titled Goodbye Old Retirement Assumptions which raised many questions from our audience. In addition to those ideas mentioned in this prior post, several of the following are important “how to” planning areas that retirees should address (and preferably well before entering into retirement income mode):
Using fixed payment streams to meet essential expenses
Matching your stock portfolio to future discretionary expense needs
Establishing a Withdrawal Policy Statement (WPS) to protect retirement income needs
Understanding inflation assumptions and the impact on asset longevity
Managing sequence of returns risk
THE PSYCHOLOGY OF RETIREMENT
While investing, spending and all the numbers may be fun for most to talk about, how does the psychology of retirement impact the planning process? Once again, very few people get it right out of the gate. Its not just about numbers and avoiding running out of money. From client experience and retiree feedback (as well as additional ongoing research), there are many other concerns that are top of mind. Many find it important to stay connected. Some research has found that also having the right attitude towards aging is a significant factor for health and longevity. Another finding found that by identifying work or activities which bring value to others and meaning to you is critical. These types of ideas fuel intellectual brain stimulation.
According to a recent Oxford Health and Retirement Study, which may be one of the most comprehensive yet to date, here are a few key findings from their research:
Your attitude towards aging will add 7.5 years to your life
Depending on various factors (health, age, connectivity), up to a 30% short term memory loss can occur in the 1st year of retirement
Working 1 extra year can potentially add 11% to lifespan
Arguably, the most significant factor was for those who maintain intellectual brain stimulation, their risk of Alzheimer’s/Dementia decreased
We don’t use our research efforts to suggest that people need to keep working forever, start new careers in retirement, or change their lifestyle. However, we do find that these planning areas (both pre and post retirement) are too often not discussed enough when they should be. Many investors (and professional advisors) focus on how to best withdraw from their portfolio in retirement and whether or not they will have sustainable lifetime income.
While these are very important questions, we find there are other planning areas that are equally or more critical to include in your retirement planning efforts.
We appreciate our relationship with you and we are here to help.