The Baby Boomer Challenge: Getting Ready For Retirement

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In 2016 the first wave of Baby Boomers turns 70. The youngest are already in their 50s. So if they have not already taken the off-ramp to retirement, they should be thinking seriously about it.

The Baby Boomer Challenge is a mental call-to-arms for the generation that helped change the world. A group that has been defined by passion and a thirst for exploring new things should apply that same zeal toward planning their post-career life – financially and psychologically.

Whether you’re 50 or 70, you need to start thinking about the retirement you want while you’re still working. Talk to your spouse or significant other. Seek counsel from advisors you trust. Start asking lots of questions. These should include:

When do I want to stop working?

Do I want to keep working, but not full-time?

What kind of lifestyle do I want post-retirement?

Where are we going to live?

Do we want to downsize to a smaller home or apartment?

It may well be that some people don’t ever see themselves completely leaving the company. If you have good health and truly enjoy the work, there’s nothing to prevent you from continuing into your 70s or even 80s.

But maybe step away from a top leadership role. Talk with your business partners about coming in a day or two a week in an advisory role. You may find that your presence and experience is still a valued asset they want to retain.

If you are prepared to walk away entirely, changing where you live can help make that mental “break” between your old life and new – and may make good financial sense as well.

Many successful people already find themselves having a second home, whether it’s a house they own in Florida or Arizona, an apartment near children/grandkids or just a time-share in a popular vacation destination.

If that’s already the spot you go to relax, it may be the place where you should spend most of your time.

The Financial Picture

For Boomers’ parents, the old rule of thumb for retirement was they should plan to live on an income equal to 50% to 60% of their working income. This was usually comprised of a combination of Social Security benefits, company pension plan and perhaps some modest investments.

Times have changed, and those metrics have transformed with them. Fixed pension plans are mostly extinct. The long-term liquidity of Social Security is questionable. Half of your previous income may not fund the lifestyle you desire. So your roadmap for saving and investing for retirement needs to keep up with reality.

First, analyze your Social Security benefit depending on the age you retire. Look at your retirement accounts and any other investments you have. Sit down with a financial advisor to determine what sort of income these assets will generate during retirement.

Now that you have an estimate of what will be coming in, it’s time to look at the “going out.” Think about the life you want to live in retirement. It may include travel, a second home near family or things on your "bucket list."

Finished visualizing? OK, now it’s time to put a dollar amount on that. Develop a household budget, based on what you’re currently spending and an estimate of what it will be post-retirement.

Make sure to include insurance and medical costs in this phase. Healthcare is often one of the biggest expenses as we grow older. Consider getting Medicare supplement insurance or fund a health savings account. Life insurance past a certain age becomes an issue of rising cost versus return.

Now comes the daunting part: seeing how your estimates of income and expenses square up.

Many people who perform this exercise immediately recognize a significant shortfall. That’s why it’s important to do planning early on, so you can take action ahead of time.

If you’re still paying off a large mortgage or have a heavy load of credit card debt, that can siphon off a lot of discretionary income during retirement. Initiate a plan -- be it for five, 10 years or more -- to significantly lower your debt obligations.

Start this process as early as possible so you can give yourself choices ahead of time. You don’t want to wait until you’ve filed your retirement paperwork to realize you don’t have the financial security to walk out the door.

Psychological Reality

Don’t underestimate the psychological impact of retirement, especially for business owners and managers. They are by nature can-do people, the type who focus on achieving their goals rather than self-analysis. Having attained so much professional success, they are therefore less prepared to transition to a life that is not defined by their career.

After assisting countless people through retirement, I can speak from authority in saying that many of them experience a loss of self-worth. They are so used to being in the thick of things that having the daily pressures of the workplace suddenly removed can feel abrupt and even traumatic.

One can fill these gaps through exercise, hobbies, travel, watching over the grandkids and other activities. And there’s volunteerism, which is a terrific way for retirees to feel connected and appreciated. I have seen many business executives go into the not-for-profit area, either as a part-time volunteer or a full-time position, and find a whole new identity waiting for them.

Many recent retirees seek professional counseling to get through this phase – something that is not at all unusual. There is no stigma in asking for help, and is something that should be actively encouraged.

Retirement is all about making choices. And prudent Baby Boomers should invest in significant planning ahead of time to maximize their freedom to pick the post-work life they deserve.

Tom Sponsel is managing partner at Sponsel CPA Group.

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