Planning for retirement is one of the top three objectives of every client engaged in a professional financial relationship (even for those who are already retired). And, every financial advisor, every institution, every academic, every Tom, Dick and Harry has advice concerning how to save, how much to save, where to save…. for retirement. A recent (June 5th, 2017) article offered by Fidelity addressed this specific topic. Here’s their spin, Fidelity assumed:
- a comfortable retirement is the ability to spend the same amount as the current life style;
- a normal retirement age for Social Security, which is currently 66 for people born in 1951 through 1954. (Note: for people born from 1955 through 1960, full retirement increases by 2 months per year until age reaches 67. Age 67 is the age for all subsequent ages under the current law.);
- a savings rate of 15% of salary;
- a rate of return based upon 50% the account invested in equities. (i.e. if equities return 10% and bonds yield 2%, Fidelity assumed the portfolio had a 6% rate of return.);
- a withdrawal rate equal to 45% of salary for people starting withdrawals at age 67 and expecting retirement spending to equal the same as while employed. (If this person works to age 70 and is born prior to 1960, the withdrawal amount would be 40% of pre-retirement income (salary). If someone spends less than pre- retirement income, they can withdraw 35% of salary; and if someone spends more than pre- retirement income, they need to withdraw 55% of salary.);
- lastly, and perhaps the most egregious, by full retirement a person would need 10 times present salary in savings for a comfortable retirement.
Reality, the essence of our human experience, is an integral part of retirement planning, which is a primary reason Colman Knight avoids the use of the word retirement and these illusory calculations; the word retirement and “safe” planning hold many limited concepts that produce more fear, confusion and doubt than clarity, confidence and wisdom.
The important factors to consider about retirement, or life as you dynamically live and experience satisfaction, pleasure and purpose, are:
- health,
- location,
- aging,
- gifts to heirs and/or charity,
- what matters most to YOU
Regarding health, being unhealthy (needing medical care) is very expensive. There are deductibles, co-pays, parking costs, medications that consume resources. Someone may need nursing care and/or drivers. Presently, my parents (Gayle) age 89 and 86, enjoy at least one medical visit per week. It is their primary form of entertainment and activity. These appointments cost money. It is quoted that 80% of health care costs are expended in the last two and a half years of life. A 2016 Medicare study reports that Medicare benefits paid on average about $10,000 per recipient; but that amount jumps to more than $34,000 for Medicare recipients age 80 and older during the year they die. The same Medicare study found that over 55% of Medicare recipients who die are now 80 and over. An AARP study describes how a 65-year-old couple will expend $240,000 for out of pocket costs excluding long term care costs through their retirement.
Regarding location, residing (and retiring) in Boston, San Francisco, or New York City requires more assets than a person settling in a small town located in Kentucky, South Dakota or Wisconsin. Location plays a large role, as does the lifestyle of where you live. How large is your home? How often do you eat meals at a restaurant? Where do you spend your leisure time? Are you engaged in activities that consume money or generate money?
Regarding aging, there is a natural aging process; we are all aging from the time we reach peak ages for men as follows: of 18 for sexual prowess (sorry guys), 19 for problem solving, 22 for endurance, 28 for memory, 30 for muscle mass, 32 for relationships (not sure what this means) and finally, at age 45 brain cells peak. For women the scenario is entirely different, their peak ages are: 35 for sexual prowess (this explains Mrs. Robinson and the Cougar effect), 39 for problem solving, 34 for endurance, 39 for memory, 30 for muscle mass, 51 for relationships and 26 for brain cells (their brains are too busy worrying/caring for others – which is why 51 for relationships!). But our bodies do not begin to show signs of aging until we are beyond 50. And how we age is dependent upon genes and lifestyle. A person in his or her sixties or seventies will typically spend more on activities such as travel and entertainment than someone in their 80’s or 90’s.
Regarding our family and philanthropic intent, some choose to maintain wealth for the next generation and meaningful issues for charity. Some choose to give away wealth in the present. Some choose to “die broke” as suggested by Stephen Pollan and Mark Levin, authors of “Die Broke: A Radical Four-Part Financial Plan”. Obviously, the more you want to leave behind or give away, the less you are able to spend while you are alive.
Lastly, the question of what matters most to you and how to manifest that reality can never be answered by a number. This is the crucial point of all retirement calculations offered by institutions, unskilled financial advisors, robo-calculators and professors who teach quants. In order to experience retirement, or a dynamically satisfying life at every stage, you must engage conversation about what really matters TO YOU and allow those unique and meaningful objectives drive the decisions you make with your financial resources. Generalized figures are meaningless and harmful. You may be prepared and have saved the numbers suggested only to realize that you don’t have enough based upon a factor not considered. Or, you may be financially prepared but the numbers suggest otherwise; in this situation, you endure fear and generate a negative mind-state about your ability to live comfortably.
Do not be fooled by general numbers, averages and reports from outside sources. Unless you are met closely and engage in dialogue about your personal situation, the answers offered by unknown sources will be wrong. And, unless you engage in conversation regularly about what is happening in your life, as everything continues to grow, evolve and change, your answers will be from the past, rather than present.
As a friendly reminder, pull out your Try-Rewirement MoneyMove® card.
It asks you to rewire your thinking:
Begin now to fulfill your dreams.
Begin now to live the way you want.
What does your freedom look like?
How are you free right now?
What is one action you can do right now to feel freedom?
