When I talk to clients after a year of retirement, I get one of two answers. Some say it’s going great and they’re really enjoying an amazing stage of life. Others say it kind of stinks. They thought they’d be having a lot more fun with their free time. That they’d be enjoying it but really, they’re bored and it doesn’t feel right.
I’m not sharing this to scare you, but because I really want you to think about your retirement. If you’re going to make it the best stage of your life, you’re going to have to think about it. Now, we both know that retirement isn’t just figuring out the money side of things. That’s important, but it’s actually easier to figure out the money side than the non-financial things. At Streamline, we have been doing this for 22 years and have it, we believe, down to a science. We know that once we start monitoring and running the income system and the investment system, it brings a lot of peace of mind for clients.
But why are some clients–who don’t have to worry about the money side of things anymore–happy, and some are unhappy?
In this post, I’m going to share seven things that I’m seeing in people who are successful and happy retirees. These are things that they are doing to enjoy retirement and live their life to the fullest.
Make a Non-financial Retirement Plan
The happiest retirees take dedicated time before their retirement date to think through how they want to spend their time. Maybe you’re thinking, I’ll just do whatever I want. I’ve got freedom now and that’s all that really matters to me. But be careful.
There are five stages of retirement and the third one is actually kind of a let-down stage. It’s when many people fall into a slight depression. The honeymoon phase of retirement is over and they’re starting to feel like they don’t have direction or purpose in life. This happens because work used to be their main source of purpose and meaning for the day or for their week. Also, work was the main source of social activity and now connections are less a part of their lives.
Here’s the good news: some people get to retirement and because they spent a little time on the financial-planning side of things, they continue to increase their contentment level and their happiness levels. That’s what I want for you! So here are a few questions to think about:
- What can you do in retirement that you can’t do now?
- What are the top three most important things in your life right now?
This second question will help you get clear on your values. Once your values are clear, money decisions actually become easier. We have seen this first hand. I wrote a short guidebook on how to find your purpose in retirement. Click here to access it.
Set Up Power of Attorney and a Trust or Will
This sounds boring, but if you can do it, you will have less burden on your mind. You can sleep better at night because you removed the worry of the unexpected. Removing burden from our clients’ shoulders is one of the core motivators behind what we do at Streamline. Having your Power of Attorney set for medical and property, and the rights wills and trusts set up for your financial situation, allows you to know that if something unexpected happens, your financial life will still continue to run appropriately.
You might be thinking that when you die you don’t really care what happens next. But what if you’re still alive but unable to act on your own behalf? Within the last year I have seen three clients decline mentally to the point where they are not able to manage their own affairs. Having the trusts and POAs set up make it easier on their family. So, consider talking to an attorney and seeing what makes the most sense for you.
Make Health a Priority
Did you know that the Freshman 15 isn’t just about students who gain 15 pounds in their first year of college? When you retire, you might have less structured meal times. You might be less physically active than when you were up and moving around for work. And you might have more time for social things, which is good, except that social events are usually centered around eating and drinking.
The journals of gerontology (the study of aging) also show that many retirees consume food in response to losing personal identity. This is a very common thing that can happen. Have a plan to stay active, pick up a new athletic activity, or just be aware of what you’re eating. It sounds simple but retirement is a major life change. It’s actually the best time to create some new habits. So, why not create habits around staying healthy so that you have more of a chance of being free from disease and ailments in the future.
One thing my dad did when he retired was get a fitness tracker that he wears on his wrist. It’s kind of gamifying the exercise experience for him and he’s been enjoying it a lot.
Be Generous with Your Time, Money, and Skills
In retirement, you now have the most time you’ve ever had. You have the most money you’ve ever had. And you have the most wisdom you ever had. Now this may not be true for everyone, but it is for most people in retirement. And if it is true for you, then you’re a pretty valuable person and you can be generous with your time, money, and skills. One of the best ways I’ve seen retirees find fulfillment and purpose in life after work is to discover or rediscover their unique strengths, and then use those strengths to help other people.
The reason this is so important is because if you can practice generosity, you have the power to change someone’s life. You’ve seen the studies, I’m sure, about when you give, you’re actually happier and I believe it’s true. It’s an easy equation of give = happy to test out and see if it’s true for you too.
Another reason is that when you watch and read the news, it’s not hard to think that the world is kind of a messed up place. I’m an optimist and I try to focus on being grateful for the things in my life, but sometimes when I look at the world, it does look messy. The cool thing is that when you start giving your time, money, and skills to help others, something happens. Pockets of good appear in the world. I believe that being generous with what you have can actually make the world a better place. And even if the whole world doesn’t change, you might change the world for just one person by your generosity.
If you don’t know your skills, Strengths Finder is a great, short assessment that can help you find out your unique strengths, or rediscover them after retirement.
Outsource Things You Don’t Want To Do
Wouldn’t it be nice if you could spend the majority of your time on things that you actually want to do? I was working with a new client recently and he added a new expense in retirement. His whole adult life he did the landscaping, he cleaned the windows, he did the gutters in the fall, and all these other household things. It wasn’t until retirement that he decided he didn’t want to do those things anymore. We looked at his retirement plan and added in a few extra expenses to outsource house cleaning and maintenance. This did have an impact on his plan, and there was a projected amount that was lost over the next 30 years or so, but it did not hurt his plan at all. Seeing that projection gave him the peace of mind to cross yard work off his list of chores.
This same guy didn’t love keeping up with retirement planning strategies and tax law changes and what’s happening in the economy and abroad. He didn’t want to spend time thinking about it. It made him more stressed when he did and it wasn’t enjoyable. So, he outsourced it to us. This client remained the CEO of this own life, but outsourced the CFO position to our wealth management firm. He sees the cost of hiring us as an investment because he’s getting a return on that money since we’re using strategies that he wouldn’t have to add alpha and tax savings to his plan. Plus, he has his time back, which is even more valuable.
We all know the science behind relationships being the key to health and happiness, so I won’t spend a lot of time going into it. But here’s another question to stop and consider:
- Who do I desire to build a stronger connection with? Why?
Continue to Grow
Happy retirees who retire well continue to grow in retirement. A friend of mine was struggling recently. He was trying to find what he should be doing in life–what was his purpose? He knew that he wanted to feel different, but he just couldn’t get out of this funk that he was in. Here’s how he did it: at the end of each day, he answered the following questions:
- What did I make progress on today that made today better than yesterday?
- What can I make progress on tomorrow that will make tomorrow better than today?
He said doing this has made a big impact on his life. My challenge for you is to take two minutes before bed tonight and answer these questions, looking back on the day that just happened and forward to tomorrow. Try this for five nights in a row. I did this last week and I’m not joking when I say it was one of the best weeks I’ve had all year. Maybe it was a coincidence and things just happened last week that really stood out. Maybe not, but it would be fun it you tried it and see what happens.
In this post, I’m going to give you some ways to find out how much is enough for you. This is so important because it’s much harder to reach financial independence if we don’t know what our enough is.
Enough is where we could find more peace in our life. It’s where we’re going to have enough to be content or happy, but not so much where we stop being grateful for the things that we do have. And if you can find your enough, then that’s going to lead to true wealth.
At a party given by a billionaire on shelter island, Kurt Vonnegut informs his pal Joseph Heller that the host, a hedge fund manager, had made more money in a single day than Heller had earned on his first wildly popular novel, Catch-22, over its whole history. Heller responds, ‘yes, but I’ve got something that he’ll never have: enough.’John C. Bogle*
So, enough is going to be different for everyone. And it’s best illustrated by a chart from Your Money or Your Life by Vicki Robin that shows the relationship between the money that we spend and the fulfillment we receive from it. While we all follow the same curve, the dollar amounts are different for each person.
- This is where you get a lot of fulfillment from every dollar that you spend because you’re spending it on things that are necessities: food, water, and shelter.
- The next level is where you start to spend more and your fulfillment level grows equally. These are the things that make life enjoyable.
- This is where it gets interesting. At the luxury level is where we have our fun, but this is also where the curve starts to flatten out. This is your enough. Up to this point, every dollar you spent increased your level of satisfaction and fulfillment. But after this point your satisfaction level starts to level off or decrease.
You might be thinking this decrease wouldn’t happen to me, but I’ll show you how it happens. As you start to spend money on things that you don’t need or use, this starts to decrease fulfillment because everything you buy will start to take up more mental space or more physical space, but the return on satisfaction is low. What ends up happening is more complexity and more responsibility, and really added on stress. This could also lead to poor stewardship for what we’re managing.
Have You Reached Your Enough?
There are a lot of people who have actually achieved this level of enough, but they just don’t know it yet. I was listening to an author recently and he was writing a book on the relationship between money and happiness. He interviewed dozens of people who we would consider wealthy.
First, he asked a friend who had over a million dollars in investments in the bank, do you feel rich? And the friend said, no, because I don’t have $10 million.
Next, the author interviewed a woman who had $10 million and asked, do you feel rich? She said, no, because I don’t have a private jet yet.
And then he asked a man who had a private jet and he asked, do you feel rich? He said, no, because this jet is only a six-seater and I could get a 12-seater or 20-seater.
That example might sound silly, but it really relates, because if we don’t define where our goalposts are or what we’re aiming for, it’s always going to be out of reach. I’m sure you can relate. And it might just be the way that we’re designed, our human nature, to always want to achieve the next level. But if we could find our enough, we’ll start to live a truly wealthy life.
How Do You Find Your Enough
First, we need to start with something that’s boring, but it’s evaluating where our current expenses are. MINT.com could be a good resource to help you do this automatically and easily. This is crucial to finding your enough.
Then, we want to make sure that we know what our values are; to define the things that are most important to us. When our values become clear, then money decisions become easier. We can quickly realize if our expenses line up with our values. For example, if health was important to me, then a purchase of a $2,000 exercise bike might be in line with my values, whereas a $1,000 new TV might not be. But my neighbor, who has different values than me, might think that $2,000 for an exercise bike is ridiculous because it doesn’t line up with the things that he values most.
It’s important to remember that everybody’s different and everyone has different values. Knowing yours and how they match up with your expenses is important. If you need help refining your values, click here to access a free one-page worksheet that will help.
Once we’ve defined our values and aligned our expenses, look at the fulfillment curve to discover our peak fulfillment point. Look for the place where you have what you need and you can buy a few luxuries that align with your values, but not so much where you start to over-complicate your life. Many people think that this is a lump sum number. But it might be easier to think of it as an income number. This means: how much would be enough to be coming into the bank each month without you having to actively work for it, and then work backwards to see how much in assets you need to provide that income.
An important final note
Remember that you’re enough right now. Your income and your assets don’t make you enough. Yes, we have to figure out the money stuff because the world uses it. But I’m sure you’ve heard, like in the jet example, there’s very rich people who never feel like they are enough or that they have enough because they’re looking for more money to prove it. And the sad thing is, I don’t know if they’ll ever get there. So none of it is easy, but I hope this helped you think about this idea of enough in a different way.
*The John C. Bogle quote is from his book Enough: True Measures of Money, Business, and Life.
What can you expect with the Social Security Cost of Living Adjustment (COLA) for 2022?
Over the last 10 years, the average cost of living increase in social security has been 1.65 percent. The COLA for 2022 was recently announced to be 5.9 percent. This is the largest COLA increase since 1982. Now, some people are happy about this, and some people are upset.
The people who are upset are worried about estimates that Social Security Trust Funds won’t be able to pay the full benefit as early as the early 2030s. This isn’t going to help much if they’re giving this sort of inflation or Cost of Living Adjustment.
I guess the government knows that they’re going to have to fix Social Security and the Trust Funds at a later date. Click here to see a video I recorded about Social Security running out of money.
But in the meantime, they have to focus on current inflation. And the fact is that the cost of goods is going up. So, the COLA increased because inflation has increased.
New Social Security Statements
Now, if you’re not taking Social Security yet, there is a new revamped statement available. This statement can help you know what to expect if you’re still thinking through the ideal strategy for you on when to start taking Social Security.
The format of the previous statement was four pages and it was a lot of text. One section showed your benefit amount at three key ages: 62, full retirement age, and 70.
The new statement is just two pages and gives you more information and make it easier to understand. The acting commissioner of SSA said that this streamlined Social Security statement contains clear messaging. It makes it easier to find information at a glance.
The first page shows your full retirement age and estimates based on your earnings to date. It assumes you will continue to make the same amount until you start your benefits. That’s very helpful. It’s more information than what they gave before.
There is also a chart that shows the expected benefit each year, instead of just at 62, full retirement age, and 70.
The second page shows your earnings record and also taxes paid, which might only be interesting to fellow numbers nerds like me.
You should be able to access your updated Social Security statement at the Social Security Administration website: ssa.gov
We help quite a few people retire before the age of 65 and many times health insurance costs are one of their biggest concerns. And rightfully so because you and I can imagine how pricey it might be for us to pay for health insurance, before we get to the Medicare age of 65.
But, with a little bit of planning and by preparing your retirement accounts and your withdrawal plan in a certain way, you might be able to reduce how much you can pay for health insurance. This could end up saving you thousands of dollars a year.
In this post, I’m going to go over three things that you might be able to do to minimize your health insurance costs if you’re thinking about retiring before age 65.
When it comes to health insurance in your late fifties or early sixties, you have a few options:
1. Keep Working
By working part-time or half-time, you may be able to keep your benefits at work. Many people don’t want to do that.
2. Purchase Private Health Insurance
This could be pretty pricey!
3. Government Subsidies
Before I get into this, I want to be clear about something. We are not health insurance experts at Streamline. We know enough, but really what we’re good at is designing retirement income plans that are sustainable and have a high chance of success. I’m just sharing what some of our clients, people similar to you, are doing to prepare their accounts. They design their taxable income in a way that they qualify for some of these government subsidies.
When considering this approach, note that I said taxable income. Government subsidies are based on your Adjusted Gross Income (AGI) on your tax return. There are some accounts that you’re going to use in retirement that don’t increase your taxable income. AGI limits depending on how many people you have in your household. Most likely I’m guessing you have one or two people. The taxable limits are going to be close to $51,000 for single, and close to $68,000 for two people. And you’ll want to take a look at the exact numbers based on what year it is, because they can change.
Now you might be thinking, when you hear those numbers, that to need a lot more than that to live. But don’t worry. You can create a withdrawal plan that gives you a lot more than that each year, and you can still possibly qualify for the insurance subsidies. It all comes down to your withdrawal plan and then the types of accounts that you’re going to use. It just takes a little preparation. And as planners, one of our favorite things to say is it’s better to prepare than to repair.
Next, three ways that retirees might be able to lower their health insurance costs:
Delaying Social Security
Delaying Social Security could potentially help you to lower your health insurance costs. The Social Security benefit is determined by:
- the age that you start
- the number of years you worked
- how much you’ve paid into the system
You have the option to start taking Social Security, usually, somewhere between 62 and 70. If you’re under 65 and thinking about starting Social Security, because you know that you’re done earning a wage from work, just know that your Social Security can be counted towards your AGI. Some people have seen that delaying Social Security income until 65, or even a little later, allowed them to get larger subsidies for health insurance costs.
Another potential benefit of delaying is that, usually, your Social Security benefit goes up every year that you delay. Now if you’re thinking that you need that money to live, since you won’t be working, stay tuned for the third way you may be able to reduce healthcare costs, coming up later in this post.
Minimize Withdrawals from Pre-Tax Accounts
Withdrawals from your 401ks, IRAs, and other similar pre-tax accounts, in addition to Social Security, are factored into your AGI. Taking all of your income from pre-tax accounts could increase your taxable income above those income limits that I mentioned.
One strategy we’ve seen retirees do, in the years leading up to their retirement date, is start to increase their non-retirement accounts, either their liquid savings accounts or individual investment accounts. They do this with the expectation that they’re going to use those funds in the first few years of retirement, up until age 65 when Medicare kicks in. And this leads directly to point number three.
Start to Increase Your Liquid Savings and Non-Retirement Accounts
Non-retirement accounts–trust or living trust accounts, or liquid savings accounts–are not treated like an IRA or 401k. With an IRA or 401k, everything you take out is taxable income to you. These liquid accounts are treated completely differently. One thing to pay attention to is potential dividends and interest and capital gains that could be incurred within the non-retirement accounts. If you happen to have a sale that gives you a big capital gain, it can count as taxable income and increase your AGI.
There are a few things to think about as you’re doing this but hopefully this post gives you a brief introduction to income planning related to retiring before age 65. The healthcare-cost issue is a common concern, but hopefully with a little bit of planning, you can feel better about the decisions that you have ahead of you and how you’re going to pay for them.