The Means AND the Ends

Retirement is an opportunity for a new chapter of your life, expert says.

Most people today view retirement as an opportunity to begin a new chapter in their lives, “not a time to wind down and move off the playing field,” says gerontologist Ken Dychtwald, 64, the CEO of Age Wave, a research think-tank on aging issues.

They are trying to figure out new ways to be productive. “Many are wondering: ‘What can I do with this stage of my life that is perhaps my highest purpose?’ ” says Dychtwald, who is also a psychologist. He has written 16 books on aging, health and retirement issues.

His company has conducted dozens of studies on retirement over the past 20 years. From that research, he and his colleagues have identified five stages of retirement and how people can make the most of each stage:

Stage 1: Imagination. These are the five to 15 years before retirement. People are sometimes busy raising their children and providing care for one or more parents, Dychtwald says.

How to make the most of this time: Enjoy the vitality of this stage of life and make sure you are preparing financially for retirement, he says. “You should be doing everything you can to build a strong and solid financial base that will last you a lifetime.”

Stage 2: Anticipation. This is from five years until right before retirement. People often start thinking about what they are actually going to do when they retire, but there aren’t many places for them to go for guidance, he says.

Many people want to continue to work. In fact, 72% of pre-retirees, age 50 and older, say they want to keep working after they retire, according to a recent survey sponsored by Merrill Lynch in partnership with Age Wave. Almost half (47%) of current retirees either are working, have worked or plan to work in retirement, the survey found.

Many people also want to devote more time to their family and friends. Some want to continue to learn, and others want to enjoy their favorite hobbies and develop new ones, he says.

How to make the most of this time: Put on your creative cap to find another career, Dychtwald says. Think about an encore career or consider starting your own business, he says. Volunteer at a hospital, church or for a non-profit group. Talk to retired people to see what they’ve done. See if your company has some flexible retirement programs or offers a sabbatical that would create a kind of trial retirement, he says.

Stage 3: Liberation. This begins on retirement day, and people often feel fantastic. They think, “It’s great. I’m free, and I have decades of freedom in front of me.” This is called the honeymoon period, and it lasts an average of one year, Dychtwald says.

How to make the most of this time: “Enjoy it. You’ve earned it,” he says. Many people have been working 30 or 40 years, and like the idea of having a period of life to take a deep breath, enjoy time with family and friends, watch movies and go on trips.

This is a time to “relax, recharge and possibly even retool,” he says. You can consider it a gap year or “intermission” year before you gear up for the next phase.

Ken Dychtwald, CEO of Age Wave, says there are five stages of retirement. (Photo: Handout)

Stage 4: Re-engagement. One to 15 years after retirement. People start wondering: “Who am I now?” “Some people have a real identity crisis. If you’ve been a fireman or a high school principal or CEO, and now you are a retired person, that may not be enough for you,” Dychtwald says.

They may miss the people they used to work with. They may feel a little bored. Last year, the average retiree watched about 49 hours of television a week, he says.

“We have seen in our studies that not everybody is happy with retirement. About half of today’s retirees are very dissatisfied with a life of leisure 24/7,” he says.

That’s why some people try a different line of work. They want more engagement or purpose in their lives, he says.

How to make the most of this time: Do some soul searching. If you’re bored, start looking for your second act. Often community colleges have workshops about finding an encore career. Read books or go to websites such as encore.org. Talk to others who have been through this to see what they did. You might be able to find a hybrid career that meets both your work and retirement needs, he says.

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Building a successful 2nd career near retirement

Stage 5: Reconciliation. This is the stage when people are in their late 70s and early 80s.

How to make the most of this time: It’s a good time to share your values and life lessons with your children, grandchildren or community by recording an audiotape or videotape or writing it down, Dychtwald says. “About seven or eight years ago, I flew to Florida with a video camera and spent days interviewing my mom and dad. I wanted my children and future grandchildren to know what my parents believed and learned in their life.”

Dychtwald says that “thanks to the ever-increasing longevity, many of us will have decades to learn, teach, play, work and re-invent ourselves again and again after our core career has ended. Perhaps it’s time to retire retirement.”

via How to reinvent yourself in retirement.

How to Balance Spending and Safety in Retirement

Darrow Kirkpatrick Feb. 19, 2015

Every retirement withdrawal method has its pros and cons. Understanding the differences will help you tap your assets in the way that’s best for you.

You’ve saved for years. You’ve built a sizable nest egg. And, finally, you’ve retired. Now, how do you withdraw from your savings so your money lasts as long as you do? Is there a technique, a procedure, a product that will keep you safe?

Unfortunately, there is no perfect answer to this question. Every available solution has its strengths and its weaknesses. Only by understanding the possible approaches, then mixing them together into a personal solution, will you be able to move forward with an enjoyable retirement that balances both spending and safety.

Let’s start with one of the simplest and most popular withdrawal approaches: spending a fixed amount from your portfolio annually. Typically this is adjusted for inflation, so the nominal amount grows over time but sustains the same lifestyle from year to year. If the amount you start with, in year one of your retirement, is 4% of your portfolio, then this is the classic 4% rule.

The advantages of this withdrawal method are that it is relatively simple to implement, and it has been researched extensively. Statistics for the survival probabilities of your portfolio, given a certain time span and asset allocation, are readily available. This strategy seems reliable—you know exactly how much you can spend each year. Until your money runs out. Studies based on historical data show your savings might last for 30 years. But history may not repeat. And fixed withdrawals are inflexible; what if your spending needs change from year to year?

Instead, you could withdraw a fixed percentage of your portfolio annually, say 5%. This is often called an “endowment” approach. The advantage of this is that it automatically builds some flexibility into your withdrawals based on market performance. If the market goes up, your fixed percentage will be a larger sum. If the market goes down, it will be smaller. Even better, you will never run out of money! Because you are withdrawing only a percent of your portfolio, it can never be wiped out. But it could get very small! And your available income will fluctuate, perhaps dramatically, from year to year.

Another approach to variable withdrawals is to base the amount on your life expectancy. (One source for this data is the IRS RMD tables.) Each year you could withdraw the inverse of your life expectancy in years. So if your life expectancy is 30 years, you’d withdraw 1/30, or about 3.3%, in the current year. You will never run out of money, but, again, there is no guarantee exactly how much money you’ll have in your final years. It’s possible you’ll wind up with smaller withdrawals in early retirement and larger withdrawals later, when you aren’t as able to enjoy them.

What if you want more certainty? Annuities appear to solve most of the problems with fixed or variable withdrawals. With an annuity, you give an insurance company some or all of your assets, and, in exchange, they pay you a monthly amount for life. Assuming the company stays solvent, this eliminates the possibility of outliving your assets.

Annuities are good for consistent income. But that’s also their chief drawback: they’re inflexible. If you die early, you will leave a lot of money on the table. If you have an emergency and need a lump sum, you probably can’t get it. Finally, many annuities are not adjusted for inflation. Those that are tend to be very expensive. And inflation can be a large variable over long time spans.

What about income for early retirement? It’s unwise to draw down your assets in the beginning years, when there are decades of uncertainty looming ahead. The goal should be to preserve net worth until you are farther down the road. If your assets are large enough, or the markets are strong enough, you can live off the annual interest, dividends, and growth. If not, you may need to work part-time, supplementing your investment income.

Every retirement withdrawal technique has drawbacks. Some require active management. Some can run out of money. Some don’t maintain your lifestyle. Some can’t handle emergency expenses or preserve principal for heirs. Some may be eroded by inflation.

That’s why I believe most of us are going to construct a flexible, “hybrid” system for living off our assets in retirement. We’ll pick and choose from the available options, combining the benefits, while trying to minimize the liabilities and preserve our flexibility.

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com.

via How to Balance Spending and Safety in Retirement | Money.com.