Orson Welles once said, “If you want a happy ending, that depends of course, on where you stop your story.” Some people when planning for retirement focus only on “The Number” – how much I need in monthly income or cash in the bank to retire and stay retired. Suppose you retire at 65 expecting to live another three decades, but you die unexpectedly at age 74. You didn’t live long enough to run out of money. Was that a successful retirement or in Mr. Welle’s terms a “happy ending?”
More successful retirees value the role of life planning – living life on their terms, how they want to be remembered, and maintaining harmony in the family. This article is the first of a series that will explore each of retirement’s distinct three phases – Honeymoon, New Directions and Reflections. Each phase is defined more by distinct situations, needs and spending rates, than by time. And each has unique financial planning issues.
The first phase, Honeymoon (roughly age 65 to 74) is a period of discovery and very active physically, emotionally and financially. These are the “doing years” when you’re checking off the to-do list of “someday” items. These include travel, spending time with family, reviving an old or starting a new hobby, completing a home improvement project, and changing careers including part-time, board or committee member, and volunteering. It’s emotionally charged – you’ve retired – and you may have retirement regrets because once you get off the horse, it’s hard to get back on. This and the third phase (Reflections) are generally the most expensive.
- Primary retiree concerns: Are we spending too much (or too little)? Now, what am I going to do (or “Please find him something to do. I didn’t marry him to have lunch with every day.”). How do we invest our retirement funds, and draw a monthly paycheck from them? And watching CNBC daily is likely to give you grief.
- Cash flow planning: You will be more serious about your finances than anyone else on the planet. Budgets are crucial – some are very detailed and others know they spend X dollars a month. They’ll have “spikes” for travel, remodel, RV, etc. You’ll file retirement benefit elections for Social Security, elect IRA/401k withdrawals and organize your other investment cash flow including rental properties.
- Investment strategies: Are your portfolios positioned for the long-term and your “happy ending?” Sufficient liquidity to maintain your retirement checks should a bear market descend?
- Business exit transition: What exit best accomplishes your goals regarding your financial security, tax minimization, employees and clients?
- Risk management: What employer-provided coverage needs to be replaced? File for Medicare at 65 and what supplemental insurance should you consider? Put your auto, fire and casualty coverage out for bid? If lots of overseas travel, do you buy travel and medical insurance?
- Estate plan: Consult your attorney and review and update your wills, trust and POAs and beneficiary designations. Should you consider renaming successor Trustees or Executor because they’re as old as you or moved? How about a professional trustee in lieu of your eldest kid as successor trustee to help keep the peace and get things done? What about modifying “ownership” of accounts (are they supposed to be protected under the trust, add a joint owner, etc.)?
This is a pretty large list! I didn’t bring my briefcase on my honeymoon with my bride and I don’t expect all of this get done in the first year of retirement honeymoon. However, that’s a reason you have a team of trusted advisors to delegate some of this work. Life has a way of surprising us and we can blow through the three retirement phases faster than expected.
You can also view this article on Reno Gazette Journal.