Research Director’s Monthly Comment: February 2017

Surprises In Retirement

 I recently read an interesting article in the Wall Street Journal about things people did not anticipate in retirement.  As financial planners, retirement and retirement planning comes up lot in our work with clients.  In reading the article, a couple of things stood out about what folks saw as the biggest surprises in retirement: 1) what happens when you take risks; and 2) retirement nest eggs are working as planned.

 By “taking risks”, the interviewees were talking about trying something that was out of their comfort zones usually in a way that improved their lives or tapped a long-desired but postponed endeavor, like painting or music. The arts are one of the best ways to plumb the human soul, a soul that can get squelched over 30-40 years of corporate life. The “risk” for people doing this in retirement was the deep fear of being no good at it, or feeling they would never be able to learn something like art or music. It is a good thing that at this point in their lives, these folks feel they can take the risk and get closer to their own souls.

The other interesting surprise was that, at least for these interviewees, their retirement nest eggs were working out as planned. Granted, most of these folks were retired corporate or professional types. As a group, I would believe these types of folks were/are more inclined to be more disciplined about retirement savings. They were lucky, but they also had discipline around retirement savings and investment. The point of this is virtually all of us can significantly improve our odds of a happier retirement through disciplined savings and investing.

 

Another interesting surprise that many of these people found out was the realization that you will spend 100% of your pre-retirement income in retirement. We always assume in our retirement expense assumptions that people will spend at a level at least equal to that of their working years particularly in the first 10-15 years of retirement. We also include an expense projection for medical costs. A number of the interviewees mentioned that medical insurance premiums were growing at a rate higher than they anticipated and this was a concern for many of them. We believe incorporating medical cost projections into a retirement capital projection is imperative.

 

One parting thought on achieving a happier retirement: one needs to act proactively to prepare as best they can financially. This preparation takes discipline: discipline in savings, investing, and spending. A sound financial plan that includes a retirement capital analysis can also help in achieving this important goal (financial preparedness) and in achieving peace of mind that one has done all one can to prepare for it.

 

Bob Toomey, CFA®/CFP®

Vice President, Research