Maintaining Your Financial Lifestyle in Retirement

Everywhere you go for information about retirement, you will find a plethora of information about finances and what you should do with your money. And, quite frankly, this is the area most people are more concerned with than any other. The question foremost in their minds is "have I done enough planning to support myself and my family in our current lifestyle throughout our retirement years?"

Over the last couple of decades, retirement funding has moved from fully funded pensions to self-managed savings through 401(k) plans, IRAs, Roth IRAs, and an assortment of other funding vehicles. For many years, Social Security and company pensions were a retiree's primary funding source. Since the advent of the 401(k), more 70 million individuals now own a 401(k) plan, with holdings of over $2.8 trillion. The amount of money currently invested in all retirement vehicles is astounding, $10 trillion in 2004.

Working in Retirement

Many retirees are choosing to return to work, with nearly 50% of all retirees having some earned income to supplement their other income producing assets. People are choosing to career shift, create a bridge career, or designing a career specifically to fit into a retirement lifestyle. Financial need certainly is playing a large part in these decisions, with recent surveys showing retiree's responses to reasons for returning to work shifting from "keeping active" to "financial need". The numbers of retirees who depend upon paid work to "make ends meet" is growing rapidly. According to a new Longevity Alliance and Harris Interactive poll released in August, 2009, the primary reasons retirees gave for possibly returning to work were changes in personal finances (42 percent), and increase in healthcare expenses (29 percent), and an acknowledgement that their lifespan could be longer than they initially prepared for (22 percent).

Often retirees are exploring their options in combining their strengths, skills, and passions, along with their financial needs, into post-retirement work solutions designed to fulfill a life purpose they have come to feel compelled to carry out. Stories about men and women in their 50s and 60s going back to college to build skills are becoming relatively common. Retirees starting their own businesses to fulfill their passions are heard about almost daily.

It would be unfortunate for individuals approaching or entering into retirement to believe that sufficient preparation for retirement is only a matter of creating a strong financial plan. As you continue working through this workbook, you will discover that it is so much more!

As the old saying goes, "money cannot buy happiness". However, it does function as one of the central aspects in overall retirement satisfaction. A sufficient supply of money can help retirees buffer many of life's adversities. There is a strong correlation between feeling financially comfortable and a retiree's level of self-esteem and life satisfaction. Those who feel they have enough money are more socially active, contribute to their communities through volunteer activities, and see themselves as happier than those who feel finances are lacking.

Facing the Unknown

No matter how hard you save, and plan for your future, there are a number of variables you cannot control or predict. Many individuals utilize retirement income calculators available through their accounting systems, financial planners, 401K and employee pension websites. Economic factors you cannot predict:

1. The rate of return on your investments. Your financial planner will be quick to point this out to you, and historical trends cannot be used with any precision.
2. The inflation rate for the next thirty years.

An excellent financial planner will be quick to point this out to their clients as they assist their clients in planning for the possibilities in their retirement years.

In addition, there are factors unique to each individual which are likely to be even more unpredictable when trying to project funding requirements for your retirement.

1. The first factor is predicting length of life. Family history plays into this, but with medical science progressing at astronomical rates, it is almost impossible to answer. Most financial planners are estimating based upon an age of 90 to 100.
2. What kind of lifestyle do you want to lead during retirement? Do you have a passion for travel or theater? Do you plan to move, purchase and furnish a new home? What will you do for entertainment? These variables can be costly, and can have a huge impact on a conservative budget.
3. How do you plan for the possibilities? For example, as we have seen earlier, the rising costs of health care. Due to current economic conditions, your adult children may be seeing financial difficulties that could place pressure on your retirement plans.

Financial Preparedness

The longer you expect to live means stronger planning to make sure you don't outlive your savings. Less than 16% of us can count on a traditional pension that guarantees lifetime payments, so we often feel enormous pressure in this area of our retirement.

Several years ago, a USA Today feature article on retirement featured research done by a California financial planner who studied different retirement scenarios based on investors who retired over a 40 year period. They found that if retirees want their portfolios to last 30 years or longer, their annual withdrawal rate needed to be as low as 4%. Since then, other studies have shown that a 7% withdrawal rate has a 90% chance for success. At the 7% rate, you must have $500,000 in income to sustain the annual withdrawal of $35,000.

According to the article, early retirees should consider the following

1. How much money will you need?

2. Can you pay for your living expenses without taking early withdrawals from retirement accounts?

3. Once you're retired, how much money can you withdraw each year?

4. How will you pay for health insurance?

5. Do you have ways to make money in retirement?

Asset Management

None of us can afford to ignore an increasing life expectancy, and the likelihood of a longer time spent in retirement. We need to be excellent managers of our finances, seeking help where needed. Working with a qualified and trusted financial planner is a solid move as you begin to plan your retirement. On the other hand, fiscal soundness is only one area of a multi-faceted retirement. People need to be good managers of the rest of their assets, which include their time, physical vitality, relationships, spirituality, and creativity. They need to find balance between the financial aspects of their retirement and the need to actively participate in other equally important facets of a life well lived.