Over the years, and much more recently, I've had a lot of conversations with folks about the transition from accumulation to decumulation, from work to retirement. These conversations have ranged from coaching and counseling on very simple and straightforward issues to extremely complex ones; from formal and professional to informal and casual. Maybe it goes without saying that these conversations focus on many different circumstances: before retirement, after retirement, well planned, sudden, abrupt, phased-in, voluntary, involuntary, well-funded, not-so-well funded, happy, sad. The conversations typically focus on one of the following topic areas.
We've seen a wide range of financial preparedness for the end of work and earned income. Ironically, working longer can both add to the resources available and likewise decrease the amount of time that retirement funding will be required to support. Thus, the impulse to accumulate more resources works against the impulse to retire sooner rather than later and have a greater prospect of enjoying healthy early years in retirement. Figuring out how much is enough is not as simple as it sounds. Rates of return for various asset classes, rates of inflation, and finally, knowing what lifestyle consumption will be actually lived in retirement are all largely unknown and unknowable. Part of the calculus here is the retiree's appetite for financial uncertainty. The bias in (our) planning is to slightly overestimate costs and life expectancy, and to underestimate investment returns, producing margin in the plan.
Three levels of financial preparedness for retirement are:
- It is what it is - Not enough to maintain current lifestyle and requiring immediate adjustments.
- Enough - Just enough to maintain current and desired lifestyle based on best available expectations for costs and resources and life expectancy but with little or no excess.
- More than enough - Enough to maintain current and desired lifestyle though life with little to no risk of running out of resources.
Interestingly, these are all amounts relative to expected consumption. They are not absolute numbers. It is possible to have a very large (in absolute terms) nest egg and due to current and expected consumption numbers land in the "not enough" or the "just enough" category. Likewise, it is possible to retire with a very modest nest egg and still be in the "more than enough" category. It all depends on lifestyle expectations and financial flexibility.
Reality is that folks don't just adopt a spending track upon retirement and follow that track throughout retirement without considering what they have for the remainder of their retirement. Part of a rational retirement is to assess your financial situation regularly and make adjustments based on that information. The ability and willingness to make those adjustments is a fundamental and essential part of financial resilience.
Good health is a necessary ingredient in the makeup of post-work quality of life. Another factor present at this stage of life is the uncertainty of health and wellbeing. Aging is a real thing. We can see aging happen when we are younger, but the reality of it just doesn't land until you see that wrinkly, stoop shouldered, grey-haired person in the mirror; or try to walk a few blocks and find it a bit difficult. It's not that suddenly, a person becomes frail and sickly. It's just that with age, the health issues multiply. And make note of the plural. A large part of one's efforts for wellbeing and good health are focused on what you might rightly refer to as triage. What to do first, then next, then … yet again, next. It becomes a multidimensional management chore. Many folks put a good bit of effort into maintaining an exercise regimen that supports good health.
Keeping Busy - What to do with your time
People who have retired report that they find themselves fully occupied and as busy as they want to be, which may be an example and illustration of Parkinson's law. Most (not all) of the folks I know who have transitioned from working to retirement report that they thoroughly enjoy the freedom. The term freedom seems like a complete and accurate description of what I hear from folks that have made the transition. Freedom to do (or not do) whatever the heck you want.
Volunteering is a pretty popular and viable choice for many retirees. It is an opportunity to stay engaged, stay connected and, most likely, have minimal responsibilities. Play and travel also seem to be viable parts of a retirement lifestyle.
The Transition - The emotional piece
No matter how the transition is initiated, it is fundamental that folks need to understand what the "other side" of that event (the chasm) looks like and to build an expectation of how it will all work. We think planning is the key to building this understanding. Another part of the difficulty is just that it is change: change from saving to not saving, change from working to not working, change from little time with spouse to lots of time with spouse. Amplifying the difficulty is that these changes, at this time of life, are pretty much irrevocable. Despite our best efforts to be flexible and adaptable, we humans mostly like things like they are. Change is stress. Stress is difficult and sometimes toxic.
My personal transition
Even though my business transition is virtually complete and feels quite successful, my personal transition remains a work in progress. At age 73½ I'm still working, still responsible for producing in a few domains that, for the most part, I still truly enjoy. What to make of that? In some ways it is a clear testament to the success of the transition work we started at the firm many years ago; I absolutely wanted to design an off-ramp for myself so that I could continue to function and operate in this world of financial advice that I have come to dearly love. Well, this is the off-ramp. Today I remain resolutely ambiguous. One foot clearly and firmly in the retirement (across the chasm) mode, the other foot clearly and firmly in the "I'm not there yet" (or "I'm still here") mode. It seems like it is possible to flunk retirement. I wonder if I'm headed for summer school.
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The table below shows the returns through December 31, 2021, for selected investment asset classes. In most cases, the results below are appropriate benchmarks for the related mutual funds in your investment portfolio.