A back-to-basics approach to retirement
This is part seven of the new retirement series for Bermuda and looks at finalising your retirement savings and the need to get back to basics.
In the professional retirement planning world, there are two ways to figure out what an individual will need in total assets in order to retire comfortably.
The first is an incredibly complex five or six step mathematical formula used by retirement planning professionals to arrive at a large sum (isn't it always).
The calculations involve present value, future value, inflation projections, investment projections and on. It's enough to make the ordinary person freak out. Trust me, we professionals shuddered, too, when we had to wade through those computations to pass the Certified Financial Planner designation exams.
The second way — pretty generic — is to use one of the hundreds of retirement calculators every financial, investment and retirement website touts as easy to use to arrive at the number you will need.
The trouble is, not all individual expenses increase in line with average generic inflation rates each year. Some will escalate faster than others, like that big budget item health insurance. I have heard from retired readers whose health insurance total is more than $24,000 per year, and only going up.
The informal personal third way to calculate where you will stand in retirement is back of hand, which is generally prepared solely by the shrewd, commonsense individuals.
“I've managed on this amount. I'll need slightly more next year. I have XXX amount of savings. If I divided my savings by how much longer my life expectancy is projected to be and then compare that yearly amount to my current yearly spending — where will I be?”
Believe it or not, I have seen a number of retirement plans done by individuals that showed numbers precisely this informal and it has worked for them. They decided early on they would not get into a huge panic about getting older, or being retired.
Numbers are absolute. There is no in between. Maths is great for financial projections (keep in mind those numbers are based on assumptions); numbers help to focus on needs but can never really quantify the emotional side of the retirement equation:
• The depression of getting older, even though we can't stop it
• The loss of personal identity and wondering where you fit now — so eloquently addressed at Next Avenue — Where Grownups Keep Growing, by Bob Lowry, “I'm Retired. So Who Am I Now?” http://www.nextavenue.org/im-retired-so-who-am-i-now/
• The feelings of being invisible, so clearly stated by one senior fashionista: “No point in worrying whether you are dressed appropriately, no one will notice anyway. So I will wear what I want, at any time, to heck with convention Of course, sometimes that means pretty close to pajama daywear, and other times, why totally I'm decked out. You dress for yourself these days and your grandchildren who think you are hilarious!”
• Giving up a job that you love, but why should you? Did you suddenly lose those incredible skills earned over a lifetime?
• Concern about declining cognitive functions. Will a healthier lifestyle help?
When I've asked just about any retiree, or soon to be retired what they considered the most important thing, besides worrying about money, they almost unequivocally say quality of life.
After more than 30 years advising clients who were or are planning for retirement, you start to break life costs versus satisfaction down to real simplistic values. That is why it is so difficult to follow the generic retirement advice that you need 70-80 per cent of the income that you needed in your working life. Not necessarily the case when you refine your lifestyle to simple, clean, clutterless, and emotionally free.
I recently reviewed living in a retirement community where ages ranged from the very young retired, those at 55, to the esteemed ancients who were over 90. It was a very interesting time and readers, I took notes. The retirement population to me was clearly divided into two groups: those who said they had downsized and those who actually had.
You downsized? Really? The number of homes that I walked into that were crammed to the rafters with stuff. The feeling was claustrophobic, almost suffocating with massive dark furniture, dark pictures, every wall full of bric-a-brac, heavy curtains with shades drawn, elaborate phoney flowers, urns, multiple tables and chairs, but no one in audience! This stuff — all combined to fill rooms — so elegant, but pack-ratty. How can you feel free, in the land of the lightness of being, surrounded by so many possessions?
It is hard to let go. Clinging to the past, surrounded by stuff gives many of us comfort, safety and the feeling of control. But who needs it?
Here is the thing. No one cares. It does not matter if you have a gorgeous diamond, a Ferrari, Armani suits, antiques, paintings, all in a gorgeous stack-filled house. No one wants it, not your children, grandchildren, other people, even the second-hand trade, except to turn it into cash.
In a recent case of an elderly individual's estate. It took a week to clear out the home and two days to auction it all off.
Consider what the cost of just maintaining this clutter does to your physical and mental being.
Get rid of your clutter. Stop clinging to the past. Avoid completely acquiring new gewgaws. You don't need it. Liquidate it all. Sell your big home — or consider turning it into an income-earning duplex. You know what the alternatives are. Turn all proceeds into cash to add to your retirement pot.
Once you have eliminated this chore, then you will know your real retirement living costs. And you will be surprised.
At retirement age, life satisfaction should be at your highest level. You have reached the pinnacle where your mental acuity and wellbeing are the most important considerations for you along with your health, your relationships, and your community values.
Be free to experience joy.
Any readers want to volunteer their monetary concerns about planning for retirement. I need a question from a reader who needs help planning for retirement, with pertinent financial facts. Your case will be disguised, but we will use the numbers to demonstrate how to use the basic Bermuda retirement calculator and how to arrive at a satisfactory conclusion.
Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Pondstraddler Life™ financial perspectives for Bermuda islanders with multinational families and international connections on the great Atlantic pond. Contact: firstname.lastname@example.org