Planning for life after work is a process, rather than merely an event. Preparing for financial independence later in life involves envisioning what your life will be like without a work routine or running a business or a professional practice, or a paycheck.
“Financial Independence” means working only because you enjoy it, not because of financial need. The more you can define how you will spend your time after you “hang up your spurs”, the better prepared you will be. Identifying the “how” will help you to develop the kind of future life you dream of having during your “encore years”.
Sometimes a person starts to think about retiring after experiencing an “Aha!” moment or a triggering event such as a significant birthday, health issue, the death of a loved one, a career setback, feeling that you have accomplished many professional goals, the sale of your business or a sudden wealth event like a major inheritance. Feelings of liberation from prior responsibilities and the newfound empowerment to pursue goals can be mixed and sometimes can be overshadowed by second thoughts, doubts or concerns that retirement may not be what you expect.
Ideally, planning for financial independence begins at least ten years before you want to stop working because of financial need. Irrespective of how soon you wish to become financially independent, getting started is the most important step.
Planning for financial independence involves much more than accumulating assets to fund your expected life span. It also includes the non-financial aspects of life which are just as important—or even more important—as the money part. One CCMI client put it this way, “In addition to knowing how to allocate our funds, we need to learn how to allocate our time and energy as we age. We should travel while we have good health. We aren’t sure we want to spend time weeding and tending to our home when that energy could be allocated elsewhere to do something really enjoyable.” Thus, retirement planning is definitely about more than just dollars and cents!
Yet despite the financial and physical freedom that retirement offers, there are three questions posed by the MIT AgeLab that will predict the quality of life after work:
- Who will change my light bulbs? You need to plan early for how you will maintain your home if you plan to stay there indefinitely.
- How will I get an ice cream cone? How will you be able to easily and routinely access little experiences such as this to maintain the quality of your life? Will you age in a community where there are ample activities and people to keep you engaged, active and having fun?
- Who will I have lunch with? Women are known to be much better at organizing social events than men; living alone without a circle of friends for social support can lead to depression and isolation. How will you maintain an adequate network of friends as you leave the work world and as you age? Planning where and with whom to retire is as important as the cost. For many men, living in a congregate care community fulfills the need for social support and activities, versus staying in their own homes.
Clearly, being challenged and active is now being pursued not only for longevity purposes, but for quality of existence as well.
Thus, there is no firm rule that at a certain age, one must discontinue generating earned income. If a person is passionate about what they do and loves the challenges that their work provides, assuming that there are no age limits to the job, it is fine for them not to retire as long as they remain physically and mentally healthy. We have all heard stories about the 90 year old person that retired and died shortly after retiring. For some people, working at a job they love would be better than “active retirement.”
However, if you plan to retire in the next ten years, it’s time to start the planning process and find competent resources to help you make financial and personal well-informed decisions regarding retirement. By planning early, you can have the life you envision during your encore years!
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
How can we help you?