February 23, 2022
Clifford Swan partner Lloyd Wong recently spoke on this topic as a guest on gerontologist Mary Winners’ “Visionary Aging” podcast.
What do a fitness tracking device, a budget, and an appointment calendar have in common? They are all tools to motivate you and monitor your progress towards securing a successful retirement.
"We believe it is best to approach retirement so that one is healthy enough to enjoy life, has sufficient funds to be free from financial worry, and can spend time in life-satisfying ways with cherished companions."
We believe it is best to approach retirement so that one is healthy enough to enjoy life, has sufficient funds to be free from financial worry, and can spend time in life-satisfying ways with cherished companions. The three distinct pillars to support these qualities in retirement are health, money, and relationships. Most people focus on money as the sole component to a rewarding retirement, largely ignoring the health and relationships pillars. However, all three are important and require upfront investments – sacrifices of energy, money, effort, and delayed gratification now for enjoyment later.
To promote health in retirement, develop basic healthy habits. This includes eating right, sleeping enough, and getting adequate exercise. Since it’s vital to visit medical professionals frequently enough for them to diagnose any diseases and make proper recommendations for health care, establish good relationships with knowledgeable medical professionals and remember to set up routine appointments. Daily habits and regularly scheduled medical appointments are simple ways to build up your health pillar.
Also consider how your health needs may change over time. Have conversations with loved ones, trustees or designated private fiduciaries so that they know your preferences regarding where you plan to age (for instance, at home or at a facility). Special health concerns such as dementia may also influence these preferences. Create or update your health directives and ensure your trusted contacts know where to find them. These proactive measures to solidify your health pillar will increase your peace of mind.
Length of retirement can be long, perhaps longer than people anticipate. For the money pillar, the primary objective is to safeguard against outliving your money. Additionally, financial strength provides flexibility and autonomy to live comfortably during retirement – and hopefully also have funds available for what matters to you beyond the basics.
There are numerous ways to build up the money pillar of retirement. Common practices include starting to save early to take advantage of the power of long-term compounding over time, maximizing contributions to tax-advantaged retirement vehicles during your working years, being disciplined in your spending in order to remain debt-free, and delaying claiming Social Security benefits until at least reaching Full Retirement Age. Additionally, it is essential to set appropriate asset allocations for your portfolio so that it is aggressive enough to grow when you are still working and is conservative enough to withstand withdrawals to meet living expenses during retirement.
"...it is essential to set appropriate asset allocations for your portfolio so that it is aggressive enough to grow when you are still working and is conservative enough to withstand withdrawals to meet living expenses during retirement."
Keep in mind that spending requirements often vary throughout retirement. The initial phase may require the same amount of spending or more than before retirement as retirees are still physically and mentally capable of living an active lifestyle, replete with hobbies and travel. As retirees age and physically adjust to lower energy levels, they may start to slow down, contributing to lower spending during this phase of retirement. In the final phase (typically ages 85+), choices become more limited due to a decline in activities resulting from diminishing abilities, whether physically, mentally, or financially. This phase may require an increase in spending or require additional support from family, government, or health care agencies.
Money can make you happy, but only up to a certain point. A Princeton study1 published in 2010 found that $75,000 (approximately $97,300 in today’s dollars) is a rough rule of thumb for how much annual income it takes to be happy. Researcher Michael Finke studied longitudinal data going back to 1994 on 20,000 retirees from the University of Michigan Health and Retirement Study to find that $4 million is the peak dollar amount above which money doesn’t necessarily provide any additional positive psychic satisfaction2. Spending money on stuff doesn’t necessarily make you happy; that sort of happiness can wear off after a while. Instead, social spending – the spending of money and leisure time with friends – creates meaningful memories and more lasting happiness.
"...$4 million is the peak dollar amount above which money doesn’t necessarily provide any additional positive psychic satisfaction."
The Harvard Study on Adult Development3 shows that “Close relationships, more than money or fame, are what keep people happy throughout their lives.” A meta-study4 by Brigham Young University reveals that adults get a 50 percent boost in longevity if they have a solid social network. Social relationships are thought to help improve health either by buffering individuals from stressful situations or creating a norm of healthful behaviors.
"...adults get a 50 percent boost in longevity if they have a solid social network."
The results of these studies are not surprising. It is imperative to create and maintain relationships to extend the possibility of a long and rewarding retirement. Your spouse can often be the greatest source of the relationships pillar. However, if your marriage isn’t strong, those weaknesses will exhibit themselves during retirement; if it is strong, that relationship can enhance other relationships as well. Surprisingly, spouses and friends can be more of a source of psychological wellbeing than your own children (and unlaunched adult children can be a headwind).
Beyond family, relationships often develop by happenstance through your social interactions through your spiritual community, neighborhood, job, volunteer work, hobbies, and creative pursuits. Maintaining social relationships and connection is necessary for a gratifying retirement. Volunteering can enhance your ties to the community.
Having as few as just three to five close friends5 can provide the infrastructure of a robust support network. The quality of friendships matters just as much as the quantity of friendships you have. Frequency of contact can help deepen and strengthen relationships. These relationships need to be nurtured and maintained so that they remain intact. However, these are the very relationships that can often be neglected or ignored during your working phase of life. If you find you no longer have the social network you once had from work you may need to develop new relationships and create a new social network from scratch during retirement. One of the things that the Covid-19 pandemic taught us is that Zoom and Facetime are useful tools in helping us maintain relationships and points of commonality. Developing and maintaining relationships require investments in time and intentionality prior to retirement.
All three pillars require time to build, which is why it is important to start investing in them well before retiring. We here at Clifford Swan are dedicated to helping fortify your money pillar. However, we also encourage you to continue building your health and relationships pillars so that your “golden years” can be truly “golden.”
Source: Michael Finke, Professor and Chief Academic Officer at the American College of Financial Services, spoke on life satisfaction in retirement at the 2021 Morningstar Investment Conference in Chicago.
1Kahneman, Daniel and Angus Deaton. “High income improves evaluation of life but not emotional well-being.” https://www.pnas.org/content/pnas/107/38/16489.full.pdf. 4 August 2010.
2Reed, Jennifer Lea. “For Happiness in Retirement, Forget About Your Kids and The Fancy Car, Advisors Say.” https://www.fa-mag.com/news/for-happiness-in-retirement--forget-about-your-kids-and-the-fancy-car--advisors-say-64230.html. 1 October 2021.
3Mineo, Liz. “Good genes are nice, but joy is better.” https://news.harvard.edu/gazette/story/2017/04/over-nearly-80-years-harvard-study-has-been-showing-how-to-live-a-healthy-and-happy-life/. 11 April 2017.
4Holt-Lunstad, Julianne, Timothy B. Smith and J. Bradley Layton. “Social Relationships and Mortality Risk: A Meta-analytic Review.” https://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1000316. 27 July 2010.
5Degges-White, Suzanne. “How Many Friends Do You Really Need in Adulthood?” https://www.psychologytoday.com/au/blog/lifetime-connections/201908/how-many-friends-do-you-really-need-in-adulthood. 9 August 2019.
Download Article: 3 Pillars for a Happy Retirement
The above information is for educational purposes and should not be considered a recommendation or investment advice. Investing in securities can result in loss of capital. Past performance is no guarantee of future performance.