Retirement rules of thumb

Long-held beliefs about retirement don’t always apply in today’s complex world

Past generations viewed retirement as a time to climb off the horse, hang up the spurs and wait out the days until the Grim Reaper came. As life spans grew longer, retirement became increasingly seen as a time to leave the rat race behind and pursue new interests.
Today’s popular culture goes even further by idealizing retirement as some kind of carefree, utopian existence. If you believe the advertisements, we’ll all spend our last sunny days sailing along Cape Cod, grandchildren in tow.
The reality is far more complicated. A considerable number of Baby Boomers will retire with mortgages or student loan debt (both their own and their children’s). Far fewer Americans today will rely on a company pension or Social Security to see them through to their ultimate destination. Instead, most Baby Boomers will rely on a 401(k), savings, part-time jobs or second careers.
Changes in retirement planning options, longer lives and new ideas about what retirement should be are changing the landscape. In other words, think about the quality of life you’d like to have in what more are regarding as their “second act.” Consider too the strong possibility that you or a loved one may need extended care.
This is why I tell clients that rules of thumb about retirement planning are never absolute. Yes, it’s usually a good idea to pay off as many fixed expenses, such as mortgages, as possible before retirement. But none of the rules you may have heard about in retirement planning should be taken as 100 percent gospel. That’s because every person goes into retirement under unique circumstances.
The retirement equation
The first part of the retirement equation has to do with accumulating assets that can provide an income stream when the time comes. Most traditional retirement planning models consider current income, assets, contributions to savings or investment plans, number of years left to work and expected life span. This type of planning is important, but it’s only the first part.
The second, often-overlooked component, is knowing how to manage the income from those hard-earned assets — especially when they become the primary, or sole, source of income. You need to have a well thought-out, articulable plan for how you’re going to handle multiple possible scenarios. And not just at the moment you retire, but 15, 20, 30 years down the road.
For example, long-term care is still going to be a big challenge for Baby Boomers who can expect to live longer after retirement than any previous generation. There have been many tax code changes and an evolution in long-term care products. Yet, many Americans don’t even want to consider the possibility of being incapacitated over the long term, perhaps because of misconceptions equating long-term care to nursing home care. Overlooking long-term care considerations, whether you self-fund it or pay for it through insurance, is a frequent mistake that puts many retirees at risk of running out of money.
Forecasting your future
One way to plan for the unknown is to use software tools that model the many possibilities that can arise during retirement. Statistical tools and simulations can analyze probabilities about “if-this, then-what?” scenarios. They can help answer questions such as how much stock one should have and what happens if Social Security benefits are taken at age 67 instead of waiting until 70?
Every planning decision, of course, involves making choices about limited resources. The key value of statistical planning models is their ability to determine whether you’re making one decision at the expense of another. Without the tools needed to forecast out, you can never know if a choice made today might blow up 20 years from now.
At any stage of retirement planning, getting sound advice from a trusted financial planner is essential.
All of that said, most Baby Boomers are changing the way they view retirement. Most no longer want to “do nothing” in their golden years and many are continuing to work, either part time or at new interests. Some are even starting new businesses. More and more, Baby Boomers see retirement as a transition rather than as a stop sign.

With the right advice and planning, retirement under these circumstances can be just as fulfilling, and maybe even more so, than the idealized version Madison Avenue promotes.

This column is brought to you by The Huntington Investment Company, a registered broker dealer, member FINRA/SIPC, and a registered investment adviser with the U.S. Securities and Exchange Commission (SEC).  The Huntington Investment Company is a wholly owned subsidiary of Huntington Bancshares Incorporated.
Patrick Riepenhoff, CFP® is Vice President, Director of Strategy at The Huntington Investment Company. Reach him at [email protected] or (614) 480-0444.