Retirement should be a happy time. You can plan your own schedule, take long vacations, and begin spending all the money you have been saving. And for many retirees that holds true. According to Gallup-Healthways Well Being Index, people tend to begin life happy, only to see the sense of well-being decline in adulthood. This is no surprise: Raising a family, working long hours, and saving for the future are high-stress pursuits.
After you reach age 65, though, happiness picks up again, not peaking until age eighty-five. In a survey of MONEY readers, forty-eight retirees reported being happier in retirement than expected; only seven percent were disappointed. How can you ensure you follow this blissful pattern? Financial security assists. And good health is vital. In a recent survey, eighty-one percent of retirees cited it as the most significant element for a happy retirement. Some of the other ingredients are less obvious.
What you can do to ensure your retirement is a happy one?
Knowledge is gold
Making smarter retirement decisions indicates more retirement security. Research from Morningstar identified that informed decisions in just six various areas of retirement planning could increase retirement income by 31%. Typically, there are more than six planning areas. This means if you invest time to learn your options, you can improve retirement security. That is very powerful. You do not have to win a lottery or hope someone remembers you in a will. All you have to do is learn about Social Security claiming, the role of guaranteed lifetime income, or choosing the right Medicare option. In case you are inclined to seek advice, find an adviser who really understands the problems faced at this time of life.
Look before you leap: do not give up on your career
Remember that haste makes waste. So, do not give up a long-term job before you know what is next and that you can afford to quit. This might sound obvious; however, a 2018 Bankrate study shows that 58% of baby boomers reported ignorance of how much money they required for retirement.
There are various reasons why you should look before you leap. Still, the two main are: Giving up on a career frequently means giving up valuable additional retirement benefits, particularly health insurance. And second, in case you decide that you miscalculated how much money you required (or you never calculated in the first place) to retire or miss work, getting a comparable job with the same salary at an older age is challenging.
Know the levers of success
Pre-retirees looking to promote their retirement plans should understand that three main levers have the most effect on retirement security: retirement age, social security claiming age, and spending levels in retirement.
Research from Stanford Longevity Center discovered that three months of extra work generate the same increase in retirement income as saving, and an additional 1% point of earning for thirty years. Keep working, avoid burnout by changing your attitude, taking vacations, avoid your boss, or select a role with less income and less stress- but keep working if you can.
The benefit of working is not just financial. It is also good for your health- a key ingredient of retirement happiness. Carolyn McClanahan, a medical doctor, turned financial planner says the physical activity and social networks a job offers are good antidotes to an unhealthy sedentary and lonely lifestyle.
At this level, try to increase your income. For some reason, most people focus on spending less, instead of making more. You can only lower your spending so far. However, there is no ceiling on how high you can increase your income. Make it your focus and intentional to increase your income.
Bottom line, go above and beyond, and demonstrate your worth to your employer. Take on extra responsibilities, and show initiative that makes you stand out from other employees. If they do not see your value, get introspective rather than placing blame on your boss. In case you are really as good as you think you are, try seeking out opportunities where your true value will be recognized. Consider a side hustle while you are still working.
Social security age
You have possibly heard the advice that deferring social security will increase your retirement security. It is true; about two-thirds of retirees get more than half their retirement income from social security. In case you are in this group, your Social Security claiming decision is the most significant retirement decision that you will make. For instance, an individual with a full retirement age of 66 will get 76% more by claiming at age seventy rather than age sixty-two.
Watch your spending levels
Decrease retirement spending, and your resources will last longer. In case you do this right, you may not have destroyed the lifestyle that you have become accustomed to. We all know we should not spend more than we earn, but how do you do it? The big secret is ‘forced scarcity.’For example, stop buying the things that do not really mean much to you; become a thriftier shopper. You can also move somewhere where the cost of living is lower.
Force yourself to live on less than you earn by automating your savings, and increasing your savings by the majority of your annual raise. Repeat yearly, and you will automatically avoid lifestyle inflation. When you get that next promotion or a hefty raise, follow the same principle, and increase your savings by at least seventy percent of the raise. When you have maxed out your annual contributions to your 401 (k), set up automatic ACH transfers into the mutual fund of your choice, automate it, and forget it.
While at it, remember if you sacrifice everything for the sake of tomorrow, retirement is impossible. You need to balance your sacrifice to create a sustainable journey. Focus on a few things which you enjoy truly and make room for them on your journey. Sure, you might retire a few years later by spending a bit more today, but it is a trade off. You must decide for yourself what balance is appropriate, but you must choose.
Living on your own dime is nerve-racking
Living mainly on withdrawals from your retirement portfolio is not for the fainthearted. Today, most people retire with social security benefits, a few bucks in the bank, and a significant account balance in their 401 (k) program. It is unlikely that Social Security will cover living expenses 9particularly for those who claim Social Security at sixty-two), so this means figuring out how to generate additional income from 401(k) plan withdrawals. How much you can afford to take annually depends upon a lot of moving parts, inclusive of:
- Portfolio investment
- How volatile investment profits are
- Whether you are willing to reduce withdrawals if the market is down
- How long retirement will last.
Pre-retirees should think about ways they can increase the kind of regular income that will last a lifetime, despite how long they live. The first place to check to accomplish this is to defer Social Security to age seventy to increase the stream of monthly income. Another option is to select an annuity form of payment from an organization retirement plan or buy a commercial annuity.
Answer the what-ifs
The hard part of planning retirement is preparing for the ‘what ifs’ such as:
- What if you live much longer than anticipated
- What if you or your partner has a severe health care problem?
- And what happens if the stock market tanks within the first five years after you retire?
Building solutions to retirement risks requires a carefully crafted, based set of solutions that involve thought, experience, and knowledge. For example, solving longevity risk may include purchasing annuities with lifetime payouts, deferring Social Security, buying life insurance to offer an income stream to a surviving spouse, and cautiously selecting a withdrawal strategy from a retirement portfolio. Remember, your plan is not complete until you have addressed these risks.
Bonus tips for an even happier retirement
Find at least four hobbies
Busy retirees tend to be more pleased. But just how active and busy do you have to be? Moss found that the happiest retirees engage in three to four activities often, the least happy, only one or two. He reported that the happy retiree had extraordinarily busy schedules. The most significant boost to your happiness, choose a social hobby. The top pursuits of the happiest retirees incorporate travel, volunteering, and golf; for the unhappiest, they are hunting, reading, and writing.
Rent late in life
Just as in working years, in retirement, owning a home brings you more joy than renting does. But as time goes on, that changes. A professor of retirement and personal monetary planning at Texas Tech University, Michael Finkeanalyzed the satisfaction of homeowners in late life and found that the hassles of home ownership build as you age, and a house can be isolating. Most retirees want to stay put in. Finke notes retirees need to plan for a transition to living in an environment with more social interaction and less home responsibility.
Keep your kids at arm’s length
After you suddenly have a lot more time on your hands, your closest relationship can have a great impact on your mood. By analysis by Texas Tech researcher Nhat Hoang Ho and Finke, married retirees, specifically those who retire around the same time, give an account of higher satisfaction than non-marrieds- but only if the couple get along well. A poor relationship more than eliminates the positive impact of being married. Children do not make much of a difference, with one twist. Living within ten miles of their kids leaves retirees less happy.
The secrets to retiring happily are not really secrets at all. But beyond knowing the secrets, the real challenge for someone seeking an early retirement is to apply them in their everyday life.