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What does it take to achieve the retirement of your dreams? That’s the essence of the question we posed to dozens of financial planners.
What are the common characteristics of your clients who have a successful retirement? Did they have a budget? Did they save aggressively and invest prudently? Did they own enough life insurance? Did they focus on minimizing taxes and building after-tax wealth? Did they put in place plans to manage and mitigate all the risks they might face in retirement? Did they craft a well-thought-out estate plan?
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“There’s no ‘formula’ for a successful retirement,” said Robert Klein, president and founder of the Retirement Income Center. “Everyone’s situation is different. Having said this, successful retirees share a combination of financial and nonfinancial characteristics that enable them to appreciate and enjoy their retirement.”
Here’s a look at some of those characteristics.
Live beneath your means
Many older adults who are enjoying retirement did so by living beneath their means when they were saving and planning for retirement.
“What I see most in successful retirees and accumulators is the ability to live within or below their means,” Cheryl Costa, a principal at Woodside Wealth Management. “So, twenty-somethings choosing to ‘live like students’ and rent a cheap apartment while maxing out their 401(k)s. Thirty-somethings who don’t overextend themselves when buying a home. Forty-somethings who suggest public colleges for their high-schoolers and fifty-somethings who don’t trade up to expensive homes and cars just because they can.”
These people, said Costa, usually turn into successful retirees because they aren’t chasing the next shiny object. “And the beauty is that they don’t feel they are depriving themselves,” she said. “They do spend money on the things that are important to them. But, in a nutshell, they avoided lifestyle creep.”
Frank Paré, president of PF Wealth Management Group, also said successful retirees are not extravagant or living beyond their means. “They are laser focused on their cash flow,” he said.
In fact, they were always good stewards of their money, said Roger Whitney, the CEO of Agile Retirement Management and the host of Retirement Answer Man podcast “The most common characteristic is that they are consistently intentional in their decision-making,” he said. “Rarely, do they make rash decisions on spending or market timing. Even those with ‘average’ means.’”
Plan years ahead
Those who have successful retirements didn’t leave things to chance, either.
“They started planning years in advance and didn’t let retirement just happen to them,” said Moe Allain, a financial adviser with Baird Retirement Management.
Others have witnessed that as well. “For my clients that have successfully retired, the one thing that they all have in common is financial planning,” said Douglas Boneparth, president of Bone Fide Wealth. “They’ve all been dedicated to the planning process, which allowed them to stay focused on their retirement goal.”
On the financial side, Allain said, successful retirees, among many other things, created a budget, set aside at least one year’s worth of living expenses, saved for retirement before saving for their children’s college education, made sure they weren’t house rich, didn’t make large real-estate purchases in the first two to three years of retirement, didn’t let adult kids’ demands derail their retirement efforts, asked their financial advisers questions about withdrawal rates, or concentrated equity positions in employer stock earlier rather later, and crafted an estate, caregiving, healthcare, long-term care, and burial plans, that they actually understand.
Find a balance that works for you
While successful retirees aren’t necessarily wealthy, they have achieved financial independence suited to their individual lifestyles, said Klein.
Other financial planners agree. “Retirements seem to work best that align available resources with a lifestyle that affords achievable life goals once the paychecks stop,” said Michael Lonier, a retirement management adviser with Lonier Financial Advisory.
“There’s a balance implicit in this formula akin to Larry Kotlikoff’s economic smoothing — a balance that starts earlier in life and extends into and through retirement. Those who naturally find this equilibrium do not suddenly wake up in their late 50s shocked that they have no money and have done nothing to prepare for the day they can’t pay for four cars, a boat, and a beach house out of cash flow.”
Quite the opposite. “The successful future retiree is likely to be surprised they have more money than they ever dreamed, perhaps a couple million set aside, equity in house, a pension they had not given much thought to before, and aside from too large of an equity allocation left over from their younger days, are now looking for a safe solution to the retirement puzzle that does not hold their future hostage to the stock market,” said Lonier.
Doug Gross, a financial adviser with McLaren Wealth Strategies, also said successful retirees are not stressed financially. They have figured out how to live on the resources they have. “Individuals in that situation probably managed their spending and saving when they were working so this is not a big surprise,” he said.
Communicate with your partner
According to Rita Cheng, CEO at Blue Ocean Global Wealth, couples talking to each other is another common trait of a successful retirement. “They don’t need to agree,” she said. “They just need to talk.”
Of course, a meeting of the minds can also help. Allain, for instance, said it’s important that couples not only talk, but work toward getting “on the same page financially.”
In a similar vein, Podnos and others also noted that having a “good marriage and family structure” is important as well.
Say no to debt and yes to financial independence
Having little to no debt going into and during retirement is another big characteristic of a successful retirement, said Allain.
And they have, according to Chris Grande, a financial planner with Walnut Hill Advisors, financial independence, expenses well within their capacity.
“While successful retirees aren’t necessarily wealthy, they have achieved financial independence suited to their individual lifestyles,” said Klein.
Others see that with their successful clients, as well. “I think the bedrock is always financial independence,” said Steve Podnos, the CEO of Wealth Care. “That is to say, they have no worries about running out of money if they have stopped working.”
Devise a solid retirement-income plan
A customized retirement income plan that has been designed and regularly revisited many years before and throughout retirement is the essential financial tool for successful retiree clients, said Klein.
“The cornerstone of the majority of plans is a predictable sustainable lifetime income stream that funds a sizable portion of my clients’ after-tax, inflation-adjusted expenses,” he said. “This allows them to reduce their exposure to the uncertainties of the stock market and sleep better at night. An extended care plan, typically funded by long-term-care insurance, further secures the plan. In addition to paying for expensive care, it removes the caregiving burden from family members.”
Lonier agrees that successful retirees have a plan. “A prudent retirement plan not only provides economic security, that security can also provide the confidence and well-being to seek new and fulfilling life — not just lifestyle — goals, and maybe a new definition for a life well lived,” he said.
Having a retirement-income plan is important for another reason. “In order to increase happiness, it is important to have an income plan that creates an appropriate level of ‘free to spend’ income level,” said Dan Keady, the chief financial planning strategist at TIAA.
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Retire on your own terms
They also retired on their own terms, and neither too early nor too late.
“Retiring at the ‘right’ time can be a big part of it,” said Laura Tarbox, the founder and CEO of Tarbox Family Office. “Over the years, several of my clients have retired too early, and have then regretted it for years to come.”
This, she said, is probably most common among business owners, whose identity is tightly intertwined with their business. “After selling the business, it often seems there is no amount or variety of nonprofit or consulting work that brings them the same satisfaction once derived from running their business. I am a big fan of partial retirement whenever possible.”
Others believe in phased or partial retirement too. “I would say that successful retirements are those in which somebody moves from the working phase of their life into that next phase in a way that is fairly seamless,” said Nate Wenner, a senior financial adviser with Wipfli Financial Advisors. “Many times, this is because they have had some sort of phased retirement, as opposed to a change from going 100 miles per hour to suddenly slamming on the brakes, in terms of their work life.”
Read What Makes Retirees Happy.
The most successful retirees transitioned to retirement over several years. “They didn’t just pull the ripcord,” Allain said. “They tippy-toed into retirement.”
Other financial planners have clients who have done the very same. “They practiced retirement,” said Cheng.
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Find purpose and passion
Retirees who can claim success have become passionate about their purpose.
“They continue to find purpose in their lives and that may be no more than walking the dog and attending musical events, but they have something they are doing that they get up looking forward to each day,” said Gross.
Others agree. “They live with purpose, waking up each day pursuing an agenda based on the life that they have built for themselves and have chosen to live,” said Klein.
And Blair duQuesnay, a financial planner with Ritholtz Wealth Management, said she’s learned over the years that a successful retirement has much more to do with structuring a fulfilling life than maximizing wealth.
“I always ask clients retiring soon if they have considered how they will spend their time,” she said. “How will they spend their days, weeks, months, and years? It is surprising to some that a leisurely life of golf, tennis, and dining out can become boring after a few months. Humans crave both routine and social interactions.”
In her case, Tarbox’s happiest retired clients are very busy. “I don’t think it matters what it is – taking classes, traveling to new places, spending time with family and friends, community involvement, serving on boards or nonprofits,” she said. “We once had a retired couple follow a traveling circus for a year and write a book about it.”
Wenner works with his clients on finding their purpose before they retire.
“For many of our clients, it’s about finding some purpose for this next phase, and it often includes trying to spend more time seeing grandkids and family if possible, hobbies, maybe some volunteer work that aligns with their strengths,” he said. “I like to explore these themes with my clients before they retire, and encourage them to find time before fully retiring to develop these hobbies and ideas.”
For some, a second career is part of a successful retirement. “Second careers are often very satisfying in ‘retirement,’” Podnos said. “They aren’t necessary for finances in many cases but can be a full-time profession/occupation.”
