Why Your Idea of Retirement May Be Wrong: And What You Can Do To Better Prepare
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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If you’re picturing a short and sedentary stretch of final years in retirement, you may want to think again and make different financial plans for your golden years.
Americans are living longer, more active lives than their parents and grandparents, and this is having a dramatic impact on how much you need to have saved.
According to Andrew Van Alstyne, a financial advisor and owner of Fiduciary Financial Advisors, retirement is actually a relatively modern phenomena.
“If you go back more than 300 years, the day you retired was the day you died, that’s when you stopped working.”
So in many ways, retirement is still a relatively novel concept for us to have to do this level of planning, he explained.
Shorter Lives Meant Cheaper Retirements
“Historically speaking, people’s health and ability to be active declined as they got older, so their expenses kind of fell in line with that,” Van Alstyne said. “As they became less mobile, they tended to become more homebodies, more stagnant, and because of that, their expenses declined.”
Now, however, he said, through medical advances and increased likelihood to be mobile and active, both on a personal level and in the community, retirement expenses are tending to stay on par with what they were before retirement.
Budget To Maintain Your Current Expenses
When Van Alstyne speaks to clients, he advises them to budget to maintain their current expenses and potentially even increase them.
“Now that they have more free time, as long as the resources are there and available for them, they now have the opportunity to enjoy life a little bit more. So you’re not seeing them stay stagnant, just being around the house and watching the Price is Right in the middle of the afternoon.”
In fact, he said, pickleball has become a “massive sport for senior citizens. It’s great because it helps them maintain their mobility, but it’s an activity that has expenses associated with it.”
An active senior life also means you tend to have more activity-related injuries to tend to, he said.
“So there are a lot of those secondary and tertiary expenses that historically weren’t there.”
Think About Your Hobbies and Activities
Budgeting for an active retirement means really thinking about what’s on your hobbies list, your bucket list and other desires.
“So for instance, with some of my clients, travel is a major thing that a lot of people want to do.”
But for a lot of people, he said their retirement goals are not necessarily “exotic and massive expenses,” just small hobbies.
“Some people are perfectly happy [with] knitting as a hobby, which isn’t anything that’s a massive impact to their budget, but it is something that has materials expenses. So it really varies,” he said.
What matters is that you drill down on your goals and try to account for these when you’re in the accumulation stage.
Considerations for Paying It Forward
Van Alstyne said he also sees clients who want to help out their children and grandchildren in various forms with expenses not necessarily related to health and well-being.
“They have positioned themselves to have the resources available where their goal is to just pay it forward generationally for other people.”
The Earlier the Better
The earlier you can begin to plan financially for retirement, the better, Van Alstyne said.
“If you’re able to be diligent with your planning early on in life or earlier leading up to retirement, you’re able to maintain that momentum and that level of planning. It’s not reinventing the wheel.”
This means trying to wrap your head around what your retirement lifestyle will entail and what the true costs of that are.
“The better that they’re able to [forecast those details] then you have a target that we’re shooting for in retirement.”
The big picture items to consider, of course, are housing — whether you plan to continue to have a mortgage in retirement or pay it off — healthcare, vacations, hobbies and all the lifestyle expenses.
You Don’t Stop Spending in Retirement
Van Alstyne warned, “A lot of people think that when they get to retirement, they’re going to automatically just stop spending money. They think because money stops coming in that they’re just going to not do anything. That’s not the case.”
It’s important to realize that there are still going to be expenses in retirement, he said.
“They may not be the same line item for line item expenses, but you have a standard of living that you’ve grown accustomed to and chances are your expenses are going to be somewhat near definitely initially in retirement and as your health holds up, it’s going to continue through retirement as well.”
Account For Inflation
Lastly, he said it’s important to account for inflation.
“It’s not going to be something that’s necessarily going to run rampant the way it has the past two and a half years, but there’s almost a hundred percent chance of it never being zero. So you can have a philosophical debate as to what that number should be when you’re planning, but you need to take it into account.”
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