Are You In the “Big Decision” Phase of Retirement?Submitted by HearthStone | Private Wealth Management on April 13th, 2018
Are You In the “Big Decision” Phase of Retirement?
In recent months we started an important conversation about new ways to envision modern retirement. As noted in the study entitled “8000 Days of Retirement,”¹ retirement can now be a dynamic period lasting 20 years or more. For those who reach their 80s, that’s one-quarter of their lives.
The four phases of retirement identified by MIT AgeLab are: the Honeymoon Phase, the Big Decision Phase, Navigating the Longevity Phase, and the Solo Journey Phase
This month we will focus on phase two of the four phases of retirement, the “Decision Phase.”
Are you mulling over important choices such as whether to stay in your current home, relocate closer to family, or splurge on a new travel trailer or RV? Then you are likely entering the Big Decision phase of retirement.
This second phase is characterized by having more free time. It is also a key time for making major decisions. As employed life fades away, other factors come to the fore. The absence of paid income increases scrutiny of future decisions and actions. Health status may become somewhat less vibrant. That’s counterbalanced with more opportunity to make or renew social connections. It’s also likely that friends are freer to socialize and travel together. Work may be replaced with volunteering, grandparenting, travel, or hobbies.
Stay or Go?
One of the biggest decisions during this phase is where to spend the retirement years. Should you stay in your hometown, or relocate somewhere more affordable? Will life be simpler if you downsize? Can you afford your current lifestyle long term? Many empty nesters may find downsizing appealing. In fact, 37% of Baby Boomers say they plan to move from their current home.² 42% plan to downsize, while 34% plan to upsize.² For many, concerns about the cost of home maintenance, proximity to family, access to services, and livability of their existing home are reason enough to make a move. The desire to have a master bedroom and other necessities on the first floor when stairs are no longer manageable can be big incentives for leaving the house, the town, or even the state.
Other big decisions during Phase Two involve finances. Retirees in this second phase are drawing a greater share of their income from different sources. Social Security (92%), a pension (53%), and an IRA/Roth IRA (50%) are the top three sources pre-retirees expect to live off of during retirement.³ Therefore, they’re living on a more or less fixed income. Financial decisions, such as from which accounts and in what order to take income, when to change investments to a more conservative stance, and so forth, become time sensitive, as does the need to create or update an estate plan.
Next month we will explore the third phase in the 8,000 days, Navigating Longevity.
1Hartford Funds and MIT AgeLab
2Demand Institute, “Baby Boomers & Their Homes: On Their Own Terms,” 2013. Most recent data available used.
3Society of Actuaries, “Society of Actuaries 2015 Risks and Process of Retirement Survey,” 2016.