I was chatting with a friend the other day about his retirement — possibly an early one. At age 60, he has worked hard and invested well — and he’s burned out.
He’s received wonderful guidance from his financial advisor, with whom he’d discussed the viability of his investment portfolio. But as he and I talked, it was clear that the key inputs were more nuanced than his portfolio value and asset allocation. There were lifestyle decisions, too.
Will you continue to work in some fashion?
Working longer wasn’t my friend’s first choice. But continuing to earn an income would help him worry less about his portfolio’s ability to last.
Even if he downshifted into a lower-paying or part-time position and couldn’t save as much, he’d still be forestalling portfolio withdrawals. So, when he did fully retire, he could spend without worry.
It would also help him delay Social Security. If he continued to work in a position with healthcare benefits, he could avoid paying health insurance out of pocket until Medicare coverage kicks in. And as much as his job has been exhausting him, he’s had a wonderful career and his professional life seems intertwined with his identity.
Ultimately, my friend decided to pursue a reduced schedule. At 30 hours a week, he could still maintain his healthcare coverage.
For someone else, a clean break could make sense, especially if continuing to work has implications for physical or mental health.
What lifestyle changes will you make?
We also talked through whether my friend’s spending would change when he retired.
He owns a condo in an expensive part of the US and has considered moving back to the Midwest when he retires. This would free up funds that he could plow into his portfolio but would also take him away from his social network and the center of his industry.
Staying put seems like the right call for now, especially as continuing to work is in the mix.
How flexible can you be with your spending?
This is a major dimension in our retirement income research.
If a retiree can tighten spending when the portfolio takes on losses, that improves the portfolio’s ability to last. The reason is simple: Lower portfolio spending during and after losses leaves more to recover with the market.
Our research also shows that flexible spending strategies increase total lifetime spending relative to strategies that maintain static inflation-adjusted spending, like the 4% guideline.
My friend is willing to adjust his spending as he goes. He’s not a big spender, and years of work travel mean that he’s not interested in expensive globe-trotting, unlike many new retirees.
