There are several theories and unlimited opinions about retirement. Hot topics include distribution rates, Social Security start dates, and paying off your mortgage.
I’ve read dozens of books on retirement planning, but I’m moving from theory to reality for this blog, so I contacted three retired friends. Stuart is a long-time neighbor, and our daughters were classmates when they were younger. He recently retired after spending his entire career with Motorola and its successors. Richard is a friend from church, and he retired from his career as a human resource executive and consultant. Fluent in Spanish, Richard and his wife, Linda, moved to Mexico. Tim is my former college roommate, and he and his wife, Irene, retired to Wyoming after his successful career as a financial advisor and hers as an HR consultant.
All three individuals are unique with varied backgrounds, but they have several things in common. While working, each had a financial plan to help guide them towards retirement, they are debt-free, and none eat dinner before 5:00.
Stuart refers to his plan often, correcting his course as needed. He wants to stay on top of his plan. Richard also relies on his plan and his advisor. After a long career as a financial advisor, Tim does not refer to his plan as often as he used to because it’s still in his head, but he and Irene rely on a budget.
One of the first questions I asked them was how they knew it was the right time to retire. Richard said, “We have enough money. We are good.” He knew he was financially secure, but Linda needed some convincing beyond Richard’s optimism. She became comfortable about retiring after reviewing their plan data with their advisor. Richard also added, “God had a plan and would not let him fail.” Tim said, “I did not want to be the richest guy in the graveyard.”
Stuart had a target date in mind from an early age because his father retired at 57, and his father-in-law not long after. Stuart said his father is “comfortably off,” as is his father-in-law. He added, “They don’t live extravagant lifestyles, but they’re comfortable.” Stuart knew at a young age he probably could retire early because of the examples set by the men in his life. He also benefited from a pension plan that he could access at 60 without a penalty. He did not stay at his employer for the pension, but it was a deciding factor in retiring early. In preparing for an early exit, Stuart said it helps to “talk about it” with others to make sure you’re financially and emotionally ready to leave the workforce. More importantly, Stuart and his wife Audrey were “100% aligned on their approach and decision making throughout the planning process.”
Tim and Irene weren’t ready to retire before 55. “Between 50 and 55 were formative years for them,” Irene added. They set a retirement target age of 55 after meeting in their forties, realizing they had similar financial goals. They were both financially stable when they met.
It’s not uncommon for retirees to get more conservative in retirement, but each of these recent retirees kept a hefty allocation to stocks. Richard is not a risk-taker, so he reduced his stock exposure about ten years before retirement, relying on his financial plan and guidance from his advisor. As for stocks, Tim, referring to Warren Buffett, said, “If it doesn’t have a board of directors or dividends, he’s not interested.”
Richard will start receiving Social Security benefits in December because “we aren’t guaranteed a tomorrow.” His Social Security benefit coupled with his pension payouts should cover their living expenses, allowing their investments to grow. Tim, Irene, and Stuart will delay their Social Security benefits for as long as possible. Most people use financial decisions to decide when to receive Social Security benefits, but Tim will rely on his health. As long as he is healthy, he will defer his payout. Richard encourages young people to start saving money early, so they don’t have to rely on Social Security benefits.
How you spend your time in retirement is essential. No one wants to be bored. Stuart feels a sense of accomplishment daily by focusing on projects around the house. He also spends time playing golf with friends and his wife, Audrey. Stuart is also a music enthusiast and owns several guitars, and he may get the band back together at some point. He emphasizes health by walking the “loop” in our neighborhood – not an easy thing to do! Richard’s new hobby is cooking. In what he called a “role reversal,” he does most of the shopping and cooking. His go-to dish is chicken mixed with sausage, peppers, and potatoes. In addition to cooking, he and his wife volunteer with their new church. Tim and Irene are busy building a home in Wyoming. When they aren’t hammering nails, they’re fly-fishing or hiking. Richard has discovered streaming on Netflix.
Richard and Linda paid off their mortgage and other debt items before retirement, as did Tim and Irene. Stuart paid off his mortgage ten years before retirement. He paid it off early because “It is the most predictable return on your capital.” By paying off his mortgage, it freed up his cash flow for more important things.
None of them miss working. Richard’s previous jobs did not define him, and Stuart made a “clean break” from his employer. Stuart does not keep up with former colleagues or past work projects. He wants to focus on the future. Tim and Irene answered in unison with a definite “No!” Irene was worried about retiring because she worked so much and “had a lot of balls in the air,” but her transition has been much easier than expected.
The cost of healthcare is a concern for people retiring early. Stuart opted for COBRA; Tim and Irene have a high-deductible plan and health savings accounts. Richard is now eligible for Medicare, and he says, “It’s a sweet deal and not that expensive.”
Richard and Linda have a long-term care policy because it brings them peace; Linda has term life insurance. A few years ago, Stuart dropped his life insurance coverage; Tim and Irene did not own life insurance.
I asked Richard what advice he would give to his 30-year-old self, and he said he would have started saving earlier. He spent money because he could. He lacked discipline. Stuart recommended working with advisors to make sure you’re doing the right thing. Tim and Irene added that marrying the right spouse is paramount for financial success. Stuart started working with an advisor in the UK as soon as possible, and he recommends others “take advantage of all the resources available to them like a CPA.” He relied on company and government resources often. Initially, his plan was “general in nature” but “sensible and foundational.”
Stuart’s vision of retirement matched up “almost perfectly” with the realities of retirement, and he has not experienced any surprises. His life “has continued along.” Richard’s retirement has exceeded his expectations. Tim and Irene said their retirement has been better than expected. Richard added, “people probably need less money than they think.”
A popular strategy for individuals entering retirement is to convert their traditional IRA to a Roth. Stuart will convert his IRA to a Roth, but Tim and Richard will not.
Stuart said, “a key to his early retirement is relying on friends who also retired early.” His new community allows him to chat about retirement and other topics. When I asked him about his overall retirement experience, he said, “so far, so good.”
What can we learn from Stuart, Richard, Tim, and Irene?
- Develop and follow a financial plan. A financial plan will give you the confidence to retire on your terms.
- Pay off your debt before you retire. If you pay off your debt, you can spend the extra money on things important to you and your family.
- Find a hobby. Do you enjoy cooking? Hiking? Fishing? Playing music? A hobby is an excellent way to spend time and meet new friends.
- Find your community, surround yourself with family and friends – don’t travel the retirement road alone.
- Take care of yourself – exercise and eat well, get outside. Health is wealth.
- Hire professional advisors to help you plan for your retirement. A successful team may include a financial planner, CPA, attorney, insurance agent, and mortgage broker.
- You probably need less money than you think for a comfortable and secure retirement.
- Be positive – if you’re not already. When I talked with Stuart, Richard, Tim, and Irene, they oozed joy and happiness – all three were excited about their future. They weren’t concerned about the stock market dropping or other financial calamities.
If you think you’re ready for retirement, give your advisor a call to crunch some numbers and discuss the process – you’re probably closer than you realize!
Stay young at heart, kind in spirit, and enjoy retirement living. ~ Dannielle Duckery
September 29, 2021
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
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