Journey Into Retirement

This blog post is the third in a series focused on what I have learned in business that can help you with planning a happy and successful retirement.

Lesson #3: We all want answers, but first we must ask the right questions?

This may be one of the most fundamental principles in business, if not in life. If you want answers you can use, you need to know what questions to ask. It is not that you won’t get an answer, but rather you will probably not get an answer that will help you succeed.

In business, there is really only two questions that are important: What are the right things to do to be successful and how do I do those things better. Everything else is just a variation on the theme. However, that is not always the way that businesses are run. One area of expertise for me is promotion planning. This area is rife with misdirected questions. For example, I am often asked how to promote products more effectively. However, what people seldom ask is the real question: should we be promoting at all if we want to be successful. Does this activity contribute to the success of the business or it is just a big money sink. The answer is often a little bit of both, but the total picture is rarely examined. What people should be asking is whether promotions are necessary to be success and if so, how to perform this activity better?

How many activities in a large business are little more than continuations of what has always been done in the past. In many cases, we stop questioning whether the activity is truly needed or whether it will contribute to success. Only after you answer this can you proceed to question number two: If this activity is useful, how do we manage it better? If I don’t ask the first question first, then I may end up optimizing an activity that does not help me with my real goal. This brings to mind a quote by Peter Drucker, the business guru: “There is nothing so useless as doing efficiently that which should not be done at.” If you asked the right questions, you would know that some activities are counterproductive and shouldn’t be done at all!

How does this apply to retirement planning? We have already seen one example of this in a previous blog post where I dealt with the topic of the appropriate savings withdrawal rate during retirement. People often fall back to the famous 4% rule. This rule states that if you draw out 4% of your savings to begin with and adjust this withdrawal rate for inflation each year, your savings should last for the duration of your retirement. So the question you are asking is whether the 4% rule will extend your savings.

The withdrawal rate issue is not irrelevant necessarily, but it is probably not the first question you should ask. The real issue is how to maintain your standard of living over an extended retirement so that life is enjoyable, not constrained by financial problems. You see with the 4% rule, we are focused on savings balances when we should be focused on lifestyle. Yes, with the 4% rule your savings should last. But did you know that if you follow it, the 4% rule may not allow you to withdraw enough money each year to keep up with inflation and your standard-of-living will decrease over time. (See “Does the 4% Rule Really Work” in the May 2013 archives).

I am sure that some of you will say: “Yes, but if my savings drops to zero, that could be a bad thing, right?” Of course you are right. However, if you know that this is a risk given the lifestyle that you are planning your next question should be “how do I adjust.” For example, should I get a part-time job? Should I delay retirement? Should I save more? Should I invest differently? Should I rob banks (just kidding)?

The larger question might be “how do I make my retirement an enjoyable celebration of life.” How do I move to the next stage allowing me more freedom and time to explore. Retirement finances are certainly one element of that. If you struggle financially, it will be difficult to feel free or even to have the resources to explore. However, in the decisions that you make, you need to be laser-focused on your true goal – living an enjoyable lifestyle in all of its aspects.

Let’s take another example. If, for example, you decide to move in retirement to take advantage of a lower cost of living, you need to make sure that the new location is actually somewhere you want to be aside from lower expenses. It does you no good to be financially sound, but live in a place that makes you miserable. So, the decision of relocation goes beyond the issue of a cheap cost-of-living. In any retirement decision, there are elements of the financial, psychological, and practical. So, don’t treat each element as if it totally detached from the others. Consider all of the aspects. A cheap cost-of-living is good, but cheap and exciting is what you are really looking for. So, ask the question of how a move to a new location will contribute to your overall happiness in retirement, not just your finances.

So yes, questions about financial solvency in retirement are important. However, keep in mind the real question: How do you guarantee a happy retirement – in terms of your finances, in terms of your preferred lifestyle, and in terms of your psychological well-being. Certainly continue to ask questions about retirement finances. That is an important element of a happy retirement. However, consider all of the dimensions of retirement happiness. Don’t be one-dimensional and don’t deal with the important questions as if each were independent of the rest. They are all interrelated. If things are not fitting together, than ask yourself how you will need to adjust to make it work. Ask the right questions before you make the important decisions. It’s all about balance and what will make you happy in your retirement years! All other questions should be focused on this and this alone.