Start With ‘Doing’ Rather Than ‘Having’ In Retirement Planning



By:  Thad Ismart, CFP ® | SeniorFinancial Planner & Jim Edwards, CFP ® | Financial Advisor & Portfolio Manager

The idea of “retirement” is changing drastically from what it used to be. Traditional financial planning typically begins with an emphasis on how much pre-retirees need to save in order to fund 60% to 80% of their pre-retirement expenses. But there is a newer movement afoot that takes retirement planning beyond simple percentages.

Known as “retirement lifestyle planning,” this method of retirement planning begins with the so-called “softer” side of financial planning. In retirement lifestyle planning, the future retiree places a much stronger emphasis on what they want to do with their time, emphasizing areas such as health, volunteerism, social life, or even becoming a business owner or changing careers.

For example, someone taking a lifestyle approach to retirement might decide that they want to change careers to something they find more meaningful, even if it means taking a cut in salary. To stay on track with their retirement plan, they might downsize their home to reduce expenses. Cutting out other expenses, such as country club memberships or expensive cars, could also enable someone to retire many years earlier than originally anticipated.

A second or third career is not out of the question. Many of our clients who have worked in high-tech fields or in executive management positions have expressed an interest in applying their extensive management skills to the non-profit world.  Moreover, those with science or engineering backgrounds often want to explore new projects or business opportunities that they initiate, rather than carrying out projects given to them by their employer.  Incorporating retirement lifestyle planning into the financial planning process is a good way to ensure you get the most out of your retirement.

So what is different about managing a financial plan when considering potential lifestyle changes? Achieving a desired lifestyle rather than a standard percentage of income might mean making some difficult choices. For example, if retirees want to downshift in their careers for several years, they might not be able to save as much for retirement. This could mean that they would need to reconsider their budget needs in retirement. But there are always options—in this case, they might be able to offset this change by working longer, thereby delaying the drawdown on retirement assets. In addition, they could postpone taking Social Security, since their benefit would be temporarily decreased due to their decreased salary.

There could be even more drastic considerations, such as relocating to less expensive areas—in the U.S. or even overseas. For instance, one of our clients retired from the military at the age of 52. He and his wife sold their Maryland home and bought a home in Mexico close to other expatriates. They maintained a residence in Louisiana through a sibling in order to continue their medical benefits in the U.S. But the cost of living was substantially cheaper, making their assets and his pension stretch much further.

Calculating your “retirement number” and determining how much you need to save so that you can retire comfortably is certainly an important component of the financial planning process. However, the fact that you can afford to retire does not ensure your happiness in retirement. Incorporating retirement lifestyle planning into the financial planning process is a good way to ensure you get the most out of your retirement.

If you would like us to help you model desired lifestyle changes into your own retirement plan, we are happy to help. Just give us a call.