Retirement planning is more than just saving money

Want to live a long, healthy, prosperous life? Then you may want to read a recent report from Merrill Lynch and Age Wave that identifies seven life priorities you should focus on. The report, “Finances in Retirement: New Challenges, New Solutions,” shows how your financial strategies integrate with other important aspects of your life. It’s based on a survey done in August 2016, with more than 4,800 adult respondents.

Let’s take a brief tour through these seven key areas:

Finances in retirement: Seeking peace of mind

The report summarizes the significant trends and challenges that we’ll face in the immediate future:

  • How longer lives lead to longer retirements that need to be financed
  • The decline of traditional pensions
  • Questions about Social Security’s sustainability
  • Reliance on personal savings that may be inadequate for many Americans

The report presents an interesting perspective: Retirement may be the biggest purchase of your life. Compare these average costs that the report estimates:

  • A college education: $83,400
  • Raising a child until age 18: $245,300
  • A home: $278,300
  • A retirement: $738,400

Of course, all of these amounts are averages, and your costs can vary substantially. But for many people, retirement will be the expense they’ll need the most money for. 

The report noted that most people in the survey (88 percent) want peace of mind with their finances, while just 12 percent want to accumulate as much wealth as possible. Unfortunately, this peace of mind is hard to attain: Many Americans second-guess their financial decisions, and many lack the financial knowledge, role models and disciplined behaviors that could help them feel secure about their futures.

For most people (57 percent), peace of mind means living comfortably within their means. The biggest financial worry? More than 80 percent of respondents age 50 and older said “a health disruption for my partner or myself” and “a large unexpected expense.” Which brings us to the next topic.

Health in retirement: The biggest wildcard

Retirees know the importance of good health. Consider these stats:

  • 81 percent rank good health as the most important factor for a happy retirement.
  • 86 percent agree than maintaining or improving their health can help them manage financial costs for health care.
  • 78 percent say their retirement could be better if they took excellent care of their health.

Here’s perhaps the most telling statistic: Retirees who report their health as excellent or very good are twice as likely as those who reported their health as fair or poor to be exercising, eating nutritiously, maintaining a healthy weight and staying socially connected.

The most feared disease in retirement? Just over half cite Alzheimer’s and dementia, more than all other major diseases combined. While no medical cures exist for Alzheimer’s and dementia, current research supports the above healthy actions as the most effective means of preventing, delaying and mitigating Alzheimer’s and dementia.

If you’re worried about your health in retirement, those actions are a good place to start. Focusing on improving your health is a good use of your new-found time in retirement.

Family in retirement: Love, ties, tension

The Merrill Lynch/Age Wave study found that family provides the greatest life satisfaction for people of all ages, much more than the other life topics it identified. Yet family responsibilities can also provide tensions and challenges, such as caring for aging parents, helping adult children and grandchildren with care and money, and dealing with blended families caused by divorce.

One of the most fruitful areas for improvement is better communication between all family members: spouses, parents and adult children. The vast majority of survey respondents report having no in-depth discussions with family members about important topics such as net worth, how to pay for long-term care and inheritance plans. If you haven’t initiated these conversations with your loved ones, now is a good time to start.

Work in retirement: Paycheck, productivity, people

Almost half of today’s retirees currently work, have worked or plan to work in retirement. Seven in 10 pre-retirees say they plan to work in retirement. Some people need to work to make ends meet, but many Americans seek part-time work as an enjoyable aspect of retirement, as a source of extra spending money, social connections and the chance to stay mentally sharp and physically healthy.

Merrill Lynch and Age Wave asked working retirees for their advice to pre-retirees who are considering working in retirement. Three-fourths recommend being open to trying something new and being willing to earn less in order to do something you truly enjoy.

Home in retirement: Right size, right place, right lifestyle

For many Americans, their home is their largest asset. More than half of Americans age 65 and over own their homes without a mortgage, and the average home equity is more than $200,000, though most retirees say the emotional value of their home is greater than the financial value.

Possible uses of home equity include:

  • Enjoying your home rent-free
  • Downsizing, upsizing or renovating
  • Making improvements to help you age in place
  • Taking out a reverse mortgage to finance renovations or help make ends meet, particularly if other financial resources are inadequate to cover your living expenses

Almost two-thirds of retirees have moved or anticipate moving in retirement. The most prevalent reason cited for moving is to be closer to family (reported by 29 percent), followed by wanting to reduce living expenses (26 percent). The No. 1 reason retirees wouldn’t move is that they love their homes (54 percent) followed by family already being nearby (48 percent).

Pre-retirees and retirees will be best served by exploring all their options for utilizing home equity, even if their eventual decision is to simply stay put.

Giving in retirement: Money, minutes, meaning

Two-thirds of retirees say retirement is the best time in life to give back to family and society. The Merrill Lynch/Age Wave report estimates that over the next 20 years, America could receive a “longevity bonus” of donations and time from retirees worth an estimated $8 trillion.

Their report identifies three Ms of giving:

  • Money: charitable donations
  • Minutes: volunteering
  • Meaning: passing along values and life lessons

Planning your giving, whether it’s time or money, is an important part of your retirement planning.

Leisure in retirement: Into the freedom zone

The Merrill Lynch/Ave Wave report points out that Americans are workaholics during the years they’re employed, taking the least amount of vacation days compared to the rest of the industrialized world. For the newly retired, leisure can take some getting use to -- the study found that it can take two to three years for new retirees to fully hit their stride in retirement.

According to the report, leisure in retirement is ultimately about experiences. The overwhelming majority of retirees (95 percent) said it’s more important that they have new experiences rather than acquire more things.

Course corrections

The report also identified possible changes that retirees and pre-retirees can make in all seven of the life priorities identified above. The report identified three types of course corrections:

  • Small steps that can add up over the years
  • Direct trade-offs of one activity or expense for another
  • Larger, one-time changes to a retiree’s situation that will significantly affect their financial status and cost of living

Of course, these corrections won’t apply to everyone because they’re based on retirees’ circumstances, values, needs, preferences and aspirations. But it turns out that being flexible, open and resilient are key personal characteristics for anyone who wants a successful retirement. (See the report for details regarding the course corrections.)

The Merrill Lynch/Ave Wave report provides many more details on the seven life priorities, and it’s a valuable source of information and ideas. Reading it is a good use of your time. It provides an excellent road map to help you make sure you’re getting your money’s worth from your large “retirement purchase.”  

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.