Beyond savings: Why retirement lifestyle planning is important

When it comes to retirement planning, we often focus on the financial side. And while financial preparation is key, there is a lot more to retirement planning than savings rates or investment vehicles. Close consideration of nonfinancial factors, like the lifestyle you want to live, should play a critical role in the planning process. After all, it’s hard to figure out how much you need to have saved for retirement when you don’t know what you’re saving for.

Surveys show that although 77% of retirees report having enough money to retire comfortably¹, only 43% have given thought to their emotional health in retirement.² This could indicate that financially prepared individuals are still setting themselves up to fail in retirement. Building the nonfinancial aspects of your retirement lifestyle into your plan can help you fine-tune the financial components—as well as prepare you emotionally and mentally for the exciting (but potentially anxiety-inducing) transition to retirement.

Retirement lifestyle is essentially the way you choose to spend your time, energy, and yes, money in your nonworking or partially working years. Your retirement lifestyle vision should incorporate the activities, interests, social connections, and personal growth opportunities you wish to pursue when you’ll no longer be defined or constrained by a full-time career. Since retirees are generally happier when they view retirement not only as freedom from work, but as freedom to move toward something else, defining and then fine-tuning your retirement lifestyle vision is key.

The core of creating your retirement vision focuses on the five W’s of retirement—Who, What, When, Where and Why. The answers to each of these questions can serve as building blocks for the lifestyle you’ll aim to enjoy. It’s important to recognize that this vision may change, but adapting is easier when you have a strong foundation to begin with. Here are some tips for how to think through and analyze each of these components based on who you are today, what’s going to change, and what might stay the same.

There are mind and body benefits to growing and maintaining strong social connections, especially in retirement. People who are socially engaged have a lower risk of cognitive decline, dementia, and other adverse health effects. By design, retirement will likely provide more time and opportunity to cultivate relationships with friends and loved ones. But those relationships are not a given. They require proactive effort and active, ongoing engagement.

Think about the people you spend time with today (spouse, children, grandchildren, parents, siblings, friends, neighbors, colleagues, etc.). List them numerically from the people you currently spend the most time with (1) to the least time with. Then list them based on your preferences—and in light of how those dynamics may change—in retirement. Consider the actions you can take to nurture and grow the relationships that matter most: biweekly coffee dates, monthly visits, family dinners, annual weeklong vacations, book club meetings, scheduled workouts, etc.

It’s also important to think about caregiving support roles: the people you may need to care for and the people who will care for you. If you care for a spouse, an aging parent, or a special needs child, these responsibilities are likely to continue into retirement and could even take up more time. If you expect a friend or loved one to be part of your care team, it’s crucial for you to let them know that and ensure they’re on board.

Without the time commitment or stress of a nine-to-five job, retirement can be a time for personal growth and exploration. It can also be somewhat boring if you don’t plan ahead. Think carefully about how you spend your time today and how that might change when you retire. If there are classes, hobbies, vacations, or skills that have always interested you, start listing and prioritizing them. Just as you periodically reallocate your investment portfolio, it’s a great exercise to consider how you’d want to reallocate your time in retirement. (See Figure 1.)

Also, work has become a larger part of people’s retirement lifestyles, both for financial reasons and for the nonfinancial benefits (including social engagement and purpose). So, for many, work is a part of their retirement vision, but it may just carry lower priority in retirement. If you intend to work part time, start thinking about how that might look and feel. Just keep in mind that even in retirement, there are only 24 hours in a day.

Although it can be difficult to anticipate the right time to retire, it’s helpful to set a goal of when you would like to retire fully or begin transitioning into retirement. Our research has found that instead of retiring cold turkey, many retirees are opting to transition gradually into retirement by moving to part time or getting another job. Essentially, to some retirees, retiring just means doing work that is less stressful or demanding on their time.

That said, there are still several key financial indicators and age milestones to which investors often choose to anchor their retirement date. For some, it’s attaining a certain savings figure or coming into a cash windfall such as an inheritance. For others, it’s reaching a certain age. For instance, you become eligible for penalty-free access to your retirement accounts at age 59½, for Medicare coverage at age 65, and for your maximum Social Security benefits at age 70.

Of course, there may be other factors that can influence the timing of your retirement. Some are within your control and some are not. Common nonfinancial factors that could influence when you may retire are health issues for yourself or a loved one, personal dissatisfaction with your nine-to-five job, the desire to move on to a new chapter and do something else, and the retirement of an older spouse, among others. See Figure 2.

Write down your target retirement age along with the reason you chose it. Then list other factors that could impact that choice (from highest to lowest likelihood) and whether each would require you to retire earlier or later.

Among the roughly 40% of retirees who opt to move in retirement, frequently cited reasons include moving closer to family and friends, reducing expenses (on taxes and overall cost of living), downsizing or moving to an aging-friendly home, moving to a better climate, and seeking to start a new chapter in life.³

When you made the decision about where to live in your working years, there were likely a number of factors that you took into consideration: proximity to the office, clients, transportation, good schools, convenience (stores, gyms, etc.), and of course, family and friends. When you take “proximity to work” out of the consideration set, you can reprioritize your criteria. If you could live anywhere, consider where you would live and why. Then consider how that choice could complement or compete with your preferences for the other W’s.

A day-to-day life filled with purpose and fulfillment tends to be happier and less stressful. Before retirement, the Why for many people often revolves around work and family. But our relationships with both of those areas will change when we retire. So, thinking through the new Why ahead of time will help the transition go much more smoothly. Keep in mind that the Why is different than the What. The What is how you spend your time. The Why is meant to help you identify and nurture the sense of fulfillment you may get from how you spend that time in retirement.

Communication, learning, and practice can help you fine-tune your plan and build excitement for retirement. Here are some of the ways you can bolster your financial plan based on your lifestyle vision.

Whether your vision includes buying a second home, relocating, traveling, pursuing a passion project, or just reading, walking, and spending time with grandkids—a financial professional can help you determine whether your current savings strategy is sufficient. Just be sure to give yourself time to make adjustments before you retire.

Based on your When (target retirement age) explore your options for health care. Medicare eligibility begins at age 65. If your plan is to retire at or after that age, be sure to understand enrollment rules and coverage options. If your goal is to retire before age 65, you may want to explore continuing coverage through your employer (if possible) or through private health care plans offered through your state’s health care exchange. Be sure to consider any underlying health conditions and the potential need for a separate long-term care policy (PDF). Learn more at Medicare.gov and HealthCare.gov.

It can feel daunting to envision a phase of life that feels so far in the future, but by closely reflecting on what you value today—then considering how that might change or stay the same in the future—you can create a retirement vision you’ll greatly look forward to. This vision can help you build a stronger financial plan and greater conviction to take the steps necessary to fully realize it.