Updated: Apr 16, 2021
Are you beginning to think about your retirement?
It’s undeniably one of the most significant life transitions that you will experience over the course of 70 to 90 years of life on this planet.
Does that sound a little dramatic?
Well, the evidence is that transitioning into retirement is significant because retirement impacts almost every area of your life.
When life changes, money changes and when money changes, life changes.
Here are the 4 key areas that change in retirement that impact your life the most.
This is an obvious one.
During your working years, you have a lot of margin and buffer in your cash flow planning. If the numbers don’t align, there are modifications you can make. Perhaps bid for another job that may pay more or work a little longer.
But that’s not necessarily the case when you retire.
It’s one of those life decisions, that once you make it, is very difficult to undo. As a result, it’s extremely important to be clear on your financial situation and your ability to deal with financial surprises when you retire.
Analysis and realistic planning are critical.
If you get your number crunching wrong it can have disastrous implications for your long-term income security.
2. Investment portfolio
Your decision to retire will have a significant impact on the design of your investment portfolio.
Many people don’t believe me when I say that managing an investment portfolio prior to retirement is the easy part of the investment process. It’s simply about saving, being disciplined, owning quality investments and allowing time to compound investment value.
The more difficult investment challenge is utilizing your hard-earned financial assets when you retire.
Retirement has all kinds of impacts to the design of your portfolio, including:
What kind of investment returns do you require to fund your retirement dreams?
How much financial risk can you afford to take on your portfolio given that you will be selling off assets to supplement retirement income requirements?
Do you want to use most of your investment capital through your retirement years or do you want to leave some value for legacy purposes?
Once you’re retired, your portfolio should experience a level of scrutiny that it likely never experienced prior to your retirement. Not only will you be focused on portfolio returns and managing risk, but you will be looking out for opportunities to harvest profits from your portfolio.
This process of profit harvesting will be an ongoing component of your retirement income plan. (Unsure of what profit harvesting is? Watch this -> Investment planning Video 7 - Reducing Risk & Creating Liquidity with an Income Wedge
No longer is it just about long-term investing. It’s now a balance between long-term investing and providing income TODAY!
A few other points to keep in mind regarding retirement investing include:
Required cash flow – Being clear on the required cash flow before you retire is critical. You need to know the level of after-tax income you’ll need monthly and annually to maintain your lifestyle. In addition to that, you need to be clear on how your expenses breakdown between discretionary expenses and non-discretionary expenses.
Impact of Inflation - You need to model the impact of inflation. For example, if you retired at age 60, needing an income of $5000 per month, how will that income need to change if you experience a 3% inflation rate over the first 15 years of retirement (age 75).
By age 75 you’re a $5000 per month income would have to have grown $7,790 dollars per month just to maintain the same spending power. It’s critical that you know what strategies you need to employ to cope with the adverse effects of inflation.
3. Connections and Relationships
When we think about retiring it’s easy to default to the financial aspects of planning for retirement.
However, the financial components are only 1 part of the retirement puzzle. Another significant area to give thought to is the impact on relationships.
Whether we are conscious of it or not, our professional/work life provides an opportunity for socialization and building relationships.
Study after study confirms that quality social connections are an important ingredient to long-term health and emotional stability.
As a result, when you’re planning for retirement, in addition to planning out your investment strategy, you need to plan out your social strategy. What specific activities will you plug into your calendar to maintain and build new relationships as you transition into retirement?
It’s pretty common for people to assume that the relationships that they have at work will continue on into the retirement phase. More often than not, that’s just not the case.
Begin to think about areas of interest like hobbies, sports activities, community service, etc.
Look for ways of connecting to these activities in order to foster relationships that will continue well into your retirement years.
Your relationship with your partner – Many people transitioning into retirement simply assume that their relationship with their life partner will continue with no ill effect.
However, that is not often the case.
Over the years, we develop patterns or routines in our life that are well-worn, predictable and simply work.
Retiring is definitely about breaking old patterns. As a result, our relationships need to be renegotiated and new accommodations need to be discussed.
Looking after your health and thinking a little bit about longevity planning is another area that gets short shrift when it comes to retirement income planning.
Retirement goes hand in hand with ageing, As we get older, it becomes more and more apparent that health is really true wealth is it not?
It would be unfortunate if you spent decades planning for retirement and building your financial security base, and then when you retire, you don’t have the health to enjoy the nest egg that you built.
Looking after your health doesn't need to be complicated but like investing, it pays to start well before you retire.
We all know that quality health is dramatically influenced by the little things we do on a daily basis.
A few tips to keep in mind include:
Spend time with people that have the same health values that you have. They will be a source of encouragement and they will hold you accountable with their good behaviour.
As much as possible, try to get outside for a walk and enjoy the great outdoors. Soak up a little bit of sun and activate the production of vitamin D.
Try to get in strenuous exercise. Ideally, it would be great to get in a daily bout of 20 to 30 minutes. If you can’t maintain that, try for at least three times a week. Make sure that you include regular doses of strength training to maintain lean body mass which fosters long term physical independence.
Eat a clean diet. You know the drill – fruits and vegetables, salads, dark chocolate, healthy meats (grass fed), healthy oils (avocados, olive oil, coconut oil), and filtered water.
Consider supplementation – yes it can be controversial but it’s probably a good insurance policy for those times when your nutritional practices are not the greatest. As we age, our digestive system is less efficient at extracting those important nutrients that we need to maintain our health. At the very least, give consideration to a greens health supplement.
Be intentional about getting a good night sleep. Many books have been written on the topic. Some things to consider include: make sure the room is dark, a cool room is best, no media two hours before bedtime, make the bedroom a place of relaxation, your bedtime and wake up routine should be at consistent times and a small dose of melatonin two hours before hitting the sack can help promote sleep.
Finally, minimize your amount of alcohol consumption and definitely don’t smoke. It’s okay to have a drink but make sure you do it in moderation.
Finances, investment planning, relationships/connections and health are a few of the main areas to consider as you begin contemplating retirement.
Focusing on these areas will help you answer the following questions:
Will you have enough?
Are your investments working to mitigate against the 3 major retirement risks? (Inflation, market volatility, longevity)
What will your purpose be in retirement? Who will you be with the most? How can you make those relationships thrive? What are your/their expectations?
How is your health? What can you be doing now to better your health? Are there people in your life that live a healthy active lifestyle that you can be inspired by?
Retirement is an all-encompassing transition so the more planning you do the more successful the transition will be. Not just for you but for loved ones and friends that surround you.
Are you curious about how to plan effectively for retirement?
Don’t hesitate to reach out to us to start a conversation about how we can deliver customized retirement plan that is customized to your unique goals and dreams.