Pursue What Conjures Joy in Your Golden Years: Map Out Your Passions in Retirement
Retirement is often seen as a time to pursue the passions that were not possible during the working years. However, many people do not plan for what they will do or how they will afford their passions in retirement.
According to Tim Seifert, senior vice president and head of retirement solutions and distributions at Lincoln Financial, only 11% of people have planned or budgeted for their passions in retirement. This lack of planning can lead to unexpected financial surprises and unfulfilled dreams.
To financially plan for pursuing passions in retirement, you should first clearly define your passion and estimate its related costs. This could include travel, hobbies, or equipment. Breaking down one-time and recurring costs will transform abstract dreams into actionable plans.
Understanding and structuring your retirement income is also crucial. This can be achieved by optimising Social Security timing, balancing withdrawals from taxable, tax-deferred, and tax-free accounts, and integrating pensions, annuities, or part-time work to generate multiple income streams with tax efficiency.
Customising your investment approach to your risk tolerance and time horizon is also important. Diversifying across asset classes and periodically rebalancing your portfolio will provide growth and income while managing market risks.
Implementing tax-efficient withdrawal strategies, such as Roth conversions during lower income years and managing required minimum distributions, will minimise taxes and maximise cash flow for your passions.
Regularly refining your plan as you approach retirement is also essential. This may involve adjusting savings, investments, and spending plans to meet your passion’s financial requirements, and considering working longer or scaling your plans if costs exceed your budget.
Categorising your spending into needs (housing, healthcare), wants (travel, hobbies), and wishes (big experiences or purchases) will prioritise and allocate your resources effectively.
Sandra McPeak, a financial adviser at Wells Fargo, advises testing out a retirement passion before committing to it full-time to ensure it is something one will actually want to pursue. She also warns that giving up a job can lead to difficulties in re-entering the workforce later, and that hobbies in retirement can be more expensive than anticipated, which could lead to a retirement shortfall without proper planning.
By integrating these financial strategies, you can support your retirement passions without jeopardising financial security or encountering unexpected shortfalls. McPeak suggests using all available time off to test drive a retirement passion, and warns that without proper planning, passions and dreams may be left unfulfilled in retirement.
In conclusion, the takeaway is that having a plan is key to making a retirement passion a success. It helps determine how one will spend their time and limit financial surprises. So, start envisioning what your retirement will look like in your mid-50s, and begin planning for your passions today.
Your personal-finance planning for retirement passions should include defining your passion and estimating its associated costs, optimizing income streams, customizing investments to match your risk tolerance, and implementing tax-efficient withdrawal strategies. Regularly refining your plan as you approach retirement is also essential to ensure your passions are financially achievable. Additionally, attempting a retirement passion before committing full-time can help ensure it aligns with your long-term interests, while careful budgeting can prevent unexpected expenses from derailing your plans.
