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The Three Phases of Retirement

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In this video, Robert ‘Bob’ Powell, editor of Retirement Daily, meets with Dana Anspach from Sensible Money to discuss the three stages of retirement: Go-Go years, Slow-Go years, and No-Go years.


Video Transcript

Bob: The research suggests that you’ll spend your retirement years going through three phases and here to talk with me about those phases and how you’ll spend your time and your money is Dana Anspach from Sensible Money. Dana, welcome.

Dana: Hi, Bob. Great to be here.

Bob: Great to have you here and eager to learn more about how folks will spend their years in retirement.

Dana: Yeah. Well, the research that you and I have read, and more importantly, what I see in real life in working with clients for the past 25-plus years, are that people go through the phases we describe as the Go-Go years, the Slow-Go years, and the No-Go years. And in the Go-Go years, it’s early retirement. Some people do retire early—fifties or sixties, or even traditional retirement age of 65. The Go-Go years might be your first five years of retirement. You tend to travel a lot and spend more, maybe buy a second house, maybe take up a hobby that you’ve always wanted to do, go places you’ve always wanted to go, remodel the house—there’s just all this activity going on. But then people enter the Slow-Go years, and I typically see it in about the mid-seventies—sometimes it starts in the early seventies—where they’re not traveling as much. They’re happier staying home, family may come in to visit. They reach this true contentment phase, satisfied with what they have, you know, relishing in just being content. That’s what we typically see in simple pleasures in life. And then the, what we call the No-Go phase may come in your early eighties, possibly late eighties—some people not until nineties—where health constraints kick in and they’re not able to, you know, enjoy the activities they used to enjoy. Maybe time and energy is spent more on medical costs. And those phases tie in certainly with, as you mentioned, how we spend our time and how we spend our money.

Bob: Yeah. So, when you’re planning for these three phases, some of the research I’ve read—JP Morgan, David Blanchett, most recently the RAND Corporation—suggests that spending declines over the course of retirement and that on a real basis, you may not need what financial planners typically say would be a 3% inflation-adjusted spending pattern—that it may be something less than that.

Dana: Yeah, I’ve seen all of that research and we actually incorporate that into our plans. So, we might build in extra vacation spending during the Go-Go years that slowly tapers off, and we might assign certain inflation rates to base living expenses. Maybe we start at 3%, but when someone enters what we call the Slow-Go years, inflation rate may decline to 1%. So, it follows that research that says, yes, people do need spending to keep up with inflation to a certain degree, but not necessarily at the same pace as inflation. So, you know, using a simple example, let’s say today it costs a thousand dollars to buy something, and a typical inflation rate might say that next year, you know, if it was 3% inflation—that’s another discussion we’ll have! —but if it was 3%, it would be $1,300 next year. Well, you know, maybe the retiree only needs $1,200 to maintain their standard delivering. They don’t truly need their cash flow to keep pace dollar for dollar with the inflation rate. And so not only is that what the research shows, but right now, where inflation is headline news and everybody’s talking about the price increases of gas and groceries, we are routinely going back to our clients and saying, you know, “We have built in inflation raises for you. Would you like to increase the monthly paycheck that you receive? There’s room to do so.” And even though we test, and we model, and we show them that they could increase it and that it’s not gonna increase the risk of running outta money overwhelmingly, we are still hearing people say, “No,” you know, “I’m comfortable on what I’m receiving.” So even with the price increases, we’re seeing they’re absorbing those costs or making tradeoffs, but nobody is expressing that they’re feeling that pinch. Now we have a few clients who say, “Yes, we’ll take that inflation raise,” which we, we happily deliver to them, but I would say, you know, they’re the minority. Most of the people are saying, we’re perfectly comfortable on what you’re sending us now, and those are usually clients in that Slow-Go phase.

Bob: You mentioned something about the Slow-Go phase where people are in that phase of contentment. Interestingly, the research I’ve read from RAND Corporation suggests that the utility that people get from spending their money in that phase is such that they’ve already experienced the things that they wanted to in that first Go-Go years. They’ve been to Spain, they don’t need to go visit Spain again, or they’ve taken the grandkids to Disney, they don’t need to do that again. And so that the utility of their expenses is changed dramatically in those Slow-Go years.

Dana: I think that’s interesting that concept of utility is something that us retirement income geeks talk about, but, you know, what’s the value you get for a dollar spent. But I think about it even now, I mean, things that I thought were so important in my twenties, you know, even in my teens—I remember having my walls plastered with fancy sports cars and, you know, I could care less about driving a fancy sports car. It’s not really my thing, but at that age, I thought it was important, and I think there’s subtle or changes like that as you were talking about. Not only have people gotten the utility—they’ve had these experiences they wanted to have—but their priorities change, you know. You don’t need to have necessarily the latest fashions or the latest furniture, or, you know, some of the things that when we’re younger—especially when we’re working, there’s that tendency to wanna keep up with the Joneses and, you know, we have this sense that we should be at a certain place by a certain age, whatever those parameters we set for ourselves, those drive us forward—and I think in this Slow-Go phase, a lot of that changes and, you know, they’re comfortable. They made it, so to say. They can live comfortably for the rest of their life, and so you shift gears.

Bob: What about the issue of cognitive decline and how that impacts what people do in these various phases?

Dana: Yeah, so we do see cognitive decline begin often in those Slow-Go years. I had a client recently tell me in a review meeting that he had been diagnosed with mild cognitive decline. And I said, you know, “How did you know? What made you go to your doctor?” because he had initiated a conversation and some testing with his physician, and he said he had started missing bills. Now maybe for some of us missing bills, is not so unusual. This is a very meticulous person. And so, one of the things we recommend is people set things up on autopilot. So, from your investment accounts, if you can automate your retirement plan distributions into a working checking account and autopay your key bills, particularly insurance premiums. I have seen people later in life in those No-Go phases. I had one couple and their parents missed their last life insurance premium, the policy lapsed, and so that policy they had paid on their entire life did not pay out because of one missed premium. And so, it was just that they got forgetful, they had health issues, it wasn’t set up on autopay. Same with long term care insurance premiums—I think it’s important to set some of that up on autopay. I’m perhaps a little biased in the importance of having a relationship with a financial advisor, but that can certainly help because we may notice things and can help make sure people are set up on, you know, the things that are supposed to be happening are happening. But yes, it does happen. Cognitive decline is real, and it’s something to have people that you trust around you to just, you know, be aware. Even better if you can be like my client and have that self-awareness—I was just so impressed with his ability to say, you know, “I think something’s changing.”

Bob: I’ve been a fan of something called the age tech revolution and the use of technology as we age. Any thoughts about how older adults should be thinking about technology and how it could make their lives simpler and easier?

Dana: I think there’s that fear of, you know, “I don’t know how to use this. I don’t know how to set this up.” I mean, I still have that fear with my TV, honestly, if I’m gonna be honest! I’ve quite mastered the remote. But in terms of bill paying and things like that, I was an early adopter of that technology because it’s one less thing I have to do each month. I’m gonna pay my utility bill. I’m gonna pay my life insurance premium. There’s never a question. And so, I would lay it all out and just set it up on autopilot so that I don’t have to think about it. So, I think viewing technology as a friend and perhaps gaining assistance—so there’s, you know, services you can hire to come help you, but a trusted family member can help you get things set up. And then maybe just a written document, so you know this is set up on auto pay. This is set up on auto pay. So, you have a short list to remind you, but you know, what’s gonna happen. I think looking at it as a friend is important. It can actually save you from some key errors.

Bob: So, it may not be a financial planning question so much, but as people go through the phases of retirement, especially the No-Go years, the issues of social isolation and loneliness become more prevalent. Any thoughts about what folks might do during if they’re suffering from those challenges?

Dana: certainly we see people who have strong family relationships are happier and more content in retirement. I have rarely had people retire and go back to work. I know in the industry, we talk about that a lot, but the times I have seen it happen were often single people who didn’t have children. And so, their identity was very tied into their work and those social relationships. And so even though some of them tried volunteering, they found that there was a deeper relationship in those professional ties they had, and so that kept them going back and taking on consulting work. So, I think having a plan—where are you gonna get those social interactions from? I have seen many clients choose to move closer to family as they near those Slow-Go/No-Go years. Some have family that end up moving closer to them, but I think it’s a consideration that you wanna plan for. Where is your social interaction gonna come from? As you know, I recently took up pickle ball, and so there’s this gang that meets every Sunday morning at these public courts, and there is a gentleman named Dominic who is in his nineties, who comes out every Sunday morning and plays pickle ball, and he gets two bounces for the ball—the rest of us get one—but it’s really neat. He’s found his way of maintaining a social network and an interaction. And everybody’s always super happy to see him, and it’s impressive for the rest of us too. So, whatever it might be, it’s critical part of being satisfied and happy with life.

Bob: I might need three bounces at the moment, but uh, we’ll save that for another day. So, another question, a good friend of ours, Anna Rappaport from the Society of Actuaries, likes to do research on what I think they’ve described as “widowed orphans,” this notion that your spouses died, and you have no family members around. How does one plan for this possibility of being a widow orphan?

Dana: That’s a tough question, right? Because it ties in with the social interaction. I mean, for that question, the financial side of it’s the easy part to plan for, you know. If you plan ahead, you can talk to people about this eventuality, but having that social interaction, I personally have always been a fan of the “Golden Girls” approach. So, I watched my own grandpa, you know, late in life in his nineties, and he was alone in an assisted living facility. And he had such a network of buddies when he was younger, and I wondered, you know. And there was one he stayed in touch with, but he was hundreds of miles away, also in a facility. And I always thought, why don’t they get together? You know, and maybe they didn’t want to, and that’s, you know, it’s more of a girl thing than a guy thing, but I think having that network—I mean, I had such amazing friends and roommates for much of my life and we all stay in touch, and I’ve often thought you never know. In our eighties or nineties, we could easily all be back together and sharing resources, and then you have that social interaction and you’re sharing house cleaning and perhaps, you know, people to come in and help with the cooking and having some good laughs. And I think you see more and more communities that are developing around those themes too. And so, looking for those opportunities is gonna be what you would wanna do so that you don’t end up in that orphan situation.

Bob: So, last two questions. When the research shows that most people live in fear of outliving their assets or having very high healthcare expenses in retirement, any thoughts about how people can relieve those themselves of those fears?

Dana: Well, planning! So, you know, we model everything out for life expectancy plus a few years, and we include healthcare expenses—we attribute a 5% inflation rate to those. And when you have the proper insurance, usually your out-of-pocket expenses are capped, and so we don’t see those big expenses for traditional medical care come into play very often. It’s the long-term care expenses that people worry a little bit more about. So, if you’re in that middle net worth range—let’s say, you know, one to 2 million of assets or half a million to 2 million—and you don’t have a lot of guaranteed income pensions and social security, large long-term care expenses that occur for extended period of time can cause you to spend down your wealth. And so having insurance in place for those events, if you’re a higher net worth person, typically those long-term care expenses are supplementing, meaning you’re not traveling, you’re not doing your Go-Go spending at the time that your long-term care needs kick in. And so, we find that it’s not necessarily a layered-on cost as much as people might think, but of course my answer would be planning. You can model all of that out. We overwhelmingly find that when people see it all laid out—their 30 years on paper, their healthcare, their income, what their net worth would do over time—there’s this sense of relief like, “Oh.” You know, you tested this against recessions and against market downturns, and my plan can weather all of those things and my paycheck can stay stable and I’ll be able to cover my health insurance premiums. And I have almost no risk of running outta money. And, and there’s that sense of, ah, like now they can relax and go out and focus on, on other things in their retirement years.

Bob: So, we covered a lot of ground, anything we missed?

Dana: You know, the other thing is wealth transfer. So as people enter those Slow-Go years and realize that they really aren’t gonna spend down their wealth. So they’ve been able to sustain their retirement paycheck. We start talking to them about, “Would you like an inflation raise?” And they’re saying, “No, I don’t need it.” They’re looking at their financial accounts and their net worth and going, “Wow.” Like “I am going to pass on a substantial amount and I’m not at risk of running out.” That goal of helping the next generation often becomes more prevalent. So, we find we’ll help people help. They’re right now, helping adult children buy homes. So, house prices are quite expensive, so they might be helping with the down payment. We’ve had clients help adult children buy their first business or buy a commercial property that their business was going to rent. So those kinds of things—my own dad used to say, you know, “Well, I don’t want you all waiting for me to kick off to inherit all this money,” so his way of going about it would be to plan these amazing family trips. So, we all went to Italy, eight of us last year. That was quite amazing. And dad covered the bulk of all of that. And so that’s been his way of wanting to create memories while we’re alive, and so I think each family may start to think about what are those things that you can do? You get to see the benefit of your contributions in action. You get to see your family members in the new house, or whether it’s tuition for grandchild, or some other type of educational training, or you get to see the business. And oftentimes we’re able to come up with some creative ways to do that. You know, pledged asset lines of credit or home equity lines of credit can mean that someone doesn’t have to liquidate assets. So ultimately their errors will still get a step up in basis. And yet they’re still able to help fund, some of these major purchases for another generation. So I think that’s something that starts to come to the top of people’s minds during those Slow-Go years.

Bob: Dana, always a pleasure. I think we could talk for hours about this topic.

Dana: Absolutely, we could.

Bob: But we’ll leave it here for now. So, thank you.

Dana: Thank you, Bob.


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