Before the Financial Plan for Retirement

Much of the discussion on retirement comes in publications that focus on the best tools, investments and advisors for managing your retirement nest egg.  Those are important, but more important as a first step is to establish your choices on what you want to do during retirement and when retirement should start.

For most, a fulfilling retirement does not come from swapping a full year job for 2,000 additional hours of TV.  The more fulfilling and preferred retirement plan comes from studying how you have spent time in recent years compared with how you think you will prefer to spend time in your retirement years.

The big change of shedding your full-time job is obvious, but what replaces it?  Thousands of hours suddenly become available for – self-employment, a part-time job, travel, hobbies, athletic pursuits, socializing, studying and volunteering.   How much of each do you want?

Aside from part-time employment, activities consume retirement income at different paces and you may not have sufficient time for some of them unless you delay retirement and take time to load more into your nest egg.

Self-employment can be thrillingly lucrative (e.g. as a competent real-estate agent) or it can be an abyss that devours your retirement nest egg (e.g., raising race horses, or starting a winery or microbrewery).  Some travel will poke a big hole in retirement savings (e.g., new class A RVs cost $125,000 to $250,000. You can expect diesel to cost 50 cents per mile and tires are out of sight.  World Cruises broaden horizons and are great fun, but they cost about $50,000 per person.

Not mentioned yet is relocating to a sunny climate.  This is very popular for retirees who endured years of gray slush, thin sunlight and bitter cold in northern cities.  In some retirement destinations housing is low in cost (e.g., Citrus County, FL) but in some it may cause sticker stroke (Sanibel, FL).  The west coast of Florida is popular with Midwesterners and the east coast seems popular with snowbirds from Quebec through New Jersey.

Good hospitals are important, and if you want the town to have some intellectual culture, look for one with a college.  When selecting housing, specifics really matter.  So, don’t emulate Pollyanna.  You should visit before assuming you can tackle the details later and count on it “all working out.”

To a large degree you need to research and mentally commit to your mix of location and activities before you retire.  It is worth the effort to write down what activity you want a typical month of retirement to contain and feel like.  With explicit expectations in hand you will get more realistic results from a session of financial planning for your retirement.

Written-down hopes may reinforce your commitment to the right size of the nest egg and a realistic retirement timeframe.  Those big parameters in your plan could be sensitive to interest rates, GDP growth, and inflation.  You should be ready to accommodate those realities.

It is important to consider what happens if you don’t hit the bulls-eye with your financial plan or with your choice of activities.  A “plan B” is not capitulation – it’s a wise safeguard for your future.

Alan Daley is a retired businessman who writes for The American Consumer Institute Center for Citizen Research

 

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