BOSTON – Not long ago, a friend asked me to give a talk at the local library, hoping I'd say "something different on retirement savings." That's no small challenge, because any discussion of retirement planning typically boils down to "Are you saving enough?" and/or "You need to save more."
I decided that the real problem with the topic was the word "retirement" and what it means to the many people who say it. For some people, retirement means quitting work entirely, to others it means cutting back and taking more vacations.
So I decided that the discussion shouldn't be so much about retirement, as it should be about "being set for the rest of your life."
That's a moving target, changing over time based on your desires, health and more. I know a few people who retired in their 60s with a financial focus on being able to stay active and travel the world, who are now in their 80s and who prefer a much more sedentary life with the creature comforts of home.
So instead of giving some talk which focused on how much to save, I tried to come up with the questions that people should ask themselves at various points in life, helping to shape their retirement years.
I know that had I answered these questions on my 30th birthday, the results would have been much different from what I would have said a decade later. I suspect that will hold true in virtually every 10-year interval until — either preretirement or in retirement — I have finally figured out what I want for the rest of my life and what is most important.
Here are the questions I suggested that my audience answer as they try to set themselves up for life:
What does retirement mean to you?
When it comes to "planning," most people think of retirement as some amount of money sufficient for them to stop working. They might be looking at various rules of thumb that say things like your retirement income should be equal to about 70 percent of what you brought home during your work days. But retirement is more than a number.
This is not some big existential question. It is, very simply, what you want to do with your life once you stop working.
Without plans that are specific, you are saving for "maybes," and the answer is that you will wind up letting your savings dictate your lifestyle choices, rather than allowing your specific retirement dreams to drive your savings plans.
What are your priorities?
Even when you decide the ideal form of retirement, there are choices to make.
For some people, safety and security is the biggest issue; above all else, they do not want to run out of money. For others, it might be health care and independence, the idea that they will live out their days at home, or in the facility of their choice. For some, the big plan is to support their family, while others want to spend every possible moment feeling vital.
At some point, however, you need to decide what comes first, second and third.
At that point, you can see just how much of your desired retirement you'll be able to afford. If peace of mind is the top priority, for example, then disability or long-term-care insurance might be the first piece of the puzzle.
If you don't want to worry about the stock market on a daily basis, you might need to invest more conservatively. If that is your priority, however, you might have to abandon other things on your wish list if you do not have sufficient savings and sources of retirement income.
What will those things cost?
Having defined what you want in retirement and set them in order of importance, you now must figure just how much money you will need to make it happen.
Obviously, you have the basic costs for living. You're not going to eat insurance coverage or travel experiences, but you can now get a handle on what it will cost — on top of ordinary expenses — to live out your retirement in the style you are hoping for.
What's your time horizon?
This tells you how conservative or aggressive you can afford to be. Set your time horizon based on your ideal — say you'd like to retire at age 60 — and see whether it is possible to amass the kind of nest egg you need in that time. If not, consider how you can extend your time horizon.
Plan too for a long time in retirement. You are stopping your primary work career, you're not dying (at least not immediately), so be sure to plan for a retirement that lasts several decades.
How do you envision your life playing out? What are the situations between your best and worst cases?
There's an old saying that holds that the easiest way to make God laugh is to make plans. The easiest way to find trouble in retirement, however, is not to plan at all.
While you may be hoping for the best, your reality is likely to be somewhere between your best and worst projections. You may have years where you are living the dream, and then years where you have scaled back for health or family reasons.
Do not assume that all of your plans will become reality. Talk with your loved ones about how life could alter those plans, and how you would be likely to react and how your priorities would change.
By itself, retirement is not a destination, as much as it is a new journey. Plan for the trip, consider the alternatives and alter your approach as needed in order to make the most of it.