Oran Hall | The stages of retirement
ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER
Retirement is not a one-off event; it has several stages, each having its special features. How fulfilling it is depends on how the process is planned and how the plan is executed.
Not all retirees will necessarily pass through all the various stages nor enjoy the same level of satisfaction.
Although the level of financial resources available to fund the retirement lifestyle at its various stages is important, that is not all that matters. Emotional issues play a critical role in the life of the retiree and these must be managed well to get optimal satisfaction from the experience.
An important phase is that which comes just before retirement begins. During this phase, it is important to ensure that the requisite financial arrangements are in place. The investment portfolio, for instance, should be such that the risk of eroding its value is reduced.
The primary concern should be preservation, but there should be adequate arrangements for cash flow to fund the new lifestyle as well as provision for protecting the purchasing power of the portfolio with good equites and capital growth unit trust investments, for example, though not to the same degree as in the accumulation phase.
This is often a period of anxiety, anticipation and winding down. Where necessary, retirement counselling should be sought in the build up to the new experience, and a decision should be made regarding whether retirement is to be a clean break from regular work, or whether it will involve some work
The beginning of retirement can be euphoric and liberating, but it can be chaotic and daunting for those not adequately prepared financially and emotionally.
Matters relating to accommodation should be settled by then. Is there to be re-location of residence, scaling down of living accommodation, or will arrangements remain unchanged? Focusing on old hobbies or finding new ones can help in this period.
One big financial decision that has to be made in respect of the early, or honeymoon, period of retirement is how lump sum pension payments are to be handled. I am here referring to the payment of 25 per cent of the retirement funds which is often available to retirees.
The desire to realise many long-time dreams – travel, adventure, asset purchase, for example – if not managed prudently could lead to serious erosion of this big payout. A portion could be used to establish an emergency fund and some should be invested wisely. This can be used to build a buffer against the corrosive effect of inflation on monthly pension payments in later years.
When all the excitement passes, disenchantment may set in. It is likely the retiree could pass from the emotional peak to the trough. To avoid feeling let down, bored, lonely or useless, it would be worthwhile to keep busy and keep connected to family, friends and groups of retirees where they exist. In fact, it would not be a bad idea to get such a group going, for example, with retirees who had the same employer if such a group does not exist.
The good news is that this period can pass as it is quite possible to experience a period of renewal and re-orientation leading to a new routine. The retiree can find a new purpose and identity but much self-examination may be needed to arrive at this point.
As the years pass, it is natural to expect physical decline. The mind may also slow down. This happens earlier for some retirees than others and determines the extent to which they pass through the various stages of retirement.
It is important to still have financial stability at this stage lest the ability to address other constraints is compromised. In fact, in some cases, it may become necessary to employ assisted living services, which do come with a cost.
Non-financial issues are important in creating a happy retirement. A member of my community, now well over 90, told me that loneliness is the most challenging part of living long: the people you know die or go away. And, I may add, the children and grandchildren are often far away too. But loneliness is not the preserve of the 90-year-olds.
Barring the many unforeseen issues which do arise, more for some people than others, how satisfying life during retirement turns out to be depends to a great extent on retirement planning, which is a lifelong process. But that is only one part of the script.
Ultimately, life planning, which encompasses the financial and the non-financial aspects of life transitions, including retirement, is what really determines how retirement turns out. The earlier this plan is crafted, the better the prospects of a rewarding retirement experience. Knock wood.
Oran A. Hall, principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.