What's on Your Mind? Retirement Saving and Living

For most investors, we find that retirement is their first—and most important—financial planning, saving, and investing goal. And, of course, it can be stressful. To learn what's on their minds, we asked 1,000 individuals a series of questions about saving for, and living in, retirement. We received a wide range of responses around several themes. Here are the key themes we heard, with a few thoughts. These themes may feel familiar to you, as well.

"Financial planning in retirement would be much easier if you knew your expiration date."

This may sound morbid. But it's true! A question I hear most often relating to retirement is, "How long will our money need to last?" This is stressful, uncertain, and a challenging and moving calculation.

In the past, retirement planning focused more on simple and general guidance such as, spend 4% of your portfolio in the first year of retirement then increase that dollar amount each year thereafter to have a high likelihood that your money will last. Today, retirement planning is more dynamic and personalized.

A plan for saving—and spending—in retirement is a bit more like a rocket ship than a simple guideline. The ship launches the day you start saving or investing, or the day you retire. You pick an "expiration" date based on a conservative estimate. For example, plan to live to 95 and save accordingly.

Then, update your plan for either the saving or spending amount, depending on your life, surroundings, or how your investments have performed. Make small changes—or adjust the steering of the ship—as necessary. Most savers and retirees who do this tell us they feel more confident about their retirement than those who don't.

"Consistent saving has made life easier."

"I was fortunate enough to start early, keep risk low, expose myself to rising asset classes, and live below my means. Therefore, I am confident that I will have a long, successful retirement."

Both points are critical. And we find that absent winning the lottery, inheriting money, or starting and selling a successful business, the most reliable paths to both confidence and wealth are starting to save early, being consistent, and staying simple, while staying disciplined with annual (not daily or even monthly) check-ins.

Starting with a plan that has a time horizon, and a disciplined portfolio that matches that time horizon based on your needs and stage of life, along with diversification, are the primary "free lunches" in planning and investing—not watching hours of market news, or believing you need to pick individual stocks and have an MBA in finance. Start saving and investing early. If you haven't started yet, create a plan now for investing or spending, and review it annually.

"I thought I was comfortable in the market, having 20 years of investing experience. I retired in 1999 and ran right into the dot.com bust. Then a late in life divorce. It took me the better part of 15 years to recover. And I never counted on 15 years of 0% interest rates on CDs and money market funds. Now that rates are higher, I'm in hog heaven."

Flexibility is critical. So is liquidity. By liquidity we mean if you need money from your portfolio soon, a disciplined portfolio created to fund withdrawals in retirement should include investments chosen for stability, such as cash investments and high-quality short-term bonds, in addition to investments for income or growth. This money is available to fund spending, if needed, for three to four years if a downturn happens like we experienced in 2000-2002 and again in 2008-2009.

There's a saying, "Markets can stay 'illogical' for longer than you can remain solvent." This is especially important when transitioning into, and living in, the early years of retirement.

Today, interest rates on CDs, money market funds, and high-quality short-term bonds are much higher than they've been in more than a decade. But during the 1999-2000 and 2008-2009 crashes, some investors didn't have time to recover. For some of their investments, feeling confident that they would be able to count on part of the capital and investments when needed was more important than the chance of higher returns over time on those investments. The timing of when they needed the money became as, or more important, than potential return over time on the investments.

Having stable investments in your portfolio can help avoid having to sell in a downturn so you can continue to potentially grow investments over time. We can draw "capital" in retirement from many sources, not just payments from interest and dividends or selling stock in a downturn.

"The closer you get to retirement, the more I start to doubt myself and if I should retire. Some friends tell me I should have retired a couple of years ago, but I still have my doubts."

We hear concerns like this almost every day, and research, surveys, and data back it up: transitioning to retirement is often the most stressful period in people's financial lives.

Have I saved enough? Do I need to go back to work? What if the market drops? How will I go from my decades-long mindset of building savings and wealth to starting to use it—without a paycheck from work to rely on? All of these are scary. And "normal." Meaning, we should expect it.

The media or even our own personal visions have programmed us to think that retirement is the "freedom at the end of a working life." That's not the reality facing many retirees, and that's not a modern retirement.

A productive step to take is to work with a professional financial planner to create your personalized retirement transition plan. This type of plan goes beyond traditional retirement savings by looking at all of your income and assets together, and then plan for how your expenses are covered by what resources, and when. It should go beyond a calculation taking into consideration your goals, concerns, and preferences for how you want to generate income in retirement.

How might you spend your time in retirement? What activities might you take on early in retirement? Might you spend a bit more money early in retirement, while you feel like you'll enjoy it most, while making sure you're also prepared for late retirement, healthcare, and other risks? All of these are part of the plan. No matter how much you've invested or saved, and even if you feel like you're behind, planning reduces fear and increases confidence. You have what you have. Before retiring, make sure you plan.

"My spouse and I both have reliable pensions that cover our essential expenses. I know that if that had not been the case, our accumulation and decumulation planning would have been much more difficult. Having a pension gives us peace of mind."

If you have a pension, consider yourself fortunate and increasingly in the minority. For everyone else, it's helpful to remember that Social Security is a form of pension, and planning on when and how to take it is important. And you can buy other forms of "pension-like" income to support (not necessarily replace) a portfolio of investments. In investing—and probably in life—rarely is "all-or- nothing" the optimal choice. A combination of tools can be most impactful.

The use of guaranteed income from a purchased "pension" (i.e., an annuity) will depend on your health, liquidity needs, and tolerance for retirement risks. Consider all the tools available, especially if you're in good health, expect to live a long life in retirement, and don't have a traditional pension.

"I like having the choice to retire, but I like what I do and would like to keep my mind engaged even at 'retirement age' as much as possible. Having the freedom to walk away from the job is a great thing to have. And I believe I have it or are very close to achieving it today."

Retirement used to mean stopping work. Today, retirement means making work optional. That's a shift in mindset. Retirement no longer needs to be a date for most Americans.

A frequent sentiment we hear from new retirees is, "I didn't plan for what I was going to do now." Retirement is a big change. And like the stress of transitioning to retirement, the stress of that first year or so in retirement is probably "normal."

Most people should expect that parts of retirement may be stressful. For this reason, and others, planning for a "phased" retirement with part-time work and productive activities beyond full-time leisure should be part of your planning process.

Retirement, investors tell us, is not just about the portfolio, timing of Social Security, taxes, or math. It's about having choices, being prepared for them, staying active, and adjusting. After all, what have each of us worked and saved for? To have control, confidence, and choice. All of these are critical, we believe, to a happy and confident retirement.

We learn a lot from talking to people who have "been there," like you, wondering, "Am I prepared to retire? And if so, how will I live once I get there?" The themes shared here point to what we suggest for anyone: Have a plan. Make it personalized to you. Stay flexible and adjust when needed. Those who do so, we've found, feel more confident in their retirement than those who don't. And if you'd like support or a sounding board, get it. You only retire once. No need to do it alone.