The Four Phases of Retirement
As advisors, we spend years helping clients prepare financially for retirement. But the transition is not purely financial — it is deeply psychological.
In his widely viewed TED Talk, Dr. Riley Moynes outlines The Four Phases of Retirement and highlights the emotional adjustments retirees often face. Preparing for retirement is more than the financials of being able to, you need to mentally prepare and find purpose to have a more fulfilling retirement.
One quote that resonates with many retirees: “I wish I knew then what I know now about the psychological challenges that accompany retirement. It would have made things much clearer and easier.”
Consider sharing with clients in the “home stretch” of their careers.
What Does Certainty Cost?
An Advisor’s Perspective article measures the cost of certainty when creating retirement income for your clients. They compare the 4% rule, bonds, TIPS and annuities.
To create $40,000 a year income (inflation-adjusted at 2%) for a 65-year old male, they came up with a low number of $717,000 (BBB rated corporate bonds) to a high of $882,000 (TIPS). The only fully guaranteed approach was an annuity at $792,000.
The premise is there are better options than the 4% rule and this allows you to invest the difference to leave a legacy. Running updated numbers today, the required capital for a 65-year-old male is materially lower — closer to $640,000, and approximately $740,000 for a married couple age 65.
Although some of their calculations were ranked “very high” probability, only the annuity was guaranteed. Things change over time and what worked best before may not be best now. One big difference between projections and guarantees is “Peace of Mind”!
Securing Retirement Income: What Does Certainty Cost?
Take Some Off the Top?
With markets recently reaching all-time highs, this may be an appropriate moment to ask conservative or income-focused clients: “Would you like to take some off the top to protect your bottom?”
Sequence of returns risk can’t be eliminated. If retirees have all the income they need for everyday retirement living, they will be less concerned about the ups and downs of the market before and throughout their retirement.