A recent article, titled Financial Security in Retirement Requires Rethinking Needs (published by the Milken Institute) caught my attention. It looks at how the current state of planning for the financial side of retirement and, due to longer life spans, people are not financially prepared for retirement.
The author’s point is made in this quote- “With the evolving trends in longevity, the inherent flaws of individual estate and retirement planning based on population averages are obvious and very problematic. Planning tools that analyze predictable outcomes based on the experience of large populations are widely used but fail to take into account individual characteristics and needs and are, therefore, inadequate.”
Very valid arguments for creating an approach that is more customized based on a person’s individual situation and unique circumstances.
I would like to analyze the “flip side” of this approach to planning for retirement and make the case that it is equally, if not more important, to plan for the NON-Financial risks associated with this transition.
First, let me list some of the many NON-Financial risks associated with retirement. Much like the author of the article points out, these risks are connected with increased longevity.
- Loss of physical health- not being able to be active
- Loss of intellectual challenge and stimulation
- Loss of passion for current job or career
- Loss of connections and social life- to other people and with society
- Loss of purpose and identity- not being able to find a new direction
- Believing leisure would be fulfilling on its own
- Loss of daily routine and structure
- Reason(s) I retired turned out to be wrong
- Thought a happy retirement would evolve on its own
- Not having activities to do on my own and ones my spouse and I can share
Notice that many of these risks are associated with our job- having something that is meaningful to us and that we gain satisfaction from and connection to.
When only the financial side of retirement is planned for, the decision to retire is primarily focused only on numbers. The age the person decides to retire, or the amount the person has accumulated at the age they have decided to retire. As the author of the article referenced above points out, general rules (4% rule) are often applied to come up with how much can be withdrawn each year and how long this would last. And yes, I know this is a simplistic version of how this is done.
Instead of the typical approach, what if the focus of retirement was placed on what a person wanted to do and accomplish- the lifestyle they want to create- AND THEN focus on how their finances can support what they want- what their vision is- for retirement?
The biggest risk of retirement, therefore, may not be running out of money because of not factoring in longevity. Instead, for many people, it may be running out of health (physical and mental), friends (creating close ones), a purpose (who am I now), and time (wasting time trying to figure out what you want).
To reduce the risks of retirement requires thoughtful planning. Just as there are many variables to planning for the financial side of retirement, there are also many variables for planning for the NON-Financial aspects of retirement. People have very different wants and needs. One person’s vision for their retirement might be very different than how another person envisions spending their time in retirement.
If you are planning on retiring in the near future- in three to five years- take the time now to begin planning for both the financial and NON-Financial risks associated with retirement.
If you need some guidance or a nudge to get started, let me know. I’d be glad to help you begin your retirement journey.