Retirement Myths

If you follow articles about retirement in newspapers and magazines, you will find that most of them are about "planning" for retirement. Very few are about how people actually manage their retirement life. And almost without exception, these articles are written either by financial planners of one kind or another or writers who interview these planners for their articles. Also almost without exceptions, these planners would tell you that you will need x percent of your pre-retirement income to maintain your "life style" in retirement.

I don't know how many of these planners and writers have been through the actual retirement process, or have thoroughly looked into the lives of those who have, to really understand the issues faced by retirees. The fact is, by the time one seriously considers retirement, one either has enough financial assets to meet that "x percent" requirement, or it's too late to do anything to meet that requirement. In real life, what the retiree must consider is how much income he or she can count on in retirement and how much he/she has to live on and still able to maintain that income level (through investment, for instance)year after year for the rest of his life. In other words, this is a bottom up approach.

There is no such thing as a typical or average retiree. Each retiree has a unique set of circumstances: how much pension income, if any; how much from Social Security; how much investable assets generating how much income; possibility for extra income via part time work; financial liability such as mortgage, car loan or credit card balance; cost of caring for elderly parents or children; health care cost beyond Medicare coverage; etc. Once you have all these basic incomes and expenses counted, you know how much you can count on to live and to play.

"Life style" is a very interesting concept, one that I never thought about all these years. I believe it means what kind of house you have, car you drive and clothes you wear; how often you go to shows and eat out and at what kind of restaurants; how often you take a cruise or a trip to Italy or France; what kind (read: price) of Christmas and birthday presents you give to your kids; these kinds of things. If so, then "life style" not only varies from person to person, it also varies through the life cycle of a person. Your life style changes from the time you are single to when you have a young family, when your kids go to college and when they fly away from the nest. During the same period, you income mostly likely changes, hopefully increases.

When you retire, unless you are a corporate CEO or someone with a golden parachute, your income is like to decrease substantially but then your expenses are likely to decrease as well. On top of that, the "contents" of your life change too: you no longer have to commute to work and climb the ladder; you no longer need to keeping up with the Jones; you (hopefully) no longer need to support your offsprings; you social life becomes more personal and informal. By the same token, you have more time on your hand; you may not be as energetic as you used to be; you are likely to have new activities that you enjoy, and which may even be income-producing. There is no question your way of life will change upon or soon after retirement, especially if you have always look forward to retirement as a chance to turn to a new page in your life. So the question is whether you want to maintain the same life style in your retirement as at the height of your career even if you can afford to.

I am sure some financial planners are equipped to help you grow your nest eggs and make it last as long as possible. But to pre-determine a certain percentage and to assume that you want to maintain the same life style is just not real.