Clients want to stop paid employment for various reasons.
Some have other things they want to do with their time.
Others work physical jobs and foresee that their bodies will force them to slow down. This applies to welders, firefighters, and other demanding professions, as well as those who are on their feet a lot, including retail employees, teachers, and nurses.
A third category of aspiring retirees looks to escape a negative environment.
John recalls a terrible boss in the years before he entered the financial services industry. The guy held staff meetings on Friday afternoons around 4:30 p.m., often keeping team members waiting even later just to “show them who was in charge.”
Beth thinks of our clients with desk jobs who are tired of being worked longer hours the older they get—due to staff reductions, the demands of a global clientele, and/or the ability to work from home (a.k.a. always be available). Some are routinely working 8 a.m. to 6:30 p.m. several days a week.
Since we age despite our best efforts, it’s wise to prepare for a time when we cannot work for money.
Within a reasonable range, you can retire when you are willing to accept the tradeoffs between time and money.
We won’t consider extreme scenarios such as government dependency or attaching yourself to someone willing to take care of you. Rather, our clients have a combination of investments and potential income sources, including:
- Company retirement accounts
- Individual retirement arrangements (IRAs)
- Government or corporate pensions
- Social Security
- Rental income
- Consulting or part-time work
Generally, the longer you wait to stop working, the more money you will have to spend. This isn’t just because your life expectancy is now shorter, but also because your pension and Social Security have increased, and your investment accounts may have grown.
Most people of course wish to enjoy some hard-earned leisure, so our job here at Corner Post Financial Planning is to walk you through the various tradeoffs you are willing to consider.
Here is a typical example of a couple looking at the retirement decision. Sally*, 61, is a retired government official, and Jack, 60, hopes to retire in the next few years. They want to spend $15,000 a month in retirement.
We model 3 scenarios:
- Retire immediately and they can spend $10,000 a month.
- Retire in two years, and we can bump the spending to $12,000 a month. During those two years they must save $500,000 more in retirement accounts.
- The $15,000 a month plan evaporates once we tell the couple they would have to save close to $1 million more, causing Jack to have to work at least 10 more years.
(Most people wildly underestimate the amount of savings it takes to substantially improve your monthly income in retirement.)
Jack and Sally ultimately choose a fourth option, which is to plan on spending $11,000 a month after he works two more years. After analyzing their expenses, they decide they could live very comfortably on that amount. We discuss with this couple the fact that costs associated with working fall away in retirement, including dry cleaning, lunches out, higher taxes (in their case), and retirement savings. Core living costs should be lower, though most people want to add in some fun items like hobbies and travel.
Retiring at any age with little savings or income is difficult. Still, it happens all the time, in the case of older individuals with only Social Security, as well as younger people who are disabled or otherwise unable to work.
In between such cases and the rare windfall or silver-spoon story, though, are the hard-working, aggressive-saving clients we work with. The focus of our planning is targeting a “sweet spot” retirement age, at which you can accept a balance between the resources you need and the youth to enjoy your long-awaited free time.
To wrap up this article, we’ll discuss our plan for the Joneses*, which helps to demonstrate that the process of retirement planning itself can be valuable, even when things do not go as planned.
When we compare the Joneses’ original plan with what has unfolded over the seven years we’ve been working with them, we see that these clients—now in their early 50s—overestimated what they thought they could save each year. However, job changes helped their income grow and brought better quality of life, so for now they’ve increased the number of years they are willing to work.
Over the course of our planning relationship, the Joneses have diligently kept us in the loop regarding their income changes, 401(k) deferrals, and financial challenges. Struggles include the usual: trying to save while helping teenagers launch, vehicle breakdowns, and rising cost of living.
Their annual client review is an opportunity to reevaluate their financial plan as well as consider strategies to improve their situation.
Hopefully these examples show there are a range of acceptable retirement possibilities, and that, while some may be more desirable than others, making plans in that direction can help you end up better prepared than you otherwise would have been.
Relevant reading:
FAQ Series Article #1: Should I take my money out of the markets?
Will your portfolio withdrawal rate be “safe”?
Case study: Rescuing my retirement
Quote we love: “There’s never enough time to do all the nothing you want.”
~ Bill Watterson, Calvin and Hobbes
* Client names changed to protect privacy. This is a hypothetical example and is not representative of any specific investment. Your results may vary.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through ICA Group Wealth Management LLC, a registered investment advisor. ICA Group Wealth Management LLC and Corner Post Financial Planning are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.