What makes for a secure retirement?
Although there are slight variations of the term “secure” as it relates to retirement, let’s look at these definitions from the Cambridge Dictionary.
Verb: “To make certain something is protected from danger or risk.”
Adjective: “Free from risk and the threat of change for the worse.”
Now back to the original question. Not surprisingly, when people are asked what makes for a secure retirement, their responses nearly unanimously focus on money. After all, most have been conditioned to believe that a certain amount of money will protect them from dangers or risk of loss that can occur during retirement. Or more specifically, that they should amass a certain level of assets or portfolio value at a certain age.
But that doesn’t fully address the definition of security. Protection and freedom from other retirement risks and threats of changes for the worse must also be accounted for.
The Other Side of Retirement
I’d like to look at what I term “the other side” of the typical approach to planning for retirement security. It is equally, if not more important, to plan for the non-financial risks associated with this transition for a truly “secure” retirement.
The prevailing message in most advertisements, articles and much of the advice people are exposed to is that money is the primary factor for a secure retirement.
When only the financial side of retirement is planned for, the decision to retire is based solely on numbers. These numbers are predominantly driven by the amount clients have accumulated and by their age.
Ignoring clients’ needs and wants for achieving a secure retirement is an industry shortcoming.
Instead of the typical numbers-only approach to retirement, what if the focus is on what a person wants to do and accomplish during this time? Advisors can then show clients how their finances will or will not support their vision for retirement. Planning for both the financial and non-financial sides of retirement can create a more secure retirement by allowing clients to confront and discuss the various non-financial dangers or risks they feel.
Non-financial Retirement Risks
From a risk standpoint, clients ultimately want to know that everything will be fine when they retire.
Let’s look at some of the common (and overlooked) non-financial risks associated with the initial transition into retirement. Included are frequent questions clients should address to reduce these risks.
Loss of passion or challenge from current position/career/industry/role
- Now what?
- What type of position would make me happy at this point in my life?
- What type of role/career would I like to transition to?
- Am I okay with a different role (more satisfaction) for reduced pay?
- Do I want to cut back working?
- What challenge(s) do I want to take on now? What roles would fulfill this need for challenge and contribution?
Loss of physical health
- What do I need to do to continue being active and participating in activities I enjoy?
Loss of connections and social life — with other people and society
- How can I replace work friends?
Loss of purpose and identity — not able to find a new direction
- What will my new purpose(s) and identity be?
- How can I stay challenged and feel like I am contributing?
- How will my time be filled with meaningful pursuits?
Believing leisure would be fulfilling on its own
- Leisure activities are fun, but what else can I do that “fills me up” and/or allows me to give back? What do I want my personal legacy to be?
Reason(s) I retired turned out to be wrong
- Retirement isn’t what I thought it would be; how can I turn this around?
Thought a happy retirement would evolve on its own
- I have the money to do the things I want in retirement, but something is missing. How can I make this time of life feel like I thought it would?
For a secure retirement, these risks and corresponding questions need to be addressed.
Clients are often unaware that many of these risks exist. From my experience, they oftentimes do not consider them when planning for retirement. When these risks are explained and discussed, it is the first time anyone has brought them of their attention. It changes their approach to retirement and opens them to options and opportunities they had not considered.
Retirement Concerns Aren’t Only About Money
Just as there are many variables to planning for the financial side of retirement, there are also many variables for planning for the non-financial aspects of retirement.
The biggest concerns of retirement — primarily due to lack of planning for increased longevity — go beyond the financial concerns of 1) having enough money to retire, or 2) outliving one’s money.
Instead, for many people, these concerns may include running out of:
- Health (decreased physical and mental abilities).
- Friends (losing and maintaining close connections).
- Purpose and Identity (figuring out who am I now and who I want to be).
- Time (wasting time trying to figure out what we want and not filling our time with meaningful pursuits).
Losing control over any of these aspects of our lives, particularly in retirement, are risks to address and mitigate.
In addition, identifying a client’s vision requires helping them address these risks by creating their ideal life in retirement.
Help Clients Create a Vision of Their Ideal Retirement
Meeting each client’s unique needs and wants requires an approach that ties the vision of their ideal life in retirement to their finances. Having the vision, as well as the money to support this vision, reduces clients’ risks about retirement. This gives them clarity, confidence and control of their lives.
If you and your client don’t address the above non-financial risks but the client has “enough” money to retire, how impactful will the money be on their life? That’s hard to know. But if we also address the above non-financial risks, now the client can see the impact their money can have on their life in retirement.
If you have clients who are planning to retire in the near future — three to five years — take the time now to help them begin planning for both the financial and non-financial risks associated with retirement.
Let’s help clients create their vision of their ideal life in retirement and reduce the risks that often accompany this transition.
Reid Stone, MBA, CPRC is the Founder and CEO of My Life’s Encore (MLE), which helps advisors’ clients prepare and plan for the non-financial side of retirement — or as he refers to it, “The Other Side of Retirement.” He is the author of the white paper The Strategic Value of Helping Clients Plan Their Ideal Lifestyle In Retirement: Planning the NON-Financial Aspects of Retirement In An Age of Longevity and the co-author of the book “The Retirement Challenges: A Non-Financial Guide From Top Retirement Experts.” Reid is a member of the Retirement Coaches Association (RCA).