This is the question many retirees suddenly have to answer once they hit Phase Two of their retirement. I can safely say I don’t have enough fingers to count the number of times a client confirmed their retirement date to me only for them to move it out another year… and then another… and then just… one… more.
It’s a huge and complex and deeply human question to answer. This may be why.
Financial Adjustment
Approaching retirement, you may feel ready for reduced stress and more leisure time, but a quit-cold-turkey retirement can come with a serious reckoning. Even after you’ve come to terms with the reality you’re about to lose a sliver of your identity, even after acknowledging your wealth peak after decades of accumulation and growth, you still have to tend to the dreaded Second Phase of retirement.
Four Phases of Retirement
Dr. Riley E. Moynes, author and retired financial advisor, broke down a traditional retirement into four phases. To summarize, it kicks off with one to two years of justified “me” time – usually travel, travel, and more travel. You love the sense of freedom and not having a routine, but just like a big piece of cake that suddenly isn’t any fun after the 20th bite, you find yourself asking, “Is this all there is?” As Dr. Moynes shared, some people at this point “plunge into the abyss of insignificance.”
He refers to this as Phase Two, and this is where you really start to miss routine, structure, and a sense of purpose. Some embrace this phase and never look back, but many don’t. And this may be why, according to Dr. Moynes, retirees face greater risk of depression or divorce. I was unaware of the significant health risk in retiring without a plan for staying relevant and keeping a sense of structure in your life.
In Phase Three, one attempts to rebuild what was given up in Phase One – again, routine, structure, and a sense of purpose. But if you fully exited an industry and it’s been a couple of years, reentry may be difficult. That’s why it may take several attempts to accomplish this, and not everyone does.
If you make it to Phase Four, you’re one of the happiest people Dr. Moynes has ever met. And he’s interviewed hundreds of retirees to arrive at these conclusions. He says about 60% of retirees make it to Phase 4 and that the secret sauce involves some type of service to others. That’s it. As Bob Dylan sang, “You gotta serve somebody.”
Don’t Plan for Retirement
It may feel like old news to hear that people today value having a sense of purpose in what they do for a living, and are even willing to take a pay cut if it means they can be a part of a company that shares their values. But that doesn’t solve the issue of what happens after their career is done. It’s important for workers to know they can take advantage of their fortune-cookie-like knowledge well before their retirement.
Let’s start with the obvious: no one wants Phase Two. You should do everything in your power to avoid ever entering this phase. But what would it look like if you took some ideas presented by James Clear in Atomic Habits and applied those to designing your next chapter?
Clear drives home the benefits of creating systems rather than goals. Instead of creating a bucket list of things to knock out in your retirement years, maybe you could design what an ideal, typical year (or even decade) could look like. Once you have your outline, you could fill in the blanks as needed, such as where you’d like to travel in the first two years.
An Ideal Year:
- Part-time or seasonal work: 10 hours per week (on average)
- Travel: 4 to 6 weeks
- Mountain time (local “travel”): 8 to 12 weeks
- Volunteering: 10 hours
- Recreational sports league: once per week, seasonally
- Gym and exercise: 4 days a week
- Learn and play guitar: 5 hours per week
- Wordle: 5 minutes per day (c’mon now, it’s still cool)
Ok, I’ll confess, that’s kind of my own list, but I’m only 49, so it could change by the time I’m 60. If something lands on your list that will require advance planning, you can work on that before you retire. For example, if you aren’t a part of any social or recreational club, start researching those now.
If this newly mapped out lifestyle might cause some significant spending spikes, you should ask your financial advisor to build those into your plan. It’s common to experience a huge bump in travel costs in those first few years. Also, If you don’t manage your time well before you retire, it may be harder to add that habit once you do, according to Dave Buck, a retirement planning coach. You might consider hiring a coach if the thought of Phase Two causes you stress.
No Earnings, Low Earnings
Should you – and can you – keep earning? Granted, not everyone is fortunate enough to have career skills that can be easily transferred into a part-time schedule. For example, my therapist clients are able to do that by simply reducing the number of clients they see. A doctor client of mine has also been doing this.
If you can’t, it just means your nest egg needs to be large enough to fully support you by the time you transition to a new chapter (if it won’t involve earning). Nancy Collamer is a good resource for pre-retirees thinking about their second act.
Many of my clients have proven me wrong on this. They retired outright with no plans except for waking up with a sense of freedom. Several years in, they seem happy. But they also have an abundance of wealth, strong social circles, and are involved charitably. In other words, they can do just about anything they want without financial constraints. Certainly, that helps, but I also have a few retired clients with plenty of wealth who seem quite lonely and bored. In the end, only you can decide if Phase Two makes you nervous. If it does, you know what to do.
Have more questions about retirement and purpose? Reach out to Abacus today and talk with a financial advisor to see how we can help you plan for a better future.
Happy planning,
Barrett
