By Debbie Gardner
dgardner@thereminder.com
Retirement. The word doesn’t necessarily mean what it did for our parents’ generation. There’s no gold watch, very few pensions, and a lot more uncertainty for those facing retirement today. Will the support programs I expected to rely on still be in place? How much money will I need to support my “golden years”? Have I saved enough? How will I know?
And the biggest question – with today’s longer life spans, what am I going to do with the years after I stop working?
It’s no wonder there are moves afoot for options such as phased retirement, “unretirement” and even an entrepreneurial look at a second — or third — career. Any — and all — of these may address the monetary– and social — questions that today’s retirees face.
But they don’t address the major issue facing everyone thinking about — approaching — or reaching retirement age.
You’ve got to have a plan.
The Financial Side
Let’s face it — everyone knows that they need to save for retirement, but getting to that goal — and sometimes, getting started on it — can be a challenge. When we’re young and just starting out, retirement may seem a too-far-away prospect. In our middle years, other priorities — from mortgages to childcare expenses to dentists and sports fees and finally, college — can all derail the best of plans. And as retirement looms, for many it may seem impossible to catch up.
To get a look at the big picture for the financial aspects of retirement planning, Prime reached out to the experts at UMassFive College Federal Credit Union, posing a series of questions to the financial advisors who work for their investment arm, CUSO Financial Services L.P.
Here are the insights these professionals provided to Prime, and our readers:
Is it ever too early to begin a financial plan for retirement? What should parents tell their children (especially their young adults)?
CFS* Financial Advisor Aimee Marden: It is always the right time to start planning for retirement, regardless of your age. The younger you are, the more time you have to put funds away for retirement. The more time the funds have to grow, the higher the potential for growth due to compounding interest. Use a compound interest calculator online and you can see how your investment can grow over time. Analysts recommend you invest 20% of your income from the day you start working. The reality is most of us don’t make enough when we are starting out, to be able to put away 20%. So, what do you do? Put away what you can. Saving for retirement is flexible. When you can add more, you add it. When things feel tight, you decrease the amount you add. When things feel better again, increase your additions.
Think of investing like buying apple trees every time you add to the account. When companies pay dividends to their shareholders, they give out apple tree seeds. When the price of an apple tree is high, you may get a portion of or a low number of seeds for the dividends. When the tree price is low, you may get many seeds. These seeds are planted, giving you more trees in the orchard. The more trees you have, the more seeds you get. The longer the orchard is there, the more seeds you will get over time. All of this increases the number of trees that you will have to sell in retirement.
So, when should you start? Now! If you have employment, you can investigate work plans or Individual Retirement Accounts. Want to save non-retirement funds? You can open accounts for that as well. The first step is to start saving, then time will work for you.
Is it ever too late to make a financial plan for retirement? What are some steps an individual can take to prepare if they haven’t planned earlier in their lives?
Aimee Marden: You can plan for retirement at any age. Younger individuals may be planning for funding retirement while older ones may be planning how to draw down their investments, and everything in between.
If you are starting to plan a little later in life, a good idea would be to estimate your monthly expenditures and what you will have coming in for income. Pension payments, Social Security or working in retirement, all count as income. Then examine the difference between income and expenditures. If you have extra income, then saving for things like travel, recreation and future housing and health care costs could be your focus. If you will be short on income, you will need to examine the paths that you will need to take to replace the gap. Do you save more? Find ways to decrease your monthly expenses? Extend your working years? Delay Social Security?
If you will have saved enough to fund your retirement, how are you invested? There is a rumor going around that once you get close to 65 your investments should be conservative. What if you are not going to use a portion of the funds for five-plus years? Or 10-plus years? Or plan to move a chunk into something to pay you an annual income? There are many different scenarios that can play into how you should invest your retirement funds. It is important to make sure you are invested based off of your long-term plan.
You can also plan by using a health care savings account to offset medical costs. Long-term care plans to help pay for at-home and in-facility care costs. Life insurance to replace an income, helping a surviving spouse pay for monthly expenses or leave a legacy to the family.
So, start now to plan for retirement!
Are there specific stages to financial planning for retirement? What should those stages look like?
CFS* Financial Advisor Sam Einzig: Planning for retirement is not a “one size fits all” process. It varies greatly for everyone’s financial situation and retirement goals. Some basics would start with
Build an emergency savings (three to six months of your monthly expenses) to provide peace of mind that you’ll be able to comfortably get through a few months if you were to lose work or become disabled.
Contribute to your workplace retirement plan, if they offer one. Many employers will even provide a matching contribution up to a certain percentage of your annual income.
Contribute to an individual retirement account (IRA). There are two types, traditional IRAs (pre-tax money) and Roth IRAs (post-tax money). Please reach out to us to help decide which type is best for your situation.
Contribute to a non-retirement investment account.
Other considerations would include planning for your specific retirement goals, health care, and long-term care. Planning to move to a new state to be closer to your grandchildren? Joining a country club or taking a vacation every three months? Will you be receiving health care provided by the state or starting Medicare at age 65? Worried about the cost of being confined to a nursing home or assisted living facility eating away at your retirement savings? These are all things that we help people plan for every day.
What are some of the expenses pre-retirees should include in their financial planning?
Sam Einzig: There are several categories that I use with my clients when going through expenses. We don’t want to fall down the “paralysis by analysis” rabbit hole when creating a budget, but it’s important to have an accurate idea of where your money is going each month. If there’s any hesitation, it’s always safer to overestimate the expenses when creating a plan. The categories include:
Housing (mortgage, rent, taxes, insurance, utilities, fees, and repairs)
Liabilities (loans, credit cards)
Groceries and dining out
Transportation (maintenance, fuel, insurance, public transportation)
Health care (insurance, medications, services)
Insurance (life, disability, long-term care)
Personal and family care (clothing, haircuts, gym, childcare, alimony)
Miscellaneous (Hulu/Netflix, shopping, gifting)
How does retirement financial planning change after you actually retire?
CFS* Financial Advisor Dana Graham: I believe that working with a financial advisor is critical to having a successful retirement. Of course, ideally, this partnership is established well before you actually retire so that a successful retirement plan has been established. Basically, you can think of retirement in three phases:
Early retirement or “the go-go years”
Mid retirement or “the slow-go years” and
Late retirement or “the no-go years”.
It’s important to plan for all these phases of retirement because how you spend your available assets will change as you get older. You are likely more active in your early retirement years so hobbies and travel may be a priority. Whereas health care costs may be a priority later. If you don’t have a financial plan that prepares you for these different phases you will likely find yourself in a very stressed position.
Working with a financial advisor to partner with you on your unique circumstances can certainly make financial planning in retirement less stressful so that you can enjoy what you’ve worked hard for.
If I’m semi-retired, can I continue to contribute to an IRA or other retirement instrument? Are there any rules? Any implications for taxes, etc.?
Dana Graham: Yes, you can contribute to an IRA after retirement if you have taxable income such as wages, commissions, or income from self-employment. There is no age limit for contributing to IRAs. If you would like to contribute to a Roth IRA, you should be aware of certain income limits.
The IRA sets contribution limits each year. You are not allowed to contribute if you have unearned income such as dividends, investment income or pension income.
Contributions to your traditional IRA can be tax deductible but your distributions from that account will be taxed as income. Contributions to a Roth IRA are not deductible but any growth is still tax-free after 59 ½.
A financial advisor can help you navigate all your retirement accounts and the rules guiding them.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. UMassFive College Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
CUSO Financial Services, L.P. and its representatives do not provide tax advice. For specific tax advice, please consult a qualified tax professional.
The Social Side
But there’s more to retirement than just the financial aspect. Retirement means a big change in lifestyle. Gone is the structure of the work world, with set times to rise, eat, commute and perform tasks. For many this lack of structure means a loss of purpose or direction.
Leaving a job can also mean the loss of workplace friendships, the casual company of others and the opportunity to socialize daily.
So how do you plan for – and survive – the big goodbye? Prime reached out to Longmeadow-based career and leadership coach Tiffany Greene for insights.
Here’s what she shared.
People think about the financial aspect of retiring, but they don’t always think about the other parts. What should people expect?
Tiffany Greene: The social aspect is huge. And the first thing that I want to emphasize is that the process of transitioning into retirement – or some [form of] retirement – is different for every single person. There are some that wait their entire careers just for the chance to step away, who’s saved up all their lives for that freedom right at the time referred to as the ‘golden years’..There are many people who eagerly await that, and there are others who dread it, who have a lot of very real anxiety around it.
I was in HR for 25 years and over those 25 years, I saw hundreds of people make this transition. And going back to my first point, when it comes to retirement, every single person has a different relationship with what it means for them.
Forewarned is forearmed. Knowing that retirement will mean a big social change, how can people begin to prepare for the transition?
Tiffany Greene: Some of that starts with building strong communities and having vitality, from connecting to new people and new purposes to finding new ways of energizing your mind, and not only your mind but also your body. It’s finding new people and a new purpose.
I would also like to say you need to think carefully about what you want your schedule to look like. This is a huge one, because if you think about it, especially for someone who’s making the shift from full-time work – you have 40-50 hours of your week tied up in your occupation – and so the amount of time that you now have can be jarring. For some people, this can be energizing – oh my god I have so much time I can do the things that I never did before … I can travel; I can play with the grandkids … I can tap into hobbies.
But for some people that time is incredibly scary and just too open.
What about planning to use all that free time? Any tips?
Tiffany Greene: It’s really important to create a flexible routine — that means establishing either a daily or a weekly schedule where you’re able to balance leisure and productive activities, That means having a loose structure, such as you have a set time that you exercise every day, etc.
A productive activity in retirement could look like part-time — very, very part-time work — or it could be volunteering.
For some it may actually look like not-so-very part-time work, it might be you cut back from 40 hours to 20 hours so that for four hours of every day you’re still connected, maybe, to your current organization. Or it could be switching fields altogether, doing something that we call adjacent careers or using transferable skills. So, for some people that means doing something that they’re already sort of able to do and hit the ground running in a slightly different capacity.
A perfect example of that is consulting, somebody can step away from their 40-hour job and still decide to consult in their free time, which would be a productive activity. Or mentoring — that can be both paid or unpaid — but the idea is that you’re still connecting to purpose in some way, shape or form.
There’s one more big one, especially for people with titled or prestige careers – that’s the loss of identity. How can people plan for that?
Tiffany Greene: That’s harder to plan for, that’s something that everybody copes with differently.
There’s one thing I’ve seen, particularly in people who really define themselves by their career, there can be a crisis of identity because you thought of yourself your whole life as a leader, or a lawyer, or a doctor, the list is … very, very long. In whatever profession they choose, people tend to really attach their identity to their skill and their gift and their talent, so the process of retiring can bring into question somebody’s worth. It can raise questions about “Who am I without this profession?”
From the perspective of planning, the best thing that someone can do is to develop identities that are not tied only to their jobs. I say it to my teenage children – It’s being well-rounded. It’s cultivating interests and passions that are away from the workplace.
And that is hard, you can say that to anyone who has children and elderly parents and when do [they] have the time to do anything? And then suddenly they reach a point where the job is gone, the kids are grown up, the parents are gone and what do people do? It’s like the empty nest parents talk about.
So how can you start building this new identity — and new communities — so you can have structure and purpose in your day when work ends?
Tiffany Greene : In my career coaching practice [my work] often includes helping people make this transition … I actually help people figure out what their retirement would look like, And I start by asking “What did you enjoy doing when you had the time to do it?” because so many people say “Well, I haven’t thought about what I love to do for so long “ because all their time is tied up with their occupation, with elder care, even caring for children. So, thinking about reconnecting to old passions is a beautiful way to think about those
[new] communities and what it looks like to build them.
The [overall] idea is getting out there. It’s also a confidence builder to be successful at new things. But even more to fail at new things. I always, always encourage people to be brave enough to fail at something new. It sounds really funny, but if you failed at something new, you know the victory in that is that you had the courage to try.
Is there any other social and emotional aspect of retirement that individuals should plan and prepare for?
Tiffany Greene: I also want to talk about prioritizing health and wellness, and I think that’s important because [retirement] is at a time of life when health issues happen. Things break down as we get to that age, and so really focusing on maintaining our physical health, but also mental health through things like exercise, healthy eating, just being mindful of what we put in our body, and then also connecting to some kind of mindfulness practice. I don’t want necessarily to call it spirituality, because mindfulness and spirituality are two different things, but it’s the idea of tapping into something that helps clear our heads and let us be in the present moment. That can be a process of meditation. It can be a process of creating art – art is a very mindful practice. It can be yoga. For some people even just a vigorous walk can be very, very grounding. Just a walk, getting out and allowing the feel of our feet on the pavement can be very grounding.
I don’t want to leave out spirituality — some people find community in church, mosque or temple — but spirituality is much broader than just religion, for some it is nature.
Any final thoughts about the social and emotional side of retirement?
Tiffany Greene: It’s a lot about your mindset. If you think of it as an ending, it will be an ending. If you think of it as being a beginning, it will be a beginning.
One thing life coaching has taught me is [the importance of] mindset.
If you see retirement as a time of renewal – it may seem counterintuitive – but it can be for those who want it. A time of re-inspiration – it’s absolutely possible to connect with new purpose and new passions at this later stage of life.
For more information about Tiffany Greene Career Coaching & HR Consulting LLC, visit greenecareercoach.com