How to Retire: Know What ‘Enough’ Means for You in Retirement

Christine Benz: Hi, I’m Christine Benz from Morningstar, and welcome to the How to Retire podcast. It’s a companion to my book, which is also called How to Retire. Each episode will provide a bite-sized lesson about how to do some aspect of retirement well.

One big question that people often grapple with as they contemplate retirement is whether they’ll have enough, financially and otherwise, in retirement. To help address that question, I sat down with author and personal finance expert, Manisha Thakor. She wrote a book called MoneyZen: The Secret to Finding Your “Enough.” She is also the founder of MoneyZen, which is a financial education consultancy.

Manisha, thank you so much for being here.

Manisha Thakor: Oh, Christine, it’s always wonderful to get to talk to you.

Do You Have Enough Financial Resources to Retire?

Benz: Well, it’s great to have you here. You wrote a whole book about enough, the topic of enough. So, I thought it would be really interesting to discuss retirement planning in that context, helping people figure out—do they have enough to retire—and talking about both the financial and the nonfinancial aspects of that.

Let’s start with the financial piece. You mentioned to me, as we were talking about recording this, that you’ve been thinking a little bit about your own retirement plan and the sufficiency of your financial assets. So as people are thinking this through, what should they have on their dashboard when they’re thinking about will they have enough financial resources to bring into retirement?

Thakor: Just for context, for my answers, I am 54 years old. And the reason I’m highlighting that is, as we go through, there will be various pieces that will weave back into that. And my hunch is the way people approach and think about retirement varies dramatically by decade. At 54, I think about it a lot differently than I did at 44. And I’m sure I’ll think about it differently at 64.

But having just stepped into it, these are the three things that I feel are the most important to think about. And I’m saying this wearing my CFA and my CFP cap. So the first is debt reduction or ideally debt elimination. Used to be people, nobody went into retirement with a mortgage and credit cards weren’t so prevalent back in the days when our parents were retiring, and student loans weren’t an issue. And so I encourage people to really think about where they are with their debt load. I realize saying debt elimination may make people think, “What are you smoking, Manisha?” But that’s really what I think is one of the cornerstones that is not talked about enough.

The second piece is cash flow. And there are two sides to that. The first is what do you believe a sustainable withdrawal rate is? There’s a lot of debate in the industry about whether it’s still the 4%. Could it be 5%, or is it actually 2%? So thinking about where you fall on that and whether the amount of money you’ll need to take out of your portfolio, where it falls relative to that number, given that you may have other sources of income coming in from rental property or Social Security or part-time work. And then the other piece of that cash flow is that the order of returns when you retire make a huge difference. If you retire into a bull market, you’re in great shape. If you retire into a bear market and you’re pulling out money when assets are depressed, it can really shake up the statistical odds of not outliving your money. And so I encourage people before they retire to be really strategic about how they’re going to access the money they need for the first five years, and if you’re conservative like me, the first 10 years, so that you know you do not have to sell depressed assets in order to execute your retirement plan.

And then the very last point is asset allocation. And people often think about that as: What’s the right mix of stocks, bonds and cash when I head into retirement? And as we talked about, that cash piece is huge. But bonds and stocks are something I find a lot of people may not be thinking about in the right ways in the sense that people aren’t always thinking about liquidity and quality. A number of people I’ve come across have equity investments that are tied up. Maybe they’re in private equity or venture funds. And then other people have fixed income because there’s an issue with rates, so they move down the quality curve, and they’ve actually got some pretty risky stuff in their fixed income and so kind of reassessing. So those are the three things that I feel like really need to be talked about when it comes to the math.

How Retirement Spending Changes as We Age

Benz: And that’s a really helpful starting point. I wanted to talk about the dimension of your own spending and how it might change as you move through the retirement lifecycle. I think for many of us, the life that we envision living when we are just retired will probably be different in 10 years and 20 years down the line. How should people factor that in—potential changes in spending as we age?

Thakor: I think this is one of the most important questions when assessing whether you’re going to have enough money because so often when people do an analysis, they assume straight-line spending, and my observation is almost nobody has straight-line spending. Generally, the trend works something like this:

From ages, let’s call it, 55 to 65, if you’re entering into retirement in that zone, generally you’re in the living-it-up stage and maybe you’re working part-time. Maybe you’ve got healthcare, maybe you’re on exchange healthcare, but you’re spending it all out because you’re thinking, “I don’t know when this is going to end.” You’ve had friends that have passed unexpectedly, and mortality is something on your mind. God willing, in the stage from 65 to 75, you’re really hitting your retirement groove, and you’re diving into all of those hobbies and activities and volunteer work and family time and, so, healthy spending there. Then generally what I see is from age 75 onward, even if you don’t have a health crisis, and so many people do, your body just slows down. You’re exhausted, and so you may be mentally active, but the ways in which you engage in your fun oftentimes are much less expensive.

Planning for Long-Term Care in Retirement

Benz: That’s helpful. I wanted to discuss, you’ve referenced health issues a couple of times. The long-term-care dimension of this, which seems to be the elephant in the room for a lot of older adults, it’s really difficult to determine whether you’ll need long-term care. It seems like it’s 50/50 in terms of whether we’ll need long-term care. I’m wondering if you can talk about how you would suggest people approach that, maybe even share how you’ve thought about it with respect to your own plan, because I do think that it’s a really vexing issue for people as they approach retirement and are attempting to figure out if they have enough.

Thakor: A lot of people in the advisory community will talk about a doughnut hole where there’s a level at which you don’t have enough assets to be able to afford long-term-care insurance but you’ve got enough that you don’t necessarily fit into a financially strapped situation where some of the government programs might step in, and that that’s where you really need long-term care, but the problem with long-term-care policies is that when so many of them first came out they were dramatically underpriced. We didn’t know how expensive healthcare was going to get, and so now a lot of insurers are moving to the other end, being really strict with payout relative to the fine print, and so what I tell people is think about a couple of different things.

One thing a lot of people don’t like to think about, but if you own your home outright, you didn’t go into retirement with a mortgage or you got out of it pretty soon, you can think about a reverse mortgage potentially as being the source of funds to help provide for in-home care if you need it. Another thing that I am strongly encouraging people to research is multistage retirement communities. My parents happen to—they’re in the mid-80s—and they happen to live in one where you start off with completely independent living and then you can move through the various stages depending on what level of care you need. Oftentimes these facilities have waiting lists, and so the time to start thinking about it is maybe in your early 60s. I know that’s when my parents started thinking about it, but then they resisted it, as so many people do, and they didn’t put their name on the waitlist until about five years ago, but they got in.

And then the last thing I’ll say when I think about it: I’m of Indian heritage, and multigenerational living in our culture is very, very common in India, not so much here, but what I see people in my community do is move closer to their kids, and you know one of my plans, I think, my Monte Carlo says I can live to 100 and not run out of money, but if I’m wrong, I’m really nice to my nephews and my niece because that’s my plan B.

Nonfinancial Planning for Retirement

Benz: That’s helpful. I wanted to ask about the nonfinancial dimension of all of this. Because I think sometimes people do treat retirement planning as a kind of a math problem. They focus strictly on the numbers, but let’s talk about the nonfinancial dimension of deciding whether to retire because you really do have to think about where you will go for purpose, what your relationships are outside of work. So can you discuss that? These are topics that you delve heavily into in your book—thinking about life apart from work. Maybe you can walk through what people should have on their minds in addition to the financial dimension.

Thakor: The first thing I want to say to anybody who is working is that not all of us get to choose when we’re going to retire. I have been blown away the number of friends I have who have had surprise layoffs. In particular, friends who’ve worked in tech and had these careers find themselves in their late 50s as tech companies are shedding people, they’re often able to be replaced with much lower cost labor because the folks replacing them are younger. And it’s difficult. It’s difficult to get a job when you’re that close to retirement. It just is. And I truly have been shocked at the wide range of industries and how many people I know have had that situation in addition to being forced to retire because of health. So that’s the first thing to know—you may not be able to go through this exercise, so you’re blessed if you get to go through this exercise.

So, what I tell people is, you want to ask yourself, Are you running from something or are you running toward something?

There’s an exercise I’ve done for years when working with people on their personal finances, which is to say, if you woke up and you were gifted $10 million after tax and told you have exactly 10 years to live, what would you stop doing and what would you start doing? And pretty much universally, people say they’d stop working, and pretty universally they say they’d start traveling, volunteering, spending time with family and friends, learning a language, instrument, hobbies. And so I encourage people to really think about: What’s the motivation for retirement? The closer you get toward running toward something is more of a sign that you’re ready.

And another thing is really like: What intrinsically makes you happy? And we can talk about this a little later because sometimes what makes us happy can be toxic, but there are two authors I always encourage people to read: Derek Thompson and Arthur Brooks. And I shouldn’t just call them authors because they are so much more than that. But they both write for The Atlantic. If you’re not an Atlantic subscriber then go to the podcast and Google their name and type in “podcast,” and they’ve been on a lot of different shows. They speak a lot about what are the elements of a life well lived at different stages, and so these are some of—not some of—these I think are the defining factors to think about in addition to your relationship with your work and your identity around that, but as you decide whether to retire or not.

How to Establish a Sense of Identity Away From Work

Benz: That sense of identity that a lot of us get from our work. People with prestigious careers often really struggle with that when they retire. They’re leaving a job that conferred a lot of prestige and going out into the world where people don’t necessarily know who they are, what they did, what they achieved. Do you have any thoughts about that about making that transition to downshift and move away from some of those activities that conferred outward prestige?

Thakor: Yes. I struggled with this so much I had to write an entire book about it to be able to step and transition into retirement. What I had found personally was throughout my career I defined my self-worth by my net worth, and that’s a really toxic place because, as Andrew Carnegie was reputed to have said, when asked “what’s enough money?,” answer was “just a little bit more.” And when you are tied like I was to having your self-worth tied to whether it’s money or it’s recognition or it’s accolades, any of these things, you’ll never hit a point of enough. And so it’s the idea of trying to identify why you think that way. And I talk about it a lot in the book, and it can have to do with things ranging from childhood traumas that throw you into the habit of being a workaholic or just society’s general tendency to place such a high value on the answer to “So, what do you do?”

What I think is helpful for people is to ask themselves these two questions: What are the benefits that I get from working? What are the things that are giving me a high, and what are some other ways I could replicate them? And then the reverse question is: What have you missed out in life on because of work, and what specific steps could you start to take to add some of those things back into your life? And when you’re able to get a positive answer to—or an answer that feels authentic to you—on both sides, I find that’s the sweet spot where somebody is absolutely 100% ready to dive into retirement—and no one ever gets to 100% ready—but theoretically those questions could help you see where you are on that spectrum

How to Take a Phased Approach to Retirement

Benz: When we think about people who have successful jobs, oftentimes they have parts of their jobs that they’re really good at, that their company, their employer, wants them to keep doing, but that they don’t love, internally, they’re just not the things that they’re comfortable with. How would you suggest that people can maneuver their careers, maybe phase into retirement, so they’re doing more of those things? Can you give any guidance on talking with an employer about that? How would you suggest that people approach that?

Thakor: First of all, I strongly suggest people acquaint themselves with the work of Callie Yost. She was one of the original, she founded the term work/life fit 20 or some years ago, and she—whether you read articles or blog posts or her books—talks a lot about how to find a win-win with employers and ask about whether it’s part-time work or shifting your job responsibilities maybe in exchange for a lower salary and fewer days at the office or working. So not feeling like the answer to work is yes/no but opening yourself up to the myriad of different ways in which you might be able to have a win-win and work but not do the parts that are stressing you out. And never before in history have we had an environment where employers are as receptive, God bless covid, it was like the one good thing that came out of it, careerwise.

And then the other thing is, I mean a lot of people, this is what I’ve done, is I have shifted from full-time traditional work—because last part of my chapter, I was completely self-employed. I shifted the entire nature of that to joining a corporate board. So I’m on a corporate board, I’m on a nonprofit board, and then the other third of my time is spent on whatever the heck I want to do. And so that’s how I ended up doing it.

I guess the bottom line that I’m trying to say is it’s not a light switch. It doesn’t have to be on and off. For some people, it is. But it can also be a dimmer. And for people who are type A and still want a foot in the game, but not the toxic part, a dimmer is a great way to think about it

Benz: It is a great way to think about it. Manisha, I always love to talk to you. I always learn from you. Thank you so much for being here today

Thakor: Christine, thank you for having me, and I just want to say: People need to run and read your new book if they want to have a happy, healthy retirement.

Key Takeaways

Here are some of the key takeaways for me from this conversation.

First, I was glad that Manisha referenced the role of debt reduction or elimination as, increasingly, older adults are carrying not just mortgage debt, but student loans and credit card debt into retirement. Now that yields are higher on safe investments, it’s hard to make a case for rushing to pay a mortgage with a very low interest rate. But if you have a debt with a rate of more than 5%, it’s usually wise to pay it off because it’s impossible to outearn a higher rate of return by investing in the market.

Next, Manisha referenced continuing-care retirement communities as an attractive option for some older adults. And I would agree. I would warn, though, that the financial aspects of CCRCs can get very complicated. So ideally, you’d get some objective advice about whether going into such a community is a good decision for you.

Finally, in her books and in this conversation, Manisha makes the point that some people feel like they’re losing their identities when they retire. I love her idea of trying to carry forward the aspects of your job that you loved later in life while leaving the parts of working that you didn’t love as much. Of course, that’s easier said than done, but it’s a worthy aspiration.

My book, How to Retire, goes even deeper on the topic of finding enough, with experts such as Maria Bruno, Jamie Hopkins, and Jordan Grumet.

Thanks so much for being here. I’m Christine Benz for Morningstar.

Watch more from How to Retire with Christine Benz.