Funding the three stages of retirement
Enjoying the surf and sand or spending time on the links reducing your handicap can come as a welcome alternative to the daily grind, but navigating the retirement stages take time and planning. We sound out advice on how to manage the three stages from ‘go-go’, to ‘slow-go’ and ‘no-go’.
"If you don’t know where you’re headed, you’re going to end up someplace you might not want to be," said Leonard Wright, CPA. "You have to figure out what it is that you want to do and then map out a strategy for how to get there. You have to link your strategy with your goals and objectives."
With longer age expectancies, retirement looks very different for each generation and each person. Retirement has three phases which require different levels of resources: the ‘go-go’ phase can be filled with travel and sports, whereas the ‘slow-go’ phase sees expenses decrease along with activity, perhaps with thoughts of downsizing, and ‘no-go’ can come with increased medical expenses.
Having a plan for your time is one of the most important decisions to make.
The length of each phase is a large unknown, but even so, there are many things to consider during the retirement planning process.
When to retire and what to do?
"Normal retirement age is getting older and older, and that’s not because people haven’t saved, it’s because people want to continue to work – they enjoy what they’re doing, and it gives them something to do," said Michael Zovistoski, Partner at UHY LLP and Managing Director at UHY Advisors NY, Inc.
Spending retirement playing golf might seem like a great idea until someone actually spends days on end on a golf course. Having a plan for your time is one of the most important decisions to make. While you may be able to afford retirement, you may truly enjoy your work.
When to retire depends on whether someone has enough financial resources to stop working full time. The longer someone works, the more time they have to amass savings to fund the later years of their life. The mental challenge and social interactions that a job provides also acts as a strong incentive to continue a level of work.
Working can also alleviate other expenses down the line, like health insurance.
Accountants are in demand as younger generations opt for different careers, and for those who choose to continue working, options abound.
Changing corporate cultures allow for employees to work from home at their remote retirement locales or to pursue their profession as an independent consultant. While working takes away from leisure time, it’s also time not spending money. Working can also alleviate other expenses down the line, like health insurance.
Many people slowly transition their time to other activities or simply cut back on their hours to provide for more leisure time or to volunteer and give back. "Retirement doesn’t mean people don’t want to work, it’s that they want to fulfil purpose in life and have higher emotional wellbeing," said Leonard.
Go-go: what’s your budget?
Social insurance benefits help during retirement, but often, these funds are not enough. Those with higher income levels need to save more to support their lifestyle than those who earn less.
Social Security payments are almost double for people who wait until age 70 to collect versus those who collect at age 62.
A quick rule of thumb is to have enough passive income and savings to fund the gap between your social insurance benefits and any pensions, and what you need beyond that amount, said Leonard.
When you retire can affect cash flow from social insurance benefits as in the US, for example, Social Security payments are almost double for people who wait until age 70 to collect versus those who collect at age 62.
Create a budget for annual living expenses that includes housing costs, health insurance, taxes, food, entertainment, transportation, travel and club memberships, and then subtract out the social insurance benefits and any pension payments for that year.
You need enough savings to fund this amount every year until at least 80 years old (the average life expectancy in the USA is 78.74 years) – padding this amount can provide a safety net.
Go-go / slow-go: exotic retirement locales
Housing expenses vary significantly from place to place and also affect food and entertainment expenses, and taxes. Each US state taxes income differently, with some having no income tax, and property taxes can vary significantly by county, affecting an area’s affordability.
A successful strategy is to rent where you’re thinking of retiring before purchasing a place.
Once you decide where to live, test that area out before making a permanent move. Visiting an area is not the same as living there, and you don’t want to regret the unexpected, such as winters that are too cold or remote areas that are lonely.
"A successful strategy is to rent where you’re thinking of retiring before purchasing a place, so you have certainty that it’s the right spot – if you made a mistake and rented, you won’t have the financial commitment of a house that you bought," said Leonard.
"Right now, some communities are hot, but if the market shifts, you might get stuck with that home."
No-go: health care costs
For people with citizenship in multiple countries, each country’s social programs for retirees could affect where someone decides to retire, in particular for health care insurance and expenses.
"You need to weigh the medical benefits between countries and relate those to where you want to retire," said Leonard. "There’s a cost benefit analysis that’s emotional and financial."
Knowing that certain medical costs would be covered in a country with a single-payer system or nationalized healthcare could provide peace of mind as health care costs can comprise a significant portion of a retirement budget.
About the author
Andrea Murad is a New York–based writer. Having worked on both Wall Street and Main Street, she now pursues her passion for words. She covers business and finance, and her work can be found on BBC Capital, Consumers Digest, Entrepreneur.com, FOXBusiness.com, Global Finance and InstitutionalInvestor.com.