After the 2008 financial crisis Steve and Mary made the tough choice to delay their retirement.
Even though their savings was adequate, it just didn't feel right.
They had a vision of their “happy retirement” – spending time with their grandkids, buying a small lake house, traveling to Greece – and none of that seemed likely with all the doom and gloom that existed.
We even ran several illustrations and stress tests on their financial plan, but that wasn't good enough.
The decision was made.
Their happy retirement would have to come later.
Did Steve and Mary ever retire? More on them in a bit…..
Situations like this occur all the time. But it doesn't take a financial crisis to cast doubts if someone can actually retire.
Many factors play into that.
If a happy retirement is what you're seeking, here are 15 tips to make it happen.
1. Control Your Spending!
This could be the single biggest step in making sure that you never outlive your money. It’s especially important during the first years of retirement.
That’s when you may look at your retirement portfolio, and assume that there’s plenty of money to cover the next 20 or 30 years. That may be the case, but not if you drain your savings early in the game.
It can be easy to see your retirement as one long vacation. That may be what it is from a standpoint of no longer needing to work, but you certainly don’t want to be spending your money at anything like vacation levels.
Health insurance costs for retirees can get out of control very quickly. Make sure your nest egg is safe by adding one of the medicare supplemental insurance plans to your standard Medicare coverage.
Unless you’re a millionaire many times over, you’ll need to handle money in much the same way you have all of your life – making sure that you live within your means.
That doesn’t magically change the day that you retire. And in more ways than one, it becomes more important than ever.
2. Make Time for Family
If you have children, do you remember when they were young?
Did you ever wish that you had more time with them back then?
Between work and managing the household, there isn’t always a lot of quality time when your kids are young.
Once you retire, you’ll have plenty of time. No, you can’t go back and make up for the time you didn’t have earlier in life. But you can resolve to spend more time with family.
This is especially important if you have grandchildren. Just as was the case with your own children, your grandchildren will be young for just a few years. Savor this time with them, since you don’t have work eating up your time any more.
This was uber important for Steve and Mary. Their first grandchild was just a year old and they had another one on the way. They were elated to spend time with in retirement.
3. Don’t Get Burned on Taxes
If you are like most retirees, most of the money that you saved for retirement was merely tax-deferred, and not tax free. That means that the funds in your retirement plans will be taxable upon withdrawal in retirement. You’ll have to manage those withdrawals in a way that will minimize your income tax liability.
This will be especially important early in your retirement life, if you continue to earn some sort of active income sources, such as a business or part-time job. The more that you earn from these sources, the less you should withdraw out of your retirement plan. That will enable you to continue to defer taxes on your retirement savings until after you are no longer receiving the additional income.
As counterintuitive as this sounds, many well-heeled retirees actually have higher income in retirement than they did during their working years. That can easily happen when you have income from multiple sources.
Though no single source may replace the salary that you had during your working years, the combination of several can easily exceed it. That’s why taxes can continue to be a concern even after you retire.
4. Consider a Part-time Job to Stay Active
Even if you don’t need the extra income, holding a part-time job may be an excellent way to stay active. This will not only keep your mind sharp, but it may also help to keep you socially involved.
Though we normally think of earning a living as being primarily a financial activity, there actually is a stronger social element that we generally think. Work gives us a sense of purpose, and keeps us involved with people. It’s likely that during your working years that many of your friends were also your coworkers. That doesn’t need to change in retirement.
Realize also that if you are in your early or mid-sixties when you retire, you still have decades of life ahead of you. You’ll need to fill that time with both purpose and social involvement. A part-time job can provide both.
5. Don’t Forget About Long-term Care Insurance
This is one of those retirement issues that most of us don’t want to think about too deeply. Ironically, the fact that people are living so much longer is actually increasing the likelihood that some form of long-term care will be necessary in the distant future.
That being the case, it’s always best to buy any type of insurance as early in life as possible, and when you’re completely healthy. That’s when it will be the least expensive, which will allow you to be able to purchase coverage that will give you the best benefits possible.
6. Have Your Estate Planning in Order
Even if you have put off estate planning up until this point in your life, you’re at a point where it is now unavoidable. This is especially true if you have substantial retirement assets, as well as a large amount of real estate equity. Estate planning is necessary in order to ensure the smooth transfer of your assets to your loved ones upon your death.
A will will not always accomplish that purpose. The advantage of estate planning is that it not only provides a blueprint for the distribution of your estate, but it can also provide additional financial resources, in the likely event that they are necessary.
For example, if you have a large estate, that estate may be subject to income taxes. If it is and the liability will be large, you can take out a life insurance policy that will cover the taxes. This will ensure that your loved ones will receive the full benefit of your entire current estate.
7. Know Exactly How Much You Need to Live On Each Month
Though it may seem unpleasant to have to be tied to a budget in retirement, it’s also absolutely necessary. With no budget, it’s very likely that you’ll plow through your retirement savings in a lot less time than you need for them to last.
Hopefully, your retirement planning also included strategies for lowering your living expenses. This could have included getting out of debt, paying off your home mortgage, and eliminating employment related expenses. All of that effort should keep the amount of money you need each month for necessary expenses to an absolute minimum.
More from GFC, Below
But you will still need to carefully manage and budget how much money you spend on discretionary purchases and activities. When you’re retired, you’ll be looking for activities and purchases to fill the hours – and that’s where a budget comes into play.
8. Have a Good Financial Advisor
Managing a large retirement portfolio can be a big job, especially when you have retirement on your mind. You may even find that you have less interest in it than you did while you were accumulating it during your working years. This is where a good financial advisor can be worth the fees that you pay many times over.
A financial advisor has the ability to look at your situation from afar, to make observations and develop strategies that you may be totally unaware of. It also has to be considered that the financial landscape is getting more complicated all the time.
As you get older, you may find you have less patience or comprehension. That’s why it’s best to develop a strong relationship with the competent financial advisor very early in your retirement life. Whatever you do, don't hire somebody like this.
<cough>I might know a decent one here.<cough>
9. Have a Portion of Your Assets in an Annuity For Safety
There’s something of a conundrum for retirees when it comes to investing, at least in the current investment environment. Interest based on fixed income investments is too low to provide sustainable cash flow. And while the stock market has been good for the past few years, investing in it is much more risky than it is with fixed income investments. For that reason, you may want to have at least some of your money in an annuity.
Not all annuities are worth having (stay from variable annuities), but the right ones can be a form of insurance that will both preserve your income, and protect your investment principal. For example, you can have money in an annuity to provide you with a lifetime income, but doesn’t take a big drop in value every time the stock market falls.
If you're still not sure if annuity is right for you, here are 15 reasons when you shouldn't buy an annuity and 5 scenarios when you should.
10. Have a Portion of Your Assets in AssetLock™
As I just covered, investing in stocks carries risk. Risk and retirement are two factors that don’t fit together well. And let’s cut to the chase – the most frightening aspect of investing in stocks from a retiree’s standpoint is the possibility of a stock market crash. But at the same time, investing in stocks is absolutely necessary since current interest rates will not provide a comfortable retirement.
The issue then is, how to protect your retirement portfolio from market crashes.
There actually is a product in place that can help you do just that. It’s called AssetLock™. It allows you to select a predetermined amount of downside (loss) that your portfolio should experience during the period of time that you are invested.
It’s something like a stop loss order for your entire portfolio. For example, you can set a loss limit at any level that you feel comfortable with – 5%, 10%, 20%. That will keep you from being blindsided by sudden stock market reversals. You can monitor and adjust your limits from your home computer, smart phone, or tablet.
The 50% loss in your stock portfolio could take years to overcome. Those may be years that you won’t have as a current retiree. If you can cut that loss to say, 15%, you will have spared yourself the worst of the market crash. AssetLock™ Value can help you do that.
11. Make Out a Bucket List
Most of us have plans and goals throughout our lives, but work has a way of forcing us to delay accomplishing them. Once you’re retired, the work and time factors are no longer an issue. That means now is the time to do all of those things that you wanted to do all of your life but simply didn’t have the time.
This is why it’s so important to make out a bucket list. A bucket list is simply a list of things that you hope to do or accomplish in your life. You want to commit this to writing for two reasons:
- Writing it down makes it important, and more likely to be accomplished, and
- It will allow you to prioritize certain goals that are most important to you
This is one of the more pleasurable activities for a retiree, and that’s why needs take advantage of it early on.
12. Never Stop Learning!
Remember how I said that a part-time job can help to keep you active? You can also do that with learning. The world is much bigger than any of us have time for during our work lives, and we miss so much of it making a living. But once you retire, you will have the time and unobstructed attention to learn all kinds of things that you never could before.
This is an excellent time to master a new craft. For example, earlier in your life you may have considered gardening, painting, writing, or learning a foreign language. Now you have the time to plunge in to any activity that you like. And if you’ve never done it before, you’ll have plenty of time to learn and to master it.
13. Don’t Abandon Your Emergency Fund!
Just like having a budget, an emergency fund is one of those good practices from your working years that needs to continue into retirement. Even in retirement, you’ll continue to have emergencies – those significant unexpected expenses that seem to come out of nowhere.
An emergency fund will prevent you from having to tap into your retirement savings every time you have an unexpected expense.
This will be an important tax strategy too.
Anything that you pull out of a qualified retirement plan will be subject to income taxes. That means that if you’re using your retirement savings as your emergency fund, your expenses will be increased by the tax liability. A well-stocked emergency fund can prevent the need for tapping your tax-sheltered plans for unexpected expenses.
14. Take Even Better Care of Your Health Than Ever Before
Whatever level of health you have, make a commitment to at least maintain it, and hopefully to improve it. Health is a major X factor as we age, and it should never be taken for granted. No matter how well you kept to your plans for retirement from a financial standpoint, if your health degrades in a serious way, your life will change, possibly forever.
If you’ve never had an exercise program in the past, start one the day that you retire. Also commit to getting regular medical checkups, and improving your diet wherever possible.
Good health results in a higher energy level, as well as an improved outlook on life. You’ll be going through major changes when you retire, starting with the loss of a lifetime career. Good health can help you to work through that, and to enjoy a better quality life.
15. Do Your More Exotic Traveling Early in Your Retirement
As a rule, the more distant or exotic your travel plans are, the earlier they should take place in your retirement. Health is of course a major factor here. You want to be certain that you’re undertaking the most adventurous travel plans while you’re still relatively young and in excellent health.
As well, if you plan to go to some out-of-the-way destinations, like a jungle safari or climbing the Himalayas, you may find those locations to be too remote later on in your life, when you may be more dependent on other people and on the healthcare system.
Steve and Mary's Happy Retirement
Back to Steve and Mary…They were finally able to retire. Steve intended to postpone his retirement by four years, mostly because he still loved his job. Well, three years into that plan his job role changed significantly and he wanted out. We ran a few more illustrations and I showed him that he and Mary would be able to retire more than comfortably.
That was all he needed and he resigned. That was over 3 years ago and since then they've traveled overseas twice (Greece and Paris) and spend a good chunk of time with their grandchildren.
They are in fact enjoying a happy retirement.