Most people look forward to retirement with both anticipation and anxiety. In most instances, they have thought about it a lot. Some have great ideas about what they will do, and others view it as just not going to work anymore. Preparing for retirement years ago took the form of having a Social Security account, that by law, you have to contribute to, and perhaps in addition, by working for an organization that had a pension plan (a defined benefit plan in today’s jargon).
As benefit matters changed over the years, the pension generally has gone by the wayside and usually replaced by a defined contribution plan (DC). The DC plan requires a bit more involvement by the participants, i.e. how much to set aside and the choice of investment options. There also are a lot of options advertised by financial investment organizations, which many people take advantage. But even so, government statistics say a very large part of the population has only limited funds set aside. Why is this the case? Probably lots of reasons. Saving is usually difficult for most people, especially when the target is nebulous or so enormous. When most financial planners project what you need, many just throw up their hands and say, “I’ll deal with it down the road.” (Sounds like our Congress.)
Defining the target
When people only focus on the money aspects of retirement, things lose a bit of perspective. Yes, it is important, but it isn’t everything. If you can define the full picture of retirement, it will help you get a better handle on the financial aspects of the situation. This discussion is intended to help with the broader perspective.
First of all, perhaps we should start with some terminology. The label “retirement” implies going into a passive state and leaving something, generally, this is a job that you’ve had to sustain a lifestyle and responsibilities you acquired along life’s path. When you consider these points, you must recognize that most of those considerations don’t go away at the point you leave the job. Consequently, I believe it is important to have a new label for this period of your life. There may be a number of ways to capture this period, but for this discussion, I’ll suggest it is “Life at Stage Three” (LAST). Stage 1 is growing up, Stage 2 is being an adult, and Stage 3 is new considerations. The acronym is somewhat interesting. Last could mean the final hurrah, or as I choose to optimistically think, stretching out every opportunity.
What are the considerations?
When an individual is engaged in an essential activity (Stage 2) and they are looking to change their situation (LAST), it requires planning and organization to make a successful transition. It often involves utilizing resources that haven’t been applied before, or at least successfully, such as knowledge, processes and tools. It also requires establishing a reasonable timeline to bring all the factors together to maximize the impact in a positive manner. Timely preparation is the key.
It also requires clarification of objectives with defined results, collaboration with others, priorities and initiative. Before all the pieces can be assembled to achieve the desired results, there is one most essential requirement: identification of the objectives and needs. Change is most often driven by emotion. It may be facilitated by cognitive events like finance, sickness, opportunity, etc., but unless an individual feels the emotional drivers, the efforts behind change and the results may be limited. Personal insight is essential: Am I going toward something, or am I going away from something? Knowing the answer is very important and helpful.
Now consider the following:
What things are important to you?
What things constrain you?
What do you want to change?
What do you need to know?
How long will it take to be prepared?
To answer these questions effectively, you need to consider your life from a holistic perspective. It’s more than just playing golf every day. You can’t just squeeze in LAST around your tee time. You need an attack strategy that considers all of the pieces:
Physical conditions and health
Mental and spiritual considerations
Financial matters (revenue, expenses, risks)
Social and family relationships
Activities and interests
In addition to the specific categories above, your analysis should consider other important influences:
Your needs/goals, but in most cases, with those of your spouse/partner
Assessment of priorities over time (five, 10, 15 years, etc.) You and/or your significant other are likely to live long into the LAST period
Plan, but be flexible — assume changes, revisit quarterly while planning
Seek expert advice when necessary, but balance it with the whole plan
A bit of detail required
Your plan/notes must be written down and organized, especially the parts that are time-sensitive. You will want to periodically see what changes and when it will impact the plan. Start broad and get specific as you revisit the various categories. When you consider physical conditions and health, think about where you will live and other related geographic matters, such as travel. What health conditions have to be taken into account, including the fact aging is going to happen no matter what, but diet, exercise and family history can be important. Don’t forget about insurances, including long-term care.
Closely associated with the physical aspects of LAST are the mental and spiritual aspects but are often overlooked. Starting with your identity associated with your job and what you do, as well as the drivers during your LAST that create anxieties and happiness that need to be managed. Also, don’t forget about the final frontier with dying, death and hereafter arrangements.
Back to the question of what are you going to? Much of this question involves both activities and social relationships, starting with what things will replace the current work schedule? Think about where they take place, will they change over the years, what will limit them and are they couple compatible? Are new interests on the horizon, should there be? Do you have relationships outside of work and what relationships are desired or important? Do you have ongoing care responsibilities (parents/children)? In recent years, a most important element has come into consideration in LAST planning. That is the matter of “connectivity.” This can be a very important, as you, your family and friends become more or less mobile.
Finances and retirement
Now that you have all these matters considered and your goals and objectives identified, you can now revisit the issues of financial planning. There are of course many elements from revenue generation to taxes to estate planning — all subjects of which require care and consideration, but not here, but you now know better what you need to finance.
So, when you are ready and have your initial plan organized and documented: GO FOR IT!
Ardon Schambers is principal at P3HR Consulting & Services.