Financial planning, as is obvious from the name of the profession, is directed toward the future. One important aspect of a financial planner’s work is “retirement planning”—helping clients invest and manage their funds to make sure they will have enough resources to take care of themselves in their later years.
We often use the term “retirement” as a euphemism, a softer phrase than the blunt “old age.” It’s becoming clear, however, that there isn’t one term that fits all aspects of people’s later years. This period of life has as many stages and variations as any other.
I have several clients, for example, who are in their 60s and retired from their careers. At the same time, they are caring for their own parents, who are in their 80s and 90s. Lumping these two generations together as “retired” or “elderly” makes no more sense than assuming 25-year-olds and 45-year-olds have the same needs, interests, and lifestyles.
It might be more useful to divide “retirement planning” into two subcategories. The first would be “active retirement.” These are perhaps the first ten to fifteen years after people have retired from full-time work. For most of us, this would probably be the years from the early 60s to mid or late 70s.
Part of what “retirement planning” means at this stage is having enough income to support you in doing the things you may have long wanted to do but haven’t had time for. Ideally, this is the period of time when people are still fully active, capable, and healthy, and when they also have enough time, freedom, and money. This is the period when many people travel, take classes, become active in community affairs and organizations, or even start second careers. This can be “crunch time” for many people—the time to take action to fulfill those long-held dreams, because if you don’t do them now, you probably never will.
This is also a time to continue investing and managing your resources for the future. Having some conservative investments that provide a secure income is certainly important for “young elderly” retirees at this stage. It’s also important during this time to keep a significant part of your portfolio invested in assets such as stocks that are focused on longer-term growth.
The purpose of maintaining future-oriented investments is to provide for the second phase of retirement—old age. This might be the period when people downsize, moving to smaller homes or relocating to be closer to family members. This is the stage when people need to consider possibilities for assisted living and other potential health-care needs. This is a time to review and refine your estate planning to be sure the legacy you have designed is what you want it to be.
What I see with clients is that “retirement planning” usually begins as only a vague intention to provide for one’s later years somewhere way out there in the future. This is especially true for the few people who begin to invest for retirement when they are in their 20s or 30s. The majority don’t get serious about even thinking about retirement planning until the 40s or even 50s.
In part, this reluctance to plan for the future may be because we associate “retirement” with the negative aspects of growing older. Investing for retirement might be more appealing to younger people if they focus instead on the “active retirement” phase. For most of us, this stage of retirement can be full of opportunities that can make it an enjoyable and fulfilling period. Wise retirement planning makes it possible to take advantage of those opportunities.