Recently, I had a conversation with a friend about his retirement plans, possibly an early retirement. At the age of 60, he has been working hard, managing his investments well, but he is feeling exhausted.
He received good guidance from his financial advisor and discussed the feasibility of his investment portfolio with them. However, during our conversation, it became apparent that the key factors were not only the value of his investment portfolio and asset allocation but also decisions related to his lifestyle.
Continuing to work is not his preferred choice. But continuing to earn income would alleviate some concerns about the sustainability of his investment portfolio.
Even if he transitions to a lower-paying or part-time job, reducing his savings capacity, he could still delay tapping into his investment portfolio. This way, he can spend confidently when he fully retires.
This approach can also help him delay receiving Social Security benefits. By continuing to work in a position with health insurance benefits, he could avoid out-of-pocket payments for health insurance before Medicare coverage kicks in. Despite feeling worn out from work, he had a fulfilling career, and his professional life seems closely tied to his identity.
In the end, my friend decided to reduce his working hours. By working 30 hours per week, he can still maintain health insurance coverage.
For some individuals, complete retirement might be a more reasonable choice, especially when continuing to work would impact their physical or mental health.
We also discussed whether our friend’s spending habits would change in retirement.
He owns an apartment in an expensive area in the United States and is considering moving back to the Midwest after retirement. This would provide him with funds to invest in his portfolio, but it would also distance him from his social circle and the hub of his industry.
Currently, staying put seems like the right choice, especially since he plans to continue working.
This is a critical dimension in our retirement income planning.
Having the ability to tighten expenses when investment portfolios incur losses can enhance the sustainability of the portfolio. Simply put, reducing investment portfolio expenses during and after loss periods allows more funds to recover along with the market.
Our research also indicates that a flexible spending strategy, as opposed to maintaining static inflation-adjusted spending (such as the 4% rule), can increase total lifetime spending.
My friend is willing to adjust his consumption during the process. He is not a big spender, and years of business trips have not sparked the interest in expensive global travel that many new retirees have.
When he begins receiving Social Security at 70, he can adjust his spending. It is also worth noting that retirees’ expenses tend to gradually decrease over time, although some retirees may face high medical-related expenses towards the end of their lives.
Are you aiming to maximize consumption (and/or donations) during your lifetime, or do you plan to leave a legacy behind?
This embodies the concept behind the “spending/surplus ratio” in our retirement spending plan. We aim to assist retirees in understanding whether their spending strategies support early lifetime spending or leave a surplus for inheritance. Strategies like a “guardrail approach” often encourage lifelong spending, while more rigid approaches tend to leave more surplus.
My friend is single and has no children, so leaving an inheritance isn’t his primary concern. This highlights the importance of taking steps to expand lifetime income rather than using more rigid strategies that could lead to underspending.
The views and opinions expressed in the article are solely those of the author and are provided for general information reference only, not to be construed as recommendations or solicitation. The Epoch Times does not offer investment, tax, legal, financial planning, estate planning, or any other personal financial advice. The Epoch Times does not assume any responsibility for the accuracy or timeliness of the information provided.