The Retirement Corporation of America

Coming Up With Your Definition Of The "Good Life"

There's nothing like a standard, textbook definition of what constitutes a good life in retirement. Each of us has his or her own, highly personal definition of what that would be. There's no point in planning for a one-size-fits-all retirement. Your planning has to be custom-tailored to fit your hopes and dreams about the future.

My definition of retirement may include just loafing around in a new home in some warm-weather locale. Your definition may include staying where you live now, but spending much of each year traveling around the country—or the globe. Joe may picture his retirement being spent turning what is now his hobby into a moneymaking venture that will bring added comfort and wealth to his senior years.

The first step in preparing a budget is to decide what constitutes the good life for you and those close to you. Keep these key points in mind:

•  It isn't something you do on your own. Your spouse must always be a vocal participant in all retirement planning. It's not just your good life we're talking about. It also concerns the person who will share it with you.

•  It isn't something you do once and then forget about. All your financial plans must be kept current and up to date. They must reflect what you want, as of today—not what you wanted five or 10 years ago. That is especially true of your retirement plans, since you have to begin making them 20 or 30 years before you actually retire.

Develop the broad outlines of your retirement plan as early as possible. Remember that the best day to start your retirement planning is the first day on the job.

Then, keep revising your retirement plan at least once a year. Just because you have retired is no reason to stop planning, since you may spend as much as one-third of your life in retirement. What you want when you retire may not be what you want at 70 or 75. You want to keep planning and revising as long as you can.

How to Get Your Retirement Planning Off the Ground

Start your retirement planning early, and keep it current for the rest of your life.

Since you are planning for retirement, you must know well in advance what constitutes the good life for you.

Work with your spouse. Talk things out. Think about what retirement means to you, keep working and refining your personal definition. Keep thinking about and refining your estimate of what it will cost you to live in retirement.

Chances are you won't be able to afford everything, but the more open and honest you are about how you define the good life, the more you will be able to do the planning that can make it come true.

Obviously, you will have to accumulate more wealth if you intend to travel and not work during retirement, than if you keep working at something that brings in a paycheck after your full-time working days come to an end. You can get by with a leaner budget if you intend to stay in your present home and not spend a lot of money on travel or expensive hobbies.

Start thinking now about what a good life means to you and what it will take to achieve it.

To help you along, here is a series of questions. There are no right or wrong answers. The point of the exercise is to help you focus on what you want from your retirement years.

Your 10-Question Good-Life Quiz

1. Do you plan to work after retirement?
2. Will you buy a new home after retirement?
3. Do you see retirement as a time for things you couldn't afford when you were working?
4. Do you want to travel extensively when you retire?
5.  Will you keep active in retirement?
6. Do you find it hard holding down spending and saving as much as you should?
7. Will you be providing financial support to children after retirement?
8. Do you plan to buy an expensive new car or a boat when you retire?
9. Have you drawn up a retirement plan, which you keep current?
10. Do you and your spouse agree on what constitutes a good life in retirement?

Analyzing Your Answers to the Good-Life Quiz

There are, as noted, no right or wrong answers to this quiz. Each answer has a lot to tell you about how you define the good life. More importantly, it has a lot to tell you about the likelihood of your being able to enjoy the retirement you are working for. Here is how to analyze each question—and your answer to it.

•  Question #1: If your answer is "yes," the odds are better that you will enjoy a good life in retirement. If your answer is "no," then you must be very serious about holding down spending, increasing saving, and making sure you are investing your retirement "kitty" for the highest return you can get, without taking major risks. If you can't look forward to some post-retirement income, your margin for planning error becomes very small. Build a retirement budget and keep modifying it year by year to make sure your plans don't exceed your ability to pay for it.

•  Question #2: Your approach to this question tells you a lot about the direction your retirement planning must take. There is no "best" answer here. The point is, you have to do the arithmetic far in advance, to tell which choice is best for you. If it will cost a fortune to maintain your present home and you can get a better deal someplace else, then the math says to think about selling. Too many people approach this question as an emotional issue. If you're not focusing on the math, you're not taking the right approach to retirement planning.

•  Question #3: This question is a real time bomb for many people. They see retirement as a time for making up for missed opportunities. You had bills to pay and kids to raise. You watched other people buy fancy cars and take grand cruises. Now you're retired—with a hefty nest egg at your disposal. That's even more true if your pension will pay you a lump sum from your 401(k)—rather than rolling it over into an Individual Retirement Account (IRA). If a good life in retirement means catch-up time for you, be careful. You could run through your retirement savings in no time at all. Your planning and budgeting must emphasize discipline —not giving in to the moment and splurging on things you can't afford.

•  Question #4: Retirement is certainly a time for doing things you couldn't do when you were working full time. But your plans must be realistic. Your budget must include enough money for having a good time—or it won't be a good-life retirement. Settle for trips you can afford—not trips that would cost too much. If you plan lots of traveling, then maybe you should seek post-retirement work to pay for it.

•  Question #5: If your idea of retirement is just taking it easy you could be in for a shock. Another lesson talks about the honeymoon period—those first couple of years into retirement when you finally get to do the fun things you've always dreamed about—fishing, golfing, and fixing up the house. Just remember that all honeymoons end—including your post-retirement honeymoon. It takes more—and more costly—activities to keep you energized—and there goes your budget. Plan for the end of the honeymoon in your retirement planning. If your notion of retirement calls for lots of sitting around and watching the grass grow, you could be in for a rude—and very costly—awakening when that notion changes after a couple of years.

•  Question #6: If you are finding it hard to save and hold down spending at this stage of your life, you should know it won't get any easier when you retire. It's the habit of exercising discipline and control over money that you adopt now that will give you the nest egg you need. It's those same good habits that you will need to carry over into retirement—or else you run a high risk of out-living your money. Financial discipline is habit-forming, and the earlier in life you accept that discipline, the more it will be ingrained when you need it the most—after you retire.

•  Question #7: People tend to have children later in life these days—and the super-high cost of college and of buying a home means that parents are still helping out their kids fairly late in life. It is admirable, but you simply may not be able to do so, and live the way you want to in retirement. If it's a choice of paying for college, or saving for retirement, all your parental instincts opt for college. But common sense says, go for retirement instead. Your kids can always borrow for college—even borrow for the down payment on a home. No one will give you a loan to pay for retirement. Make saving for retirement your primary goal—and helping out the kids secondary, if you are sure it won't sabotage your retirement.

•  Question #8: This question was thrown in just to keep you focused on using your nest egg to pay for your retirement—as opposed to binge spending in the first few years after your job stops. It shouldn't be part of your definition of a good life in retirement, if you can't afford it. Your plans must be realistic. They're only daydreams if you don't have the money to pay for them.

•  Question #9: This is one of the most important questions of all. Just laying out a financial plan forces you to think about what you want in retirement— and on how you intend to pay for it. Just doing a plan once doesn't work. Things change and your needs and desires change with them. Your definition of what constitutes the good life will be different when you retire from what it is now. So make a plan and keep adjusting it—in line with changing desires and circumstances.

•  Question #10: You're probably not going to retire alone. Most likely, you will be sharing your retirement with a spouse. How you define the good life isn't enough to draft a workable financial plan. It's how you both define it that really matters. Unless you are single and expect to remain so, then each step of the financial planning process must be carried out by both parties involved. And unless there is joint agreement on your retirement plans and budget, you'll never have the retirement you want.

Setting Down What Constitutes a Good Life for You

So the essence of retirement planning is writing down your dreams and desires and then whittling your list down to what you can reasonably expect to afford. Let's move the process along by listing all the things you think will be essential.

Do you want a second home for the winter, somewhere down South where the snow never falls? What about a classier car than you have ever driven? What about a cruise to the Caribbean? What about a set of really fine golf clubs? What about a greenhouse where you can grow flowers that have always caught your interest?

You want to live a good life in retirement. So set down everything beyond day-to-day living expenses. We're not talking about practicality here. We're talking about dreams and desires. Once you get it on paper, it becomes a goal you are trying to reach. You won't reach all your goals, but at least you know what you're aiming for, with a rough idea of what it will cost.