Is retirement what you think it is?

Although it has been a few years, I still remember an amusing story one of my retired clients told me. One morning, he and his wife were wakened by two squirrels chattering noisily outside their window. My client said to his wife, “What do you suppose they’re arguing about?”

“Money,” she quipped.

It made me laugh but there’s a certain truth to it. That even among families with considerable means, money matters can be a touchy point. Particularly when there are major life or financial changes – and retirement represents both.

My colleagues and I have spent decades guiding high-net-worth clients and their families into retirement. We wish we could tell you that there is a proven path to success and happiness. Based on our experience, there is not. The transition into retirement is a very personal journey.

However, we have a few observations based on what is most common among our clients in retirement.

Saving to spending is hard
You’re no longer earning a paycheque; you’re living off income generated by your capital. For many, this is a very difficult adjustment and can mess with your mind. Initially, many clients get anxious spending capital and seeing the value of their portfolio possibly decline. Especially as your ability and/or interest in replenishing any losses is diminished. (This is a big issue and we plan to write more on this topic in future blogs.)

Continued worry over money
Some clients, regardless of wealth, worry about outliving their money. In many cases, it is related to the first point of relying on capital to fund retirement. Even those with substantial wealth have been heard to say, “We can’t keep spending like this.” In many cases, clients want to leave a nice nest egg for their kids and feel the self-imposed pressure not to erode the capital.

Health: the great unknown
It is common for many of us to be so focused on taking care of our financial health at the expense of the larger priority – our personal health! As one client who suffers from a debilitating neurological disease confided, “I under-estimated the health risk when I did my planning.” As we all know, we have nothing without good health. Though impossible to predict, your retirement plan should manage for this risk.

Time to simplify financial affairs
Retirement is a time to re-assess your investment strategy. We also observe and recommend that many people use it as a time to simplify their financial affairs. For example, a client with multiple private equity interests initiated a process of exiting most of them. Why? He did not want to leave them to his spouse to have to manage should he pre-decease her.

Easing into retirement is often best
It is our observation that the transition to retirement is made easier when clients make a gradual progression. In some cases, they give up their duties over an extended period of time. In other cases, they take on a consulting role after official retirement. In both cases, the transition seems smoother – financially and personally.

Be ready to be surprised
We have countless stories of positive surprises in retirement. It is our observation that people do not change when they retire. Achievers are still achievers. And it should not be surprising that new and unexpected opportunities come knocking. Many people we talk to say retirement is proving to be the most fulfilling stage of their lives.

So, what should you do now if retirement is on the horizon? How do you set yourself up for success and happiness – as you define them?

Our best advice is to get started on a plan. Now.
Not just a numbers plan. Start by clearly defining your retirement vision, priorities and trade-offs. Talk to others who are in various stages of retirement. Identify people you know who you model the type of lifestyle you envision. Read books, take a course…

Once you are clear on your priorities, ask your advisor for a retirement plan. It will answer many questions: How much can you safely spend? What will your new tax rate be? What’s the most tax effective way to draw down your capital? Will any spending adjustments be necessary?

There are two big benefits of this step. First, it will help determine the right portfolio strategy for retirement. Second, we find that clients who have a plan ride out the inevitable ups and downs without worry.

You can’t predict the future and retirement will have its share of surprises. But as Winston Churchill said, “Plans are of little importance, but planning is essential.”

Get in touch to start a conversation about how to start planning now.