In this post, I am once again going off topic from equity compensation. I thought I would hit on a topic I am rather aware of from seeing it with my own clients and also clients of other advisors I know. The short version is I want to share some thoughts on some of the biggest retirement mistakes I’ve seen in my years. And this won’t be things like not starting your savings early enough or choosing the wrong Social Security start date. No, these are mostly more qualitative mistakes I’ve seen, although you can quantify them to an extent. Let’s get to it. Oh, these are in no order of importance. Just some observations from me.
First mistake is not staying mentally engaged in retirement. Yes, it is that simple. However, this would be the world’s shortest post if I didn’t give more detail.
I’m a huge proponent of staying mentally active in retirement. Whether it is volunteering, picking up a part-time job, or auditing classes at your local college. The key here is to keep your brain challenged. Too often I’ve seen and heard of clients who stopped working and then spent their days watching Fox News all day. Or just hang out on Facebook. Or whatever it is that results in them shutting their brain down.
Think about it. You went from being in school the first 20ish years of your life to working in hopefully some sort of job where you had to use your brain often. This may have been 30, 40 or more years at 5 days a week. Plus, the mental activity associated with running a household. You know, making sure appointments are not missed, homework is completed, bills are paid, etc. Then, at some magical age retirement hits and you shift to a routine where your brain is just not used as much as it was before.
Studies show staying mentally active and maybe even trying new things can help stave off dementia. Heck, these studies show it is also good for people with dementia currently.
The image I have in my head when someone tells me they are going to retire and just do nothing is a flashback to when I broke my leg in high school. I was in a cast for a month. When they removed it my calf just hung there. Before then my legs were strong from years of playing soccer and being active. However, just 4 short weeks turned my leg muscles into mush. Imagine what happens to your brain.
Mistake number two is one I wrote about some time ago in my blog and had quite a few emails about it. This mistake is moving full-time to where the kids are, especially if it involves helping to raise the grandkids. Now, I get it. There may be extenuating circumstances. However, I am talking about the people who pack up everything, sell their house, leave the community they’ve known for years to move across the state or country to do it over again.
The results are almost always the same. It is great initially. However, if the kids move again it usually results in the parents moving once again. Ultimately, and this is where I hear the biggest comments, the grandkids eventually grow up.
I’m thinking of a story from an old high school classmate who said her parents retired and decided to move from the community they had lived in for decades to help their one child’s family. In this case it was to help raise the grandchildren. All was good for about 16 years. Then the grandkids started driving and didn’t need the grandparents to be there anymore. Unfortunately, this is the point at which the grandparents realized how much they sacrificed and left behind when they moved. It was then their relationship became worse. Or maybe it was always bad, but they were too busy to realize.
Regardless, think twice or a few more times if you are considering moving permanently to where your kids are once you retire. Something I suggest to clients is to rent a house for a short period where the kids are. This trial run is certainly easier now with things like VRBO.
Number three is one we all know a story about. You didn’t act quickly enough to enjoy retirement once you entered it. That wasn’t very clear. What I mean are those stories about the person who retired, but never had a chance to enjoy it because they ended up getting sick or even passing away.
I’m sure you know a person or two who retired and shortly afterwards they became too sick to travel or do whatever it is they wanted to do in retirement. You know, maybe they ended up with a back too bad to do any golfing and that is all they wanted to do in retirement.
An extension of this are the stories of people who worked insane hours up until retirement and never took time off. Then once they hit retirement something tragic happened and they were not able to enjoy everything they worked so hard for all those years. Heck, that was the story of my first job out of grad school. The previous boss in my organization worked a ton for decades without ever taking time off. He finally retired and took a trip out west. Unfortunately, he passed away on the trip. I think he was just a few months into his retirement.
Heck, my mom was diagnosed with a form of ALS shortly after her retirement and she passed away a few years later. Fortunately, she had been doing some trips before then so while she didn’t get to enjoy all of her retirement years, at least she wasn’t working 70 hour weeks without ever taking a vacation.
A modification I’m starting to see connected to this mistake is clients working fewer hours as they get closer to retirement and taking more time off now before they retire completely. In these cases, they often work longer in number of years, but fewer overall hours. I guess you can call it a quasi-retirement.
Regardless which route you go, be sure to enjoy life while your health and finances allow you do enjoy it.
The final mistake I want to mention is not retiring on your terms. This topic came up in a recent client conversation. They mentioned their friends all say they will retire when their advisors tell them they have enough saved. I guess I get the concept, although it is a very old school one.
Basically, these people are holding off on retirement until their advisor says they have enough money saved to retire. My assumption is this is based on the old model of what I preach against – letting someone else decide your retirement goals. It also plays into the concept I preach against of just hanging everything up suddenly. Yeah, maybe there are some vacations and lots of rounds of golf, but what if there were a better option? You know, to retire on your terms and not just because someone says a certain number is met based on an antiquated and outdated definition of retirement.
I’m not sure what to call it, maybe Lifestyle Retirement is the right term. Simply, designing a retirement based on your individual needs, wants and goals. You know, maybe you are turning 60 and instead of busting your butt for another 5 years before you retire, you decide you want to ramp things down a bit at work and take more time off now. However, the trade off is you work for another 8 or 10 years before you fully retire.
In this scenario, you get to stay mentally engaged through work, start checking off items on the bucket list now, take advantage of your health while it is still there, and oftentimes, improve the odds of a successful retirement by delaying when you have to start accessing your retirement savings. This is what I call a win-win, although I cannot stand that phrase.
The main point with this Lifestyle Retirement, and I cannot stress it enough, you decide when you want your retirement to begin, what you want it to look like, and if it isn’t like what your advisor or all the TV commercials say retirement is supposed to be, so what. It is your life and your retirement should be designed around your life.
Alright, I will stop here. Time for me to put the soapbox away before I start talking about mistakes like lump sum distributions and buying awful annuity products as “free” dinners. That’s too much negativity. Something I’ve learned from watching both my clients but also talking to other advisors is to make sure your retirement is your own. Mistakes will happen, but it is best to making any self-inflicted ones.
As always, thanks for taking the time to read this. Please do not hesitate to reach out if I can be of help with your equity compensation-related questions. The easiest thing to do is to click the little green box that reads “Schedule a Meeting” that can be found at the bottom of every page on my website. Or, just click my Calendly link right here.
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.