Bob French, CFA

What Does Retirement Mean?

Retirement has changed. It’s no longer about getting your gold watch and playing golf all the time. Retirement is now a frame of mind – you’re retired when you can do what you want. It doesn’t necessarily have anything to with whether you are drawing a paycheck or not. Retirement is the freedom to decide what you want to do. At the same time, retirement has also gotten longer. You could very well be looking at a retirement that lasts 30 years or more, making retirement even harder to plan for than it was before.

What does retirement mean to you?

You need to sit down and spend some time deciding what retirement means to you. What is it that you would like to do if you didn’t need to worry about anything? For some folks, it’s leaving work as soon as possible, taking vacations, and spending time with their grandchildren. For others, it’s doing what they are already doing. Most folks are somewhere in the middle. There is no platonic ideal of “Retirement” – it’s whatever you want to make it.

Don’t forget to consider what your spouse wants, especially if they have not had a career outside the home. Very often when a spouse stays home, they have different ideas of what retirement means, so make sure you’re on the same page.

Your retirement can change through time. You’re probably looking at 30 years of retirement, so your definition of retirement will likely change. You’ll find new interests, lose old interests, and your health will change. You weren’t the same person at 50 as you were at 20, so why would you be the same person at the beginning of retirement as the end?

There’s no “right” retirement. You need to figure out what will keep you happy and busy throughout retirement and then figure out how to make it happen.

Sorting Out Your Finances

It’s great to “follow your bliss,” but you still need to pay your bills in retirement. That new, longer retirement means a longer amount of time you need to pay bills. Make sure you create a plan for how to deal with the financial end of things.

First, sort out how much your retirement will cost. Depending on what you are looking to do, a common method is to find what is called your “replacement rate.” The basic idea is that you will plan to spend a certain percent of your preretirement income every year in retirement. For more information on finding your replacement ratio, you can take a look at our article on the subject.

After you have an idea of how much all of this will cost, check your income sources. Sort out if you have any pension income coming your way, what you have in savings, any other sources of income you might have, and what you are likely to receive from social security (by the way, you probably don’t need to worry about social security going away). Once you’ve sorted out where you’re starting and where you’re looking to go, we can start figuring out how to get there.

Create Your Own Path

If you’re like most folks, the two biggest levers you have for funding retirement are your retirement date and your savings rate. The savings rate is pretty straightforward. The more money you save, the more money you’ll have for retirement. Make the most of your tax advantaged accounts, and that includes your catch-up contributions if you are 50 or older.

Delaying your retirement date is a balancing act – if you put off retirement for a year, yes, you’ll have to work a little longer, but you will have another year of savings, your investments will have another year to grow, and you’ll have one fewer year of retirement to fund. This can be an incredibly powerful tool, but you’ll need to think about whether it is worth it to you.

Retirement is complicated. There is no one-size-fits-all retirement – everyone wants something different, and your financial plan needs to recognize that. Figure out where you stand today, where you want to be, and then put a financial plan in place to make sure you get there.

Talk to an advisor about creating your financial plan.

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