Plan for life, not retirement

When you’ve been planning for retirement for 20, 30 or even 40 years, it can get very intellectual. Over decades of focusing on abstract goals, retirement savings often becomes more about hitting certain numbers than staying open to the dynamic, ever-changing rhythms of life.

So you fixate on:

• The 70% rule
• The 15% rule
• The 10x rule
• The 4% rule
• Along with a host of other numbers

But life is never as certain as math, and neither is retirement. It changes person to person and decade to decade.

The changing face of retirement

The common story of retirement, the one that goes with the rules and the platitudes, is simple:

At John’s retirement party, he gets a card filled with well-wishes from his co-workers and a watch from his boss, then goes home to his wife, June. Both recently turned 65 and decided to retire. They’ve got three kids living not far away and grandkids they’re looking forward to spending more time with. 

Over their 45 years in the workforce (40 of which they’ve spent married), they’ve been wise with their money. They’ve put away 15% of their income each year, which has resulted in savings roughly 10X their annual income. So, they have enough money that withdrawing 4% of their savings will amount to about 70% of their pre-retirement income. With the tax advantages of being in a couple, they know they have plenty of money to live their last decade (or so) comfortably and leave money for their kids.

But that’s just not what retirement looks like these days (if it ever did). Even if your name is John and you retired at 65 after doing everything right, chances are that you’ll spend more time in retirement than a decade. The average lifespan today is around 81, with plenty of people living beyond that, often with increased medical demands.

And that’s not the only change. Today, retirees:

• Like to travel
• Are more likely to be divorced
• May opt out of work earlier

Which is why focussing too closely on arbitrary goals may blinker you to what’s really happening, and what you want from your golden years.

Let’s take a closer look at some of those rules to see how they’ll work for you.

Balancing withdrawals

The 4% rule deserves some credit as a rule of thumb. But like any hard and fast guides, it doesn’t perfectly fit any retirement.

The 4% Rule: A retiree should be able to withdraw 4% of their retirement savings in the first year after retiring, and then withdraw the same dollar amount, adjusted for inflation, every year thereafter for approximately 30 years.

In fact, this rule has an equal chance (10%) of leaving a retiree with the same amount of money at the end of retirement as it does of leaving them with 6 times the amount at the end.

On the other end of the spectrum, some experts insist that with early retirement, like those who are trying to FIRE work, the 4% rule is too high, and could leave retirees under-funded at the end of their retirement. They suggest a 3.5% rule may work better.

While the former (too much savings) is better than the latter (not enough), you should have a plan that allows you to enjoy your retirement as much as you can. That means the 4% rule should be treated as more of a guardrail to keep you in the safe zone of (relative) spending, which requires mid-course adjustments down or up when the market calls for it.

Health uncertainty

In the same way you want to do the most with your savings, you want to ensure you make the most of your healthiest post-retirement years, i.e. your early retirement years. 

The transition from the constant in-flow of money during your highest earning years in the workforce, to the constant outflow of money in retirement can persuade some to sit on their cash, just in case.

However, retirement is your time to start checking off those bucket list items. And the longer you wait to enjoy yourself, the more likely it is that all those things you want to do become impossible.

So, once again, balance is called for here. You want to confidently spend on the things you’re passionate about early on in retirement, while still maintaining enough of a nest egg to deal with any health care costs in the future.

There is an argument here for putting off government benefits until later on in retirement, ensuring you have that extra bit of cushion later on in life to deal with those possible health issues. 

Greater government benefits also help us avoid big investment decisions later on in life, when our cognitive abilities may be deteriorating. Research shows retirees struggle with financial decisions up to 6 years before a dementia diagnosis.

End of marriage

Whether grey divorce or the untimely death of a significant other, losing your partner in retirement is more than just an emotional loss—it’a be a financial one as well. 

When you’ve planned your retirement around income splitting, it can be hard to reconcile your new reality to your plan, leaving you trying to make hard decisions during a time of grief.

So though it may be difficult to face this reality when you’re still young, make sure your estate plan takes into account the eventuality of losing one partner. This will help you prepare for the worst and ensure you’re thinking clearly when making these decisions.

For a deeper dive into this topic, read our article on income splitting in retirement.

Balancing your retirement

Life is never as clear-cut as the rules we create. Not only is there the usual wiggle room and what-if’s but there’s personal preference to take into account as well.

If you’re a homebody who just wants to spend time with the grandkids, then seeing your savings go up through retirement may just be fine for you. After all, you’ll have more to pass on to them. However, if you’ve got big dreams and kids who are doing quite well on their own, you may prefer to be hovering close to $0 when all is said and done.

At the end of it all, it’s never about the rules. They’re just guidelines. The most important part of your planning is ensuring you’re happy in your golden years.