How to Retire Like an Adult: A 10-Point Checklist for Responsible Freedom
If you are in your 40s, 50s or 60s, you are probably hoping to find the fountain of youth and you are ready to feel like a kid again with a happy go lucky retirement. However, when you plan your golden years it is best to retire like an adult, responsibly and with a plan for making your money last as long as you do.
The Merriam Webster dictionary added “adult” as a verb — not just a noun: “To ‘adult’ is to behave like an adult, specifically to do the things — often mundane — that an adult is expected to do.”
Being an adult means being responsible, dependable, self-sufficient and maybe even knowing when it is a good time to throw these rules out the window. Examples of “adulting” include: cleaning up after yourself, paying bills on time, and — we would like to add — planning your retirement.
Here are 10 ways to know if you have a reliable plan to retire like an adult:
1. You Know How Much Retirement Income You Will Have
It will do you no good to hide from the truth when it comes to your retirement income. You need to know how much you will have and from what sources.
How much will you get from Social Security? Do you have a pension? An annuity? Will you work part-time for any amount of time? And, crucially, how much will you need to withdraw from savings every month?
The NewRetirement Retirement Planner makes it easy to find out how much retirement income you will have every year. And, you can run different scenarios to determine the best retirement withdrawals strategy for your needs and values.
2. Your Retirement Expenses Remain Below Your Income
The most important rule of personal finance — spend less than you earn — applies to retirement as well. In fact, it is even more important than ever before. The risk you run of overspending is that you will actually run out of money.
The trick is that you actually need to make a good prediction and figure out exactly how much you will spend every year for the next 15–30 years.
Here are 9 tips for predicting your retirement expenses.
3. Even Better? You Have Guaranteed Lifetime Income to Cover Basic Expenses
Guaranteed lifetime income is income that you will receive for as long as you live — no matter how long that turns out to be. Social Security and most pensions are the most common examples of guaranteed lifetime income.
Many personal finance experts recommend that in retirement you have sufficient guaranteed lifetime income to cover your baseline retirement expenses — the money you need to spend to get by. Baseline spending includes housing, healthcare, and food.
To accomplish sufficient lifetime guaranteed income you have two choices:
- Reduce your baseline expenditures to fall below the guaranteed income you will have.
- Increase your guaranteed lifetime income through the purchase of lifetime annuities or other strategies.
Try different scenarios in your Retirement Plan to figure out something that works for you.
And, here are 18 different retirement income strategies to explore.
4. You Have Paid Off Debt
One of the greatest threats to retirement today may not be saving too little, but owing too much.
After making real progress against debt during the pandemic, consumer debt is rising. Total household debt rose by $394 billion, or 2.4 percent, to $16.90 trillion in the fourth quarter of 2022, according to the latest Quarterly Report on Household Debt and Credit. Credit card balances increased by $61 billion to reach $986 billion, surpassing the pre-pandemic high of $927 billion; mortgage balances rose to $11.92 trillion, auto loan balances to $1.55 trillion, and student loan balances to $1.60 trillion. And, the share of current debt transitioning into delinquency increased for nearly all debt types .
The most adult way to handle debt is to pay it off before you quit working. However, that is not always possible and carrying some mortgage debt (at a low interest rate) may be preferable to paying it off. Explore why you may want to retain your mortgage in retirement and 13 tips for managing debt for retirement.
5. You Have Planned for Inflation
Inflation right now is still high and you are probably smarting by your grocery bill. High inflation can have a devastating effect on your retirement spending power. As Sam Ewing said:
“Inflation is when you pay fifteen dollars for a ten-dollar haircut you used to get for five dollars when you had hair.”
When you are working — your wages generally rise as the costs of goods and services increase. Your earnings “keep pace with inflation,” so normal inflation is not generally quite as big of a big concern as it is in retirement. In retirement, when you are living off of savings, inflation literally robs you of income.
The good news is that Social Security and some pension programs (though decreasing in prevalence) adjust your income for inflation. The bad news is that if you are living in retirement by withdrawing from investments or savings, then the value of your money will dramatically decrease over time. You will require far more money to support your lifestyle in the future.
How asset allocation can protect you from the ravages of inflation
Retiring like an adult means that you have a good working knowledge of the inter dependencies of different levers in the economy and how they impact your personal financial plan.
When you are retired, you need some way to enable your savings to outpace inflation. If inflation is at 5% and you are earning a 5% return on your investments, then your financial situation is flat. You haven’t lost money, but you haven’t gotten ahead either.
However, as we age, our tolerance for investment risk decreases. And, while you want your savings to grow (or at least not lose value), you need to turn to safer investments (such as bonds) that may earn you a lower rate of return. Creating the right asset allocation for you is no easy feat, requiring an understanding of your personal risk tolerance, macro economic factors, and investment time horizon.
Financial advisors can help you navigate designing an asset allocation strategy that outruns inflation, while managing risk.
Collaborate with a CERTIFIED FINANCIAL PLANNER™ professional from NewRetirement Advisors to identify and achieve your investment goals. Set up a FREE discovery session.
6. You Have a Plan for Other Potential Risks
We can not predict the future. However, an adult retirement plan is one that mitigates the potential harmful financial effects of a long term health event, a natural disaster, a car accident, a stock market crash, or some other unknowable future event.
Having the right insurance products and a dedicated emergency fund can protect you.
7. You Evaluate Your Plans at Least Quarterly
Retirement planning is not something you do once and then never think about again.
When you are retiring like an adult, you need to maintain, update and adjust your plans. It is a good idea to go through the details at least once a quarter and make updates as you and the economy change.
Because it saves your information, the NewRetirement Retirement Planner makes it easy to make changes and check in on your plans.
8. You Have a Responsible Plan for Investing Your Savings
Retirement investing is not all about getting the highest return possible. A responsible retirement investment plan matches how and when you need to access the money with your need for growth and security.
It is possible to do this on your own. However, it can also be useful to work with a financial advisor who has deep expertise in stocks, bonds, and other potential financial vehicles.
NewRetirement offers fiduciary advice from an independent fee-only CERTIFIED FINANCIAL PLANNER™. Consultations are by phone or video call.
9. You Have Developed an Estate Plan
Estate planning is a term broadly used to describe a variety of end of life planning issues. Your estate plan should include:
- Opportunities to manipulate your assets for tax efficiency and maximum wealth for both you and your heirs
- A detailed description of what you want to happen when you die — a plan for your internment and for the disbursement of your assets and property.
- Instructions for what you would like to happen if you are living but cannot care for or make decisions for yourself
Explore the 11 documents you need for a reliable estate plan.
10. You Have a Dream and a Purpose
Without a plan for life after retirement, many retirees find themselves feeling vaguely unfulfilled and restless, craving something more but not knowing what that something might be. Focusing on the financial aspects of retirement is important, but the personal side of your retirement plan is just as important, and could ultimately guide how you use your retirement assets.
Explore these resources for figuring out what to do in retirement:
Make sure your retirement plan is responsible, dependable, self-sufficient and sometimes rule breaking!
Use the NewRetirement Planner to Start Adulting!
Some of the emails I receive are heartbreaking. They typically read something like this… It would be easy for…