by Wes Moss
Change is part of life. There’s no avoiding it, and the energy spent trying is wasted. As we plan for retirement, it’s essential that we accept this reality and make the most of what’s thrown at us. With the right attitude, change doesn’t have to be a bad thing.
We previously covered ten lifestyle catalysts and how they might influence happy retirement planning. Today, I’d like to focus on the impact of ten financial ones. As a reminder, we deem the Retire Sooner Richter Scale (RSRS) as a measure of total catalyst impact (life changes + financial changes) on a scale from 1 to 10. Based upon our experience and opinion, listed below are ten common financial catalysts for folks to consider with our RSRS number associated.
1. Job Change/Retirement Package.
This development can alter retirement timelines and financial strategies. A decision about your retirement funds is necessary. You may be given a few options with varying allowance or buyout alternatives. Do you leave them in the 401k, rollover to an IRA, or take a monthly pension or a lump sum? We believe this rates a score of RSRS = 7 to 9
Habits of The Happiest Retirees: HROBs (the happiest retirees on the block) have multiple streams of retirement income.
You’re not looking for one formidable waterway. You want several tributaries flowing together to form a mighty, life-sustaining river. Those tributaries could include multiple pensions, Social Security, rental properties, investment income, hobby income, or part-time work.
2. Sale of a Business.
The financial impact of this decision is potentially massive, as it could fuel the bulk of your retirement. You’re also walking away (to some extent) from your life’s work. Therefore, thorough brainstorming and planning must be done before a determination is reached. How do you structure the deal? What tax payments will be triggered? How should you invest the money? How will the sale alter your time and sense of purpose? We believe this rates a score of RSRS = 9
Habits of The Happiest Retirees: HROBs are tomorrow investors, not today investors.
They don’t make decisions based on emotion, and they’re not fueled by fear or panic. Instead, they look at the bigger picture, understanding that volatility is their friend. The happiest retirees know how to find a strategy and stick to it. They’re in it for the long haul.
3. Inheritance.
This one you don’t have much control over, and until it happens, not much is to be done. Many families don’t even like to count on inheritance. The good news is that as long as you have some understanding around the prospect, the eventual financial planning will likely be straightforward. Please note that I’m not putting this in the category of a spouse leaving you money because most (not all) planning should be done together if you have a significant other. We believe this rates a score of RSRS = 4
Habits of The Happiest Retirees: Happy retirees discuss money, but they don’t obsess over it.
Happy retirees spend, on average, one or two hours per month having an honest, constructive conversation about money. Once you spend more than 3.5 hours a month, happiness levels begin to decline. Retirees who reported never discussing their finances were twice as likely to be unhappy. The takeaway? Talk about your money, just don’t talk it—or each other—to death.
4. Medicare/Social Security/Retirement Account Access Age.
I like to call them “catalyst birthdays” – 59 ½, 62, 65, 67, and 73. Access to your retirement money, potential Social Security start age, Medicare start age, Full Retirement Age (FRA), and Required Minimum Distributions (RMDs) all hit in these critical milestone years. Know the rules before you get there so you can be nimble and decisive. We believe this rates a score of RSRS = 5 to 7
Habits of The Happiest Retirees: HROBs know how to use the Rich Ratio.
Divide how much you have (your total monthly income net) by how much you need (your projected monthly retirement budget). If your Rich Ratio is greater than 1, you’re rich. If it’s under 1, you’ve got room for improvement.
5. Unretirement.
Over 1.5 million Americans have seemingly unretired over the past two years. This fact has enormous implications: more money, savings, re-socialization in a work capacity, and a fresh second-act career.
Chris Farrell, a recent guest on the Retire Sooner podcast, was early to notice the trend. He noted that Baby Boomers were extending their working lives with new careers, entrepreneurial ventures, and volunteer service. I think it’s safe to say the following generations are or will be, doing the same. We believe this rates a score of RSRS = 6 to 7
Habits of The Happiest Retirees: Happy retirees have unlocked the power of the 4 Percent Plus Rule.
Formerly the 4 Percent Rule, nowadays, it’s sporting a little extra percentage. Applying this rule of thumb is the most straightforward way to know how much you can safely spend during retirement—and it’s the guiding principle for what portion of your retirement portfolio you can withdraw yearly, adjusted for inflation, to ensure you will never run out of money.
6. Investment Performance.
Significant market downturns or upturns can impact your overall retirement readiness if you haven’t prepared for them. Plan for the rainy days, particularly a sustained stormfront, to protect your nest egg from existential threats. With the appropriate planning and thought, you can hope to minimize the damage. We believe this rates a score of RSRS = 3 to 9
Habits of The Happiest Retirees: Dividend investing is one of the most powerful tools in the happy retiree toolkit.
Stock dividend income has proven to be a good hedge against inflation over the better part of market history. HROBs know this, and they use dividend income for recurring cash flow they can live on.
7. Tax Law Changes
Adjustments in tax codes can impact the efficiency of withdrawal strategies. We believe this rates a score of RSRS = 2
Habits of The Happiest Retirees: The happiest retirees both believe and give.
Many donations are tax-deductible, but that’s just the cherry on the sundae. Most faith-based communities have ample opportunities for retirees looking to give their time, energy, resources, or all three to causes they believe in. Turn your beliefs into action, either by tithing and offering financial support or by rolling up your sleeves and getting your hands dirty. You might offer to serve underprivileged children, food-insecure communities, women’s shelters, people suffering from homelessness or mental illness, or an animal rescue. Go where you’re called.
8. Debt
Taking on new debt or paying off existing debts will invariably affect retirement cash flow. We believe this rates a score of RSRS = 7
Habits of The Happiest Retirees: HROBs have either paid off their mortgage or will soon.
Mortgage payoffs are hotly debated in financial advising circles, and people have vastly different opinions. I believe the happiest retirees enter retirement either mortgage-free or with a payoff in sight (ideally within five years). They’re breathing easily, without the ever-present specter of the bank hanging over their heads. To decide whether you can safely shed your mortgage, I recommend using the One-Third Rule: if you can pay off your mortgage using no more than one-third of your nonretirement savings, go for it.
9. Long-Term Care Needs.
Investing in long-term care insurance or planning for potential assisted living or nursing home care can have significant financial implications. There are varying schools of thought on which strategy is the most productive and effective. We believe this rates a score of RSRS = 7
Habits of The Happiest Retirees: Happy retirees are willing to have a hard conversation.
Discussing long-term care doesn’t mean you, your parents, or your adult children have to decide right away. There is value in the simple act of talking and acknowledging current realities and potential futures. A calm and measured discussion shows that the involved parties support each other. It also provides the space for the productive expression of feelings while laying out goals, values, and preferences. NOTE: this is not the time to sling insults. This type of “early-stage” dialogue builds trust and strengthens your relationship. It will probably also ease the way for more detailed deliberations and decisions in the future, no matter how near or far.
10. Estate Planning Changes.
Revising wills, trusts, and beneficiary designations can have tax and inheritance implications. In an episode of my Retire Sooner podcast, I gleaned knowledge from author and estate planning guru David York. He said that instead of focusing on the mechanics, folks should ask why they’re doing what they’re doing, who they want to impact, and how they want to do it. We believe this rates a score of RSRS = 5
Habits of The Happiest Retirees: The happiest retirees want to give, but not too much.
I want my kids and my clients to have what they need, but they’ve got to stay in the game. It’s no fun to sit on the bench; there’s too much life to be lived.
Bottom Line
Much like the lifestyle ones, some of these financial catalysts have the potential to consume your daily life, and others are easier to manage. But regardless of their economic weight, it’s important to remember that you have choices. Foresight, diligence, and communication can ameliorate some tough situations.
Put the right tools in your toolbox to be ready for any maintenance. Whether it’s the simple tightening of a screw or a complete remodel, metaphorically speaking, you’ll at least be prepared for the challenge.
This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions. The views and opinions expressed are for educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions.