The following is the first of occasional Well-Being pieces that focus not on the body or the mind but on what we might think of as Financial Health.
AS WE SAT ACROSS the table from our clients, we could sense their discomfort. Conversations involving life transitions are never easy, and this meeting would be no different. Gauging their mood, we dispensed with the small talk and got right to the answer:
The “Reader’s Digest” version, I said, is that you can retire at the end of this year if you want.
The clients’ discomfort gave way momentarily to slight smiles–they even gave each other a light fist bump. Then, as if reality had just hit them, a look of anguish crept back onto their faces.
All kinds of questions followed:
- What if I keep working . . . is that okay?
- Someone has recently offered me a consulting gig with their company–should I do that?
- We’ve heard medical costs for retirees is outrageous–are you sure you factored that into the analysis?
- What happens if the stock market falls right after we stop working?
- Can we really afford to do this?
- How are we going to create the income we need to sustain our lifestyle?
Did we factor in this, did we factor in that–we took the time to answer their questions–and added a few they should have asked but hadn’t.
The fact is, clients should ask a lot of questions, and they really need to be comfortable with the answers, or else they may find themselves worrying too much and perhaps regret having let go of their careers.
These particular clients could have retired two years before–so why hadn’t they? Their anxiety and questions at this meeting offered some explanation. And these clients, as well as those of other financial-planning firms around Washington, were not unusual. Though I’m sure there have been studies or papers written by academicians, our experience is more anecdotal. Our clients tend to have between $2 million and $25 million, yet we hear myriad reasons for not retiring, ranging from psychological to tactical and include, in no particular order, some of the following:
- “I don’t know what I’ll do with my time…I’ve worked hard and never took the time to take up golf or tennis.”
- “My wife/husband/partner will go crazy if I’m around all the time,” or a variation, which is “I’m afraid to spend so much time with my wife/husband/partner.”
- “You see those guys standing over there [two foursomes at the first tee of a golf course]? I can’t see myself having to spend time with them every day for the next 20 years.”
- “If I retire, and decide to go back to work, I’ll never be able to get back to the level I was before I retired.”
Most of us think about retirement from the time we enter the workforce, but few actually take the time to prepare. When we’re young, most of us will put money in a 401(k) plan or an IRA, but the press of life events–marriage, children, buying a house–means we often don’t pay particular attention to retirement until our late 40s or early 50s. And even if we discipline ourselves to save, the focus is mostly on accumulation of assets, not how we hope to spend the money–and time–in retirement.
From my perspective, those who have retired well have done so because they approached this life transition purposefully and have embraced the next phase of life. That means having a financial plan in place. It also means understanding what will happen under various scenarios in the financial markets, as these are no doubt tricky times to be an investor.
If you are considering retirement in the near-term, consider the following:
- Change the terminology. Instead of “retirement,” consider calling it “financial independence,” meaning you no longer have to go to work every day to support your lifestyle.
- Seek help to manage and navigate your future and to put your financial house in order. A Certified Financial Planner can map out tax-efficient savings and distribution strategies customized to your goals and dreams.
- Consider updating your estate documents, paying particular attention to titling of assets/bequests and ensuring you have the appropriate medical directives and powers of attorney.
- Dream . . . about the life you want to live and the places you want to go.
- Take up a hobby–or at least explore things that you always thought you might do if only you “had the time.” In retirement, you probably will finally have the time.
- If you have a spouse/partner, make sure both of you want basically the same things.
As a rule, Washingtonians are highly educated, in many cases overachievers, and are afraid their status and even self-worth will be diminished if they let go of their working life. So, if that sounds like you, you’re far from alone. But thinking things through–having a plan–is critical to achieving financial independence and retiring well.
All of this may take some time. I met with the clients mentioned at the beginning of the story in July 2014. One of them has just announced to the CEO of her organization that she will be retiring–on August 15, 2015.
Mark Johannessen is managing director of Sullivan, Bruyette, Speros and Blayney, a financial-planning firm located in McLean, Virginia.