Planning Doesn’t End with Retirement
Most of the people we work with dream of the day they can finally retire. A time when they can step away from the daily responsibilities of “work” and spend their days doing what they really want. It’s a goal most plan for by watching what they spend, saving what they can or selling their business. Planning for different retirement scenarios so that one day they can confidently decide they have enough.
What some don’t realize is that this achievement isn’t the end of the road. Far from it! It’s actually the beginning of a new phase that can be as challenging, if not more, than those years spent working.
It’s not uncommon for our firm to work with someone who sees their retirement date as “finish line”. And who can blame them? They’ve worked hard for decades and now they are ready to move on to the next chapter in their lives. What they often overlook is that that leaving work doesn’t mean difficult financial decisions are behind them. Retirement is filled with just as many “What If’s” as your working years.
Here are a few of the “What Ifs” we hear most often when working with recently retired clients:
“What If we want to spend a little more the first few years of retirement?”
For many, the initial freedom of retirement can lead to more travel, more entertainment and more spending. Increased spending in the early years of retirement is not uncommon for our clients. It’s very easy to justify spending a little more on that bucket list vacation or going out a few times a week when you’ve worked so hard for so many years. This extra spending is not necessarily a bad thing, as long as it’s properly planned for. The problem arises when this temporary increase in spending becomes permanent. When the “once in a lifetime” trip becomes an annual event. That’s why it’s essential to regularly revisit your budget in retirement and see the impact of this “What If”. The longer you overspend the harder it can be to reverse your behavior without feeling serious discomfort.
“What If we want to take Social Security early?”
For those retirees who have paid into Social Security, the decision of when to start taking their benefits can have a significant impact on their retirement. The earliest you can start receiving benefits is age 62. But that’s at a reduced amount. You’re taking less to get it earlier. Full benefits aren’t received until reaching full retirement age. That age has changed over the years and can be anywhere from 65 to 67. Or you can decide to wait past the full retirement age until age 70 to maximize your benefits. So when is the “right” time? It depends. From a strictly financial standpoint, waiting until age 70 will provide the greatest payout assuming you live past a certain break-even age (typically between 82-83)1. But what if benefits are reduced or go away completely? While unlikely it can’t be ruled out. To address this, we often run “What If” projections for clients with and without Social Security benefits to show just how big of an impact it has on their retirement. For people concerned with the solvency of Social Security or anticipating a short life expectancy, taking their benefits as soon as possible may be the right personal choice to address these fears. This is where regular plan updates can help a retiree make the right decision for their personal plan.
“What If we want to start giving money away now?”
As a retiree’s time horizon becomes shorter and shorter, the risk of outliving assets may also decrease. Especially if their plan already addresses future risks like an extended long-term care stay or increased medical expenses. The focus can then shift from not if they’ll have enough but how much their beneficiaries will end up with. If someone is expecting to leave money for kids, grandkids or other organizations, we can show “What If” gifts are accelerated and given during their lifetime. Giving away money during retirement can provide the giver more control over the use of their donation so that they can ensure it’s used as intended. It can also allow the giver to provide a message or purpose directly to the recipient, enhancing the experience and providing a clearer intention for the gift.
Having a plan in place after retirement can be even more important than planning for retirement. While it’s impossible to plan for all potential outcomes, addressing the “What If”s that come up can help alleviate anxiety, allow for more confident decisions and create a more enjoyable retirement. And who doesn’t want that?
- When Should You Take Social Security? - https://www.schwab.com/resource-center/insights/content/when-should-you-take-social-security