By Donna Fuscaldo
Today, your retirement may extend over several decades, offering incredible opportunities to enjoy, partake in and experience a host of life adventures. However, longer retirements also require greater resources, and planning ahead is essential. Here are 12 tips for enjoying a successful and rewarding retirement.
1. Plan for Longevity
While living to age 100 is still impressive, it’s not as uncommon as it once was. Today’s healthier lifestyles and medical advancements are helping people to live longer. When you think about retirement, you need to take into account current life expectancies, but also consider how medical progress will extend average mortality ages beyond today’s estimates. You and your assets need to be prepared to live longer, particularly if you’re active, in good health and have longevity in your family history.
2. Maintain Purpose
For many of us, work is (or was) a significant part of our self-identity. Retirement can be rewarding, but it can also be a significant adjustment in terms of the role you play in society and your sense of self-worth. Whether you elect to continue working part-time, take more time to be with family, volunteer, join social groups or partake in other activities, it’s important to remain engaged to maintain your sense of self and purpose. (For related reading see: 3 Signs You Have Retirement Disillusionment.)
3. Factor in Resources for Fun
One of the most common myths about retirement is that you’ll spend less money. The reality is that you’ll have more time on your hands, meaning more opportunities to spend. If enjoying your retirement includes activities like travel and entertainment, be sure to think about related expenditures and factor them into your budget.
4. Partake Early
While statistics indicate that people are living longer, the truth is you simply don’t know your life expectancy or the health you’ll enjoy. It’s wise to allocate the activities that are most important to you and those requiring greater exertion to earlier in retirement. This helps to ensure you won’t look back with regrets should circumstances change.
5. Stay out of Debt
Debt is a problem at any stage in life, but it’s particularly difficult post-retirement, when your pension, Social Security and assets are more fixed. The best plan is to pay for things as you go and set aside income and assets for large expenses. Pay off your credit cards in full every month and forego thinking about your home equity line as a way to finance projects. (For related reading, see: Why Retirees Are Carrying More Debt Than Ever.)
6. Plan for Unexpected and Large Purchases
It’s a common mentality as you transition into retirement to try to prepare for every imaginable large expense that may occur. From buying a new car to putting on a new roof, many people go on spending binges as retirement nears. While this might avert some expenses down the road, you’ll still encounter others over a period of decades. Make sure to have a buffer in your planning to account for large and/or unforeseen expenses.
7. Have Adequate Preservation Assets
For many individuals, retirement entails preparing your assets to replace a portion of your salary. This means you’ll need security and liquidity regardless of market performance. Consider holding at least five to 10 years of cash needs in preservation assets (namely cash and high-quality bonds) to ensure you can ride out a market downturn with the ability to pay your bills and hopefully buy on market dips.
8. Remain a Disciplined Long-Term Investor
Most individuals need investment growth to sustain their retirement objectives. Stock investments are the most common element for achieving growth. However, it’s important not to chase returns or overreact to market events. The markets are cyclical. This means both upturns and downturns will occur. Study after study shows that long-term disciplined investors win for staying invested and allowing their assets to recover. (For more from this author, see: The Dow at 20,000: Where Does It Go From Here?)
9. Evaluate “What-If” Scenarios
Preparing for retirement includes realizing that life is a winding journey. While you can’t predict every twist and turn, you can certainly look at a few “what-if” scenarios to evaluate your financial security. This might include variations in spending, differing rates of return, re-locating, care needs and so on. Looking at possible outcomes helps you to frame your financial decisions today, ensuring you’re best prepared for tomorrow.
10. Medical Cover
One of the largest risks in retirement is the possibility of requiring care due to physical or cognitive limitations. While you obviously hope you’ll never need care, if you do, it can wreak havoc with your retirement finances—especially when there’s a healthy spouse. Provision must be made for adequate on-going medical aid cover post retirement.
11. Communicate With Your Spouse or Partner
If you’re in a relationship, it’s critical to communicate about finances with your spouse or partner. Be sure to discuss your life goals, resources and what you expect out of retirement. This ensures you’re both working toward the same objectives and, more importantly, positions either party to take over the finances if necessary.
12. Communicate With Family Members and Agents
It’s also important to communicate with family members, especially those named in your planning documents and those who might become engaged in your financial matters and/or care needs in the future. Talk with them about the roles they might play, what they can expect, resources available, any planning that’s in place and where to source critical information. Doing so helps ensure your wishes will be honoured, and can provide peace of mind for you and your loved ones.
Framing all of these important considerations in a cohesive manner can be difficult. Consider working with a qualified, fee-only certified financial planner to help you better understand your retirement opportunities and how to achieve your financial objectives.
This article, by Donna Fuscaldo, first appeared in Investopaedia