“I don’t know how I ever had time to work” is a comment I often hear a year or so after clients retire. One client was told by his spouse that he was a failure at retiring, so he happily went out and started a new business. A second couple help watch their young twin grandchildren four days a week. Another client is on a local nonprofit Board and has also become an accomplished painter.
Most people don’t know quite what to expect when they move into their next phase. Like any transition, there is a lot of possibility for good and bad outcomes. That is why thinking in advance, about some of the big factors which may affect your second act, can be useful. Here are seven big-picture surprises about retirement which may interest you:
- You may find there are fewer hours in the day than before. “I don’t know how I ever had time to work” is a common sentiment.
- Part of feeling stretched may be due to your (or your spouse’s) routines being changed or upended. Try to envision what you will want to explore in the next phase, not just think of what you are leaving behind. In addition, realize that retirement can disrupt a longstanding equilibrium between spouses. Discussing retirement expectations with your partner is a meaningful conversation to start beforehand.
- Determining how much you need for monthly spending is often the most important factor in a financial plan. Getting a good handle on what you need financially, both to cover regular and infrequent expenses, is key. Also be aware that spending in the first decade of retirement can be significantly more than in later years, when spending typically declines.
- Your Social Security benefits may be worth more than you assume. A social security strategy to maximize your household benefits (yes, there is such a thing!) can add thousands of dollars to your lifetime income, especially for couples.
- Life expectancies are longer than you may think. In 1900, life expectancy in the US for a newborn was under age 50. No wonder they thought funding social security wasn’t a worry when it was created in the 1930s! But today for a married couple both aged 65, there is a 50% chance that at least one of them will be living 24 years longer, and nearly a 1 in 5 chance that one will live to age 95! Note that these are “average” numbers from social security’s 2007 tables, and they don’t take into account differences for things such as good family genetics, healthy lifestyles, or better access to healthcare for high income groups.
- Where markets are valued when you make the switch from saving to living off of your portfolio matters – a lot! Your investment returns in the early years of retirement are especially critical: unless your spending is insignificant compared to your assets. Retiring at market tops after unsustainable advances, such as in 1999 or 2007, can be hazardous. Alas, that “crystal ball” that shows tomorrow’s market results today is still missing. However, understanding where we are now vs. longer term levels of market valuation can give strong clues as to what to generally expect of the market in the next critical five to ten years.
- The Boomer generation is redefining a new phase of life. Rather than fading away, many people are creating a next act in life with the opportunity to do meaningful work and leave an ongoing legacy. “Encore Careers” combine purpose, passion, and often a paycheck (this can go hand in hand with #1 -you may have less time than you did before).
Ask friends who have already retired what they have to say about these seven revelations. Or, if you are already in your next phase, what do you wish you knew before you retired? Of course, partnering with an experienced advisor as you craft your next act can be invaluable. If you find this information useful, call and chat with us to find out if we should set up a free “Discovery” interview.