Four Lessons for a Happy, Successful and Wealthy Retirement

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Christine Benz is director of personal finance and retirement planning for Morningstar and author of How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement (see a related podcast at Morningstar).

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Benz devotes a chapter each to advice from 20 specialists in all aspects of retirement, from social and healthy living to income, investing and taxes. I spoke with Benz about highlights from her book.

Foster relationships

One key point in your book is that social relationships are the most powerful predictors of longevity — more critical than even genetics or wealth.

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That’s why it’s important to be thoughtful about maintaining and growing your relationships. Your social networks naturally winnow down as you age, but that’s not necessarily bad.

Just put yourself in situations where you can have contact with a variety of people and age groups, from visiting kids and grandkids to volunteering or attending church activities. Stay in touch with faraway friends, even if it’s a phone call once a month. Exercise is good for both your health and your social relationships, so walking outside with a friend ticks a lot of boxes.

Give yourself permission to spend

After saving all their working lives, many retirees are reluctant to spend their money. How can they make the transition?

Research shows that retirement spending takes the shape of a smile curve, trending downward as you age and then upward toward the end of life due to high health care outlays. But even then, a fairly small subset of people with catastrophic long-term-care costs inflate the average.

So you should give yourself permission to spend more to enjoy the early years of retirement. Assuming that spending patterns will decline as you age, we at Morningstar estimate that the safe withdrawal rate to start will be more like 5% of assets, adjusted for inflation, rather than the oft-cited 4%.

And you talk about setting a “worry-free number.”

Instead of sweating the small stuff, give yourself permission to spend an amount every day on small purchases that you enjoy. Align your spending with things you value, even if they are different from what your peers value.

And having something to look forward to is a huge component of quality of life, whether it’s a family vacation or a weekly restaurant dinner with friends.

Split your assets into “buckets”

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How should you generate income in retirement?

First, be aware of your retirement income style. Do you want safety with a steady stream of income, even though your investment portfolio will grow less over your lifetime? Or are you comfortable with a total-return approach, which probably means holding more stocks? That second approach is a bit more complicated and risky, but it gives you more control and flexibility.

You prefer a “bucket” strategy.

With my three-bucket structure, the first bucket holds two years’ worth of portfolio withdrawals in cash or cash equivalents. Bucket number two holds high-quality short- and intermediate-term bonds, with some Treasury inflation-protected securities, to cover the next five to eight years’ worth of living expenses. With 10 years of expenses covered, you can put the rest of your money in a growth bucket that holds stocks.

And people who have enough assets could create a fourth, “contingency” bucket for potential long-term-care costs.

Review your portfolio once a year

How much attention should you pay to your investments?

Some retirees tend to want to spend a lot of time toiling over their portfolio and watching financial news on TV. But a once-a-year review in November or December is enough for most people.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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