How to Retire

1. Visualize Your Ideal Retirement, Beyond Finances

You need activities that bring you joy. Those things are more important to a happy and satisfying retirement than a well-designed portfolio and a carefully calibrated spending rate.

Beyond the Numbers. Retirement isn't just a financial equation; it's a life transition demanding a clear vision of how you'll spend your time and find fulfillment. Many focus solely on accumulating enough money, overlooking the equally important aspects of purpose, relationships, and daily structure. The pandemic highlighted how a lack of structure can make time feel both fleeting and empty, underscoring the need for proactive planning beyond finances.

Structure and Habits. Without the structure of work, retirees must intentionally create their own routines and habits. Consider what aspects of your job brought you satisfaction – purpose, social interaction, intellectual stimulation – and find ways to replicate them in retirement. This might involve volunteering, part-time work, or pursuing hobbies that provide a sense of accomplishment and connection.

Purposeful Leisure. Leisure activities, while enjoyable, shouldn't be the sole focus of retirement. Vacations and weekends are a relief from something, but retirement requires a deeper sense of purpose. Develop habits and routines that provide ongoing satisfaction and contribute to a fulfilling life, rather than relying solely on episodic events or bucket list items.

2. Financial Readiness: More Than Just a Number

Until your financials say you’re ready, it doesn’t even matter. You’ve got to get your financials to the point where you know they’re going to be able to sustain your retirement.

Financial Foundation. While a fulfilling retirement extends beyond finances, having a solid financial foundation is crucial. Assess your savings, projected income from Social Security and pensions, and potential healthcare costs. Track your spending for at least a year before retirement to understand your actual expenses and identify areas where you can adjust.

Conservative Estimates. When forecasting your retirement spending, be conservative. Factor in potential increases in healthcare costs and unexpected expenses. Consider the impact of inflation on your spending and plan accordingly. Use retirement calculators and spreadsheets to model different scenarios and ensure your savings can sustain your desired lifestyle.

Sequence of Returns. Recognize that sequence-of-returns risk doesn't start on the day you retire; it actually starts a couple of years before. Start building cash in your last three to five years of work. It’s not too early to start taking some percentage of your savings, and instead of just blindly throwing it into the S&P 500 index fund, maybe you ought to throw 25% of it into cash.

3. Social Security: A Cornerstone, Not an Afterthought

This is the only source of lifetime income they have, and it’s cost-of-living adjusted.

Lifetime Income. Social Security is a crucial source of guaranteed, lifetime income, especially in an era where pensions are rare. Unlike many private pensions, Social Security benefits are adjusted for inflation, helping retirees maintain their buying power over time. Understanding the intricacies of Social Security is essential for maximizing your benefits.

Delaying Benefits. Delaying Social Security benefits, if possible, can significantly increase your monthly payout. For every year you postpone claiming beyond your full retirement age (up to age 70), you earn an additional 8% per year. This can translate into a larger benefit base and a higher cost-of-living adjustment each year.

Claiming Strategies. While delaying is often recommended, claiming early might be the right decision for some, such as those with health issues or lower-earning spouses. Married couples should coordinate their claiming strategies to maximize their combined benefits, considering factors like earnings history and life expectancy.

4. Healthcare: Proactive Planning is Essential

We have to remember, money is not what makes us happy. Money is just dots on a computer screen. It’s just green paper. It is an input into activities that can make us happy.

Beyond Medicare. While Medicare provides essential healthcare coverage, it doesn't cover everything. Plan for out-of-pocket expenses, such as deductibles, co-pays, and premiums for supplemental insurance (Medigap). Also, Medicare doesn't cover dental, vision, and hearing care, so factor in those costs as well.

Long-Term Care. Long-term care expenses can be substantial and are often a major concern for retirees. Consider purchasing long-term care insurance or exploring hybrid policies that combine life insurance with long-term care benefits. Alternatively, you can self-fund long-term care by setting aside a dedicated pool of assets.

Health and Relationships. Invest in your health and relationships as you would invest in financial assets. Maintain a healthy lifestyle through exercise, proper nutrition, and social engagement. These investments can not only improve your quality of life but also potentially reduce your healthcare costs in the long run.

5. Housing: A Home for Life, or a Stepping Stone?

If you’re thinking about relocating, start spending your vacations traveling to four or five different areas that you’re thinking about moving to.

Evaluate Your Needs. Your housing needs may change in retirement. Consider whether your current home is suitable for aging in place, or if downsizing or relocating might be a better option. Think about factors like accessibility, maintenance costs, and proximity to healthcare and social activities.

Relocation Considerations. If you're considering relocating, research potential locations thoroughly. Visit different areas, explore the local community, and assess the cost of living, including taxes, utilities, and healthcare. Consider the social aspects of relocating, such as building a new community and maintaining relationships with family and friends.

Home Equity. Home equity can be a valuable asset in retirement, but it's important to approach it strategically. Consider the pros and cons of tapping into your home equity through a reverse mortgage or downsizing. Weigh the financial benefits against the emotional and social factors associated with leaving your home.

6. Estate Planning: A Gift of Clarity and Control

You need to set yourself up in advance, so that you can establish those habits early on.

Beyond the Will. Estate planning is more than just creating a will; it's about ensuring your wishes are carried out and protecting your loved ones. In addition to a will, consider creating a financial power of attorney, healthcare power of attorney, and living will. These documents will empower someone you trust to make decisions on your behalf if you become incapacitated.

Communicate Your Wishes. Share your estate plan with your family members, especially those you've named as executors or beneficiaries. Discuss your wishes regarding your assets, healthcare, and end-of-life care. This will help avoid confusion and conflict down the road.

Review and Update. Estate plans are not set in stone; they should be reviewed and updated periodically to reflect changes in your life, such as births, deaths, marriages, and divorces. Also, review your beneficiary designations on retirement accounts and life insurance policies to ensure they align with your estate plan.

7. Adaptability: The Key to a Fulfilling Retirement

Test drive the retirement life you want, trying out the activities you think you’ll enjoy and spending many months in the place you might move to.

Embrace Change. Retirement is a dynamic phase of life, and your plans may need to evolve over time. Be prepared to adjust your spending, lifestyle, and goals as circumstances change. This might involve working longer, pursuing new hobbies, or relocating to a more affordable area.

Flexibility in Spending. Develop a flexible spending plan that allows you to adjust your withdrawals based on market performance and your changing needs. Consider using a variable withdrawal strategy or a guardrails approach to manage your spending and mitigate sequence-of-returns risk.

Continuous Learning. Stay informed about financial planning and healthcare topics. Attend workshops, read books, and consult with financial advisors to stay up-to-date on the latest strategies and best practices. This will empower you to make informed decisions and adapt to changing circumstances.

8. Relationships: Invest in What Truly Matters

We really should pay attention to our relationships and make sure people don’t fall away from us over the years. Stay in touch. It doesn’t take a lot to do that.

Social Connections. Social relationships are a powerful predictor of longevity and happiness. Nurture your relationships with family and friends, and seek out opportunities for social engagement. This might involve volunteering, joining a club, or simply spending more time with loved ones.

Inner Circle. Focus on maintaining a strong inner circle of close friends and family members. Aim to have at least three or four people in your life who you can rely on for support and companionship. If you lose someone from your inner circle, make an effort to bring someone else closer.

Virtual Connections. While virtual communication can be a valuable tool for staying in touch with distant friends and family, it's important to supplement it with face-to-face interactions. Make an effort to see your loved ones in person whenever possible.

9. Purpose: Finding Meaning Beyond the Paycheck

Being needed is just as important as other people being there for us when we need something. Being needed is an essential human quality.

Sense of Purpose. Work often provides a sense of purpose and accomplishment. When you retire, it's important to find new ways to feel needed and valued. This might involve volunteering, mentoring others, or pursuing a passion project.

Work in Retirement. Consider working part-time or consulting in retirement to maintain a sense of purpose and social engagement. Working by choice, rather than necessity, can provide a sense of control and fulfillment.

Community Involvement. Get involved in your community by volunteering, joining a club, or participating in local events. This can help you build new relationships and find new ways to contribute to society.

10. Spending: Mindful Choices for a Richer Life

You need to think about what process you are going to set up to make that transition with the least amount of anxiety possible.

From Saving to Spending. Transitioning from a lifetime of saving to spending can be psychologically challenging. Develop a system for managing your retirement income and spending that minimizes anxiety. This might involve creating a budget, automating withdrawals, or working with a financial advisor.

Mindful Spending. Focus on spending your money on things that bring you joy and fulfillment, rather than trying to keep up with others. Identify your spending priorities and cut back on expenses that don't align with your values.

Worry-Free Number. Create a "worry-free number" – an amount below which you don't need to stress about spending. This can help you enjoy your retirement without constantly scrutinizing every purchase.

Last updated: March 12, 2025