Saving for retirement is old school – bet you never thought a financial planner would make that statement.
When we use the word “retirement,” images of old people sitting on rocking chairs on their front porch come to mind.
But haven’t we redefined retirement?
Who really retires and does nothing all day?
No one I know.
Even those who leave their full-time corporate careers are working part-time as a consultant … or volunteering as a Board of Director member for a nonprofit organization … or traveling … or just maximizing their life with experiences.
Instead of saving for “retirement” – which can seem like years away – shift your paradigm to save for life experiences (your lifestyle) – whether you experience them in 5 years, 10 years, or even 20 years from now.
Rewrite your financial plan. And if you don’t have one, create one so you can live life on your terms.
Here are three items to include in your revised financial plan.
1. Expand beyond the traditional “retirement” concept
Most financial plans focus on saving for retirement at a certain age. They tend to assume you will no longer work and will have lower living expenses.
People focus on retirement age because that age defines when you can start withdrawing from your retirement account.
It’s also the age you elect to begin receiving Social Security benefits. For those with pension plans, that’s the age at which you begin receiving your pension.
Expand your view beyond this generic “retirement” and focus on life experiences you and your spouse/partner want.
There’s no set age for this new view of retirement. Why wait until you’re 65 years old?
Redefine “retirement” as a series of sabbaticals in your career.
Perhaps you want to travel all states by the time you reach age 40.
Maybe you want to celebrate your 50th birthday by visiting the Taj Mahal.
Or you may want to return to school in your 60s to learn how to plant an organic garden.
To help clients with this process, we use the 5 P’s of Life (personal relationships, personal finance, profession, peace of mind, and physical health).
We ask questions in each category to help them define their lifestyle.
2. Save for long-term care (“LTC”) expenses
LTC expenses tend to deplete most people’s retirement savings.
LTC is NOT covered by Medicare and becomes necessary as we live longer.
This non-medical care includes home care (which can average $30 per HOUR), adult day care (averages $95 per DAY), and nursing home care (private rooms cost $320 per DAY).
These cost estimates from Genworth’s Cost of Care Survey will vary depending on the quality of the facility and where you live.
Keep in mind, even if you have LTC insurance, most policies become effective only if you cannot perform more than two of your activities of daily living (“ADLs”).
ADLs are self-care functions such as bathing, dressing, eating, mobility, personal hygiene, and toilet hygiene.
It’s best to read the small print on your LTC insurance policy to understand when your coverage becomes effective.
3. Account for income changes
When planning for life experiences and long-term care expenses include changes in your income.
For example, at 65, you may decide to continue working full-time – not necessarily because you need the income but because you thrive on the mental challenge of work.
But at age 70, you may decide to work part-time at a local garden center – reducing your income by 70%. That’s a significant change.
Hopefully, by then, you’ve followed your financial plan and generated supplemental income through your investments.
Rewrite your financial plan to include saving for life experiences instead of the generic “retirement.”
Who wants to sit on a rocker all day when you can skydive, rock climb, or even scuba dive?
Also, account for long-term care expenses and income changes.
It’s your life. Dream big AND save diligently.
If you need help developing or revising your financial plan, contact us.
(Update to original post from May 27, 2014)
ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA®, RICP®, is a Managing Director at Transition Planning & Guidance, LLC. Life is more than money. It’s about living the lifestyle you want and can afford. For that reason, Niv consults with clients on money, life, and work. Her approach capitalizes on techniques she learned throughout her career, including as a management consultant, executive recruiter, and financial advisor. Her services include developing comprehensive financial plans, divorce financial reviews, and retirement plans. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me.’”