Retirement is the great unknown, and much to everyone’s chagrin, there are no cut-and-dry answers to most of our biggest retirement questions: when should I retire, and how much money do I need? The answers are different for everyone, and they are much more nuanced than coming up with a set age and amount. But, clients still ask these questions, and financial advisors still need to find a way to respond. I’ve addressed the “magic number” question in the past, but for the “when?” question, I suggest using a three-tiered approach: fiscal, physical, and psychological.
The first step is to take inventory of the client’s savings and potential sources for retirement income, as well as their monthly expenses. What company-sponsored plans do they have, and how much is in each account? Do they have separate retirement savings in the form of an IRA? Are you considering both spouses, if the client is married and both parties are living? Is there a pension in the picture? What would be their Social Security wages? Are there other assets to consider? Compare their savings and income totals against their monthly expenses to get a clearer picture of his/her financial situation. By performing this thorough analysis, you can help assess your client’s retirement readiness from a fiscal standpoint.
The next step is to help the client be more prepared for the inevitable physical limitations that come with age. Retirement brings up many questions about living, mobility, and accessibility, and while technology can help make a “smart” home, it’s even more important to think about how to make a safe home. For example, if the client hopes to age in their own home, can that home accommodate an elderly person (i.e., are there a lot of stairs, where are the bathrooms located in relation to the bedrooms, are the showers walk-in or tubs, could ramps and handrails be installed if needed)? The sad truth is, we retire at a time in our life when our physical health begins to deteriorate, so in order to gauge the right time for your client to retire, it’s important to remind them to be physically prepared as well. That doesn’t mean they should begin modifying their house now; it simply means that they should have that possibility in their minds and have a plan in place for how and where they will live for the next few decades.
Once you’ve addressed the money aspect and the physical considerations of the retirement time period, turn the discussion towards emotional readiness. Retirement can be a hard transition—for many people, their career is their purpose and identity. It can be difficult to turn that off and figure out what’s next. If your client is considering retiring, make sure they are prepared to face this new stage in life. Ask them about how they will fill their time and maintain their social network. If they seem lost, connect them with a former client who you consider to be enjoying a happy retirement, so that they can get guidance and have a better sense for the challenges they might face. Psychological preparedness can often be the trickiest part of retirement, so check in with your client on this and help them gain the resources they need to be mentally ready for their encore.
So, when should you retire? That’s a personal decision, and we may never know the exact answer. But, if you help your clients be prepared fiscally, physically, and psychologically, then you can help them at least be in a better position to begin the transition.
All information provided is for informational and educational purposes only and is not intended to provide investment, tax, accounting or legal advice. As with all matters of an investment, tax, or legal nature, you and your clients should consult with a qualified tax or legal professional regarding your or your client’s specific legal or tax situation, as applicable.
The preceding is not intended to be a recommendation or advice. This material is intended for general use by financial advisors.