For many people who reach the customary retirement age of 65, it’s not time to sit on the porch in a rocking chair. Because of advances in health care and greater attention to developing good habits, people at 65 are physically and mentally able to do more. Call it the second season or whatever, there is a desire to remain active. It could be a second career or something related to the prior career. Or it could be charitable work or greater attention to a hobby. Studies, as well as common sense, prove that staying active is a key to a longer and more satisfying retirement.
But there is also some important personal planning to do, to ensure a successful retirement. We’ve written before about decisions relating to Social Security and Medicare, and those continue to be crucial. Planning how far your retirement income will stretch will tell you whether you can maintain your pre-retirement lifestyle or must downsize. As unpleasant as it might be to consider, it’s necessary to think about your living arrangements if you begin to experience a physical decline. Many issues to consider, but starting early and getting advice from impartial experts will go far toward making the retirement years more successful.
Numerous articles discuss the ongoing march of baby boomers to retirement, and part of that process involves succession planning for businesses. There are several steps to the planning process, and the process itself should begin at least 3-5 years before the planned sale and its aftermath. No business should be sold or transferred to family members until there has been detailed estate and tax planning, and some of that should take place years before the event. There are many things to decide, and the failure to go through a decision-making process before, during and after the succession events could mean that the business owner will waste some portion of the value he or she has built up a long wealth-building career.
Recently, the British government decided to allow people over 55 to cash in their pensions, and the result, according to the Financial Times, has been a dramatic upswing in fraudulent schemes. People have been offered pension reviews and investments with remarkably high rates of return as a way of gaining access to their pension funds, which are then stolen or lost. Although it’s an example from another country, this news makes several important points. First, if people contact you with “freebies” or incredible investment opportunities, look at them very carefully. Second, and equally important, consider carefully whether your have the expertise to manage your own retirement funds. Unless you have extensive skill and training, you’re probably better off leaving investment and retirement asset planning to professionals. Finally, if it sounds too good to be true and it’s a deal you have to sign up for NOW, better to walk away.
Among the many articles about retirement planning, a couple stand out as offering interesting “takes” on the process:
1. One study reports that retirees in better health are more likely to feel financially secure, enjoy retirement and feel fulfilled. No surprise, but worth remembering.
2. Among workers with at least $1,000,000 in investable assets, the average planned age for retirement, according to another study. But 53% will continue to work in retirement, suggesting that retirement might mean “retooling”.
3. The National Retirement Sustainability Index, which someone invented, includes as factors health at retirement, job satisfaction, the level of financial planning and the level of adaptability as contributing to a high score.
4. Another writer says it’s important to have a formal withdrawal plan at retirement, which makes sense. Factors in such a plan would include a strategy for turning on different income streams, a detailed financial breakdown for the first five years, overall budget recommendations and a specified first year withdrawal rate.
A recent article on the website Employee Benefits News offers these five trends in planning for retirement:
1. better and more data available to measure success in reaching retirement goals.
2. automatic features in promoting more saving for retirement.
3. the increased use of target date funds.
4. the coming availability of automatic IRA saving.
5. greater 401(k) disclosure.
A recent survey conducted by US Trust on the subjects of wealth and worth reported the views of high net worth investors. Interesting and revealing. The most important component of wealth? No surprise, it’s health. If you can maintain your health in your retirement years, they will be richer and more fulfilling. Plus being healthy means spending less on medical care, which makes retirement less expensive. The takeaway: money and effort devoted to maintaining and improving your health is well worthwhile.
Other interesting points: family is the greatest source of enjoyment in life; giving back through charitable giving and volunteer work is important; and one principal worry- will children be able to handle the wealth they eventually receive?
In his recent book At Last, the English writer Edward St. Aubyn describes the choices that members of a wealthy family make to distribute their wealth, and how those choices affect the family in ways not expected. In a way, the book illustrates the discussion we often have with wealthy families: wealth is better than the opposite, but it’s very important to plan how that wealth passes to succeeding generations, so that it doesn’t end up destroying initiative and achievement. Perhaps there’s a need for both philanthropy and maximizing the opportunities for the family. Careful planning and open discussion are vital. This quote from the book says it all: “No doubt his grandmother and great-grandfather had hoped to empower a senator, enrich a great art collection or encourage a dazzling marriage, but in the end they had mainly subsidized idleness, drunkenness, treachery and divorce.”
It seems that these days, every other person is a coach: life coach, executive coach, retirement coach, stage coach. But calling yourself a coach or any other kind of expert doesn’t make your advice worth listening to. Some people in the St. Louis area recently found this out “the hard way”. According to Financial Advisor online news, a local investment advisor and radio show host who called himself a financial coach persuaded people to give him more than $3,000,000 to invest. His plan was to relend it at high interest rates to people who couldn’t get loans through conventional sources, mostly real estate developers. Surprisingly, he wasn’t successful, and will now be serving 9 years in prison, in addition to having to repay the $3,000,000+.
There are many examples of this kind of financial investment abuse these days, particularly as baby boomers retire and have money to invest. Two points to remember: if it sounds like the greatest investment deal ever, it probably isn’t; and always find out what credentials and experience any investment advisor has had. There are websites to check the status of advisors, to see if any complaints have been filed against them. Don’t invest your money just because someone calls himself a coach.
And that is, not involving your spouse in the planning and decision-making process. Even in these modern times, it’s often the case that the husband makes and carries out financial decisions. The wife knows little about why decisions were made. Then, if the wife is the surviving spouse, she is lost in trying to decide on financial matters, and can be prey to people who want to help themselves to her assets. It’s far better to explain every step with your spouse, if you have one, and to be sure that both of you understand what’s being done and why. The same can be said for those who don’t have a spouse but have children. Involve someone else in your family (who is trustworthy) to review your financial and retirement decisions.
An interesting report from Bernstein Investments discusses choices you can make that will enhance the chances that you will have a successful retirement. Here are their categories:
1. Setting an asset allocation for your retirement assets that will improve the likelihood that you won’t outlive your money.
2. Seizing opportunities to defer taxes, by first withdrawing and spending funds that don’t generate taxes.
3. Optimizing the use of Social Security. There are many choices and opportunities that aren’t generally known.
4. Setting a spending level. How much do you need to live on, and if you have enough, how much do you want to live on?
5. Deciding when to retire, which includes how you retire: off a cliff or gradually.
6. Choosing a savings rate, and sticking to it except in emergencies.