Keys to a Successful Retirement, Part 2

Today I’m sharing some more great points from the new book Keys to a Successful Retirement.

The book is written by my friend, Fritz Gilbert (author of The Retirement Manifesto), and contains several key points that I haven’t found in many other retirement books.

This is probably because most authors write about retirement in theory. Fritz writes about it from practical experience because he’s actually retired.

I covered three points from the book last time. If you missed it and want to catch up, check out Keys to a Successful Retirement, Part 1.

Let’s jump right into the five points I’d like to share today.

Here we go…

4. You need to have a plan for dealing with sequence of returns risk.

Imagine you had saved and planned for retirement for 30+ years. You had enough to make ends meet and you were ready to retire with just enough money.

So on February 1, 2020, you retired.

If you needed to withdraw money from the stock market anytime soon after that, you were in for a world of hurt since the market was getting ready to drop like a rock, making mincemeat out of your savings.

This is the pain that’s cause by sequence of returns risk (or simply sequence risk). Here’s how Investopedia defines it:

Sequence risk is the danger that the timing of withdrawals from a retirement account will have a negative impact on the overall rate of return available to the investor. This can have a significant impact on a retiree who depends on the income from a lifetime of investing and is no longer contributing new capital that could offset losses.

Sequence risk is the danger that the timing of withdrawals from a retirement account will damage the investor’s overall return. Account withdrawals during a bear market are more costly than the same withdrawals in a bull market.

This issue was brought up in our retirement workshop. They showed the sequence of returns impacts for two different couples. The couples had the same overall return rates and both started with $500k in assets. One had good returns at the beginning of retirement and the other had poor ones. The poor return couple ran out of money in 13 years. The other couple had almost $1 million at age 95.

If you want to see a similar illustration look at page 2 of this PDF.

Of course our teacher’s answer to how to protect yourself from this was an annuity product called the Principal Protection Program which I was not so fond of.

Fritz has a better idea and I think it’s pretty good.

Here’s what he recommends:

Build up cash reserves equal to two to three years of your spending prior to reaching retirement. This is the pool of cash you’ll use to establish your retirement paycheck.

A note about the two to three year cash target. A risk you’ll face in retirement is called “sequence of return risk,” which is the risk of having to sell stocks during a bear market (defined as a stock market decline of 20 percent or more). If you have $1M entirely in stocks and the market goes down by 50 percent, you’d only have $500,000 in investments. The worst thing you can do is to sell $50k of stocks at this point, which would equate to a 10 percent withdrawal rate, leaving fewer stocks in your portfolio for the eventual market recovery. By building the cash cushion of $150k, you’d be able to withdrawal $50k for three years without selling any stocks during the bear market.

The length of your cash cushion should be based on your risk tolerance. We chose 3 years as a conservative approach, which would allow stocks three years after a bear market to rebound before we’d have to sell any stocks. Some would argue we’re giving up potential investment returns by subjecting $150k to the meager returns of cash, but the avoidance of sequence of returns risk is worth it to us. You’ll have to decide what risk tolerance level you’re comfortable with and build your cash bucket accordingly.

Shortly later in the book he details his “bucket system” for how to implement this plan as follows:

  • Bucket 1: $150k, or 3 years X $50k, in cash or cash equivalents.
  • Bucket 2: $250 to $350k, or 5 to 7 years, in bonds, CDs, REITS (some volatility, higher growth)
  • Bucket 3: $1 to $1.1M remainder in stock portfolio (higher volatility, higher growth)

I hadn’t seen a solid plan like this for covering sequence of returns risk in other books. It’s a pretty good way to deal with a tough retirement challenge IMO.

After I Googled around a bit I found it recommended as one of four sequence of returns risk strategies talked about by Forbes. Here’s what they had to say about their “Cash Reserve Bucketing Strategy”:

Bucketing is a strategy popularized in the 1980s and 1990s with regards to retirement income planning. According to the bucketing approach, you separate assets into buckets of money for different time periods. You reserve more conservative assets, like cash, for short-term needs, mixed investment portfolios for the next time period and equities for the long term.

Some people decide to hold one to two years of cash in order to meet short-term spending needs in retirement. If the market sees a big downturn, they can then spend their cash for two years to ride part of the downturn and allow their equity investments to recover.

Ok, so maybe Fritz didn’t come up with the idea as I thought. But he’s the first retirement book I’ve seen mention it!

As usual, my wife and I went a bit overboard on this one as we had both a large cash reserve (which got larger after I made a big gain on Rockstar Finance) plus enough income from this site, real estate, private loans, and a few other sources to more than cover our expenses.

Yes, we do practice what we preach when it comes to margins of safety and multiple streams of income.

Most people either can’t or don’t want to go to these extremes. For them, Fritz’s plan seems like a great one to me.

What do you think of it?

5. There are often spousal issues in retirement and you need a plan for how to deal with them.

This is another topic I’ve seen covered here and there but not any as in-depth as Fritz does it.

If one spouse is at home and the other retires or both retire at or near the same time, they’re going to be spending a LOT more time together.

This can be a good thing or a bad thing based on a number of factors. Fritz discusses many of these and suggests ways to navigate the issue.

He begins the process with this statement:

Realize the change resulting from retirement is as significant for a stay-at-home spouse or partner as it is for the one leaving the workplace. Take time prior to retirement to talk about your mutual expectations.

And here’s what he suggests doing:

  • Carve out time to talk about how the transition is going.
  • Discuss how much time you’d like to have together versus how much time you’d each like to have to pursue individual interests.
  • Agree in advance that it’s okay to raise a flag and let your spouse or partner know when you feel they’re stepping on your turf.
  • Carve out a night every week or two to go on a date.

We still love and like each other after 28 years of marriage, so more time together hasn’t been a big issue.

But we have taken steps to be sure we’re not together too much. These include:

  • We have our separate interests and hobbies which doesn’t involve the other.
  • We work on different projects that we enjoy — me on this site and her at church.
  • We live in a large house, so even when we’re both here, we’re not on top of each other.
  • We make sure we get quality time by walking and chatting at least daily (usually twice per day in the summer).
  • We usually do “date nights” at home in front of the TV. We prefer time at home versus time out.
  • We travel regularly (which makes for extra special connections), usually taking all or part of our family with us.

Does anyone see this as a potential issue in retirement (or have you had it happen to you already)? How do you plan to deal with it (or how did you)?

6. Retirement has some common pitfalls that potential retirees need to be prepared to deal with.

I was totally clueless on these, but Fritz does a good job of detailing common problems people have in retirement.

The top issues include:

  • Depression
  • Boredom
  • Loss of identity
  • Grief

I haven’t dealt with any of these so reading this section was all new news to me.

Here’s how Fritz suggests dealing with these issues:

  • Stay active
  • Strengthen social relationships
  • Find purpose
  • Spirituality
  • Fulfill your dreams
  • Develop a schedule

Sounds very similar to the actions needed to have a great retirement. Pretty solid advice IMO.

Here are a couple other suggestions I especially liked:

It’s important to find something to replace the meaning once provided by your work. Focus more on others, and less on yourself. Finding ways to help other people brings a sense of fulfillment which will help in your transition. Find a way to be generous with your time in a local charity or in support of a cause you feel deeply about.

Think about something you’ve always wanted to do and make a plan to do it. We never know how long our health will last, so do something “Big” while you have the opportunity. Consider taking that trip you’ve always dreamed of or learn to play that instrument you’ve always wanted to play. Use your newfound freedom to do something for you and enjoy the excitement of doing something you’ve always wanted to do.

A couple thoughts here:

  • Volunteering is almost the perfect retirement activity. It gives you purpose (helping others), counts as one of the 3.5 activities you need to be a happy retiree, and has social benefits (you are almost always working with others.) It also covers almost all (if not all) of the suggestions above by Fritz. Volunteering FTW!!!!
  • Dream big. Make a huge list of things you might like to do/try in retirement and get to doing them! If you’re having trouble thinking of possibilities, here’s one list of 100 ideas and here’s another of 120.

My wife and I both volunteer at church. She teaches and we both serve as greeters. I’m also looking for a board-level position for a non-profit.

As for activities, I have so many I don’t know where to start.

Here are a few:

  • Exercising (cardio and weights)
  • Writing
  • Running a website
  • My cute cat 
  • Investing/managing our money
  • Pickleball (have I mentioned this before?) 😉
  • Video games
  • Walking
  • Traveling (at least two big trips a year)
  • Movies
  • Swimming
  • Grow roses
  • Sudoku puzzles

There are probably more but since I’m way past 3.5, I’ll stop here.

But I will list a few I’m considering as well:

  • Tennis — I played a lot when I was younger and might want to take it up again.
  • Chess — I’m looking for a buddy who wants to get together and play now and then.
  • Bridge — I know nothing about it other than Warren Buffett and Bill gates play, so why not?
  • Extended travel — Particularly somewhere warm in January and February each year.
  • Create a product — This would be a financial product associated with ESI Money. I have some ideas…
  • Teach a class — I think I can teach young people something about money.
  • Buy a business — A possibility for/with one of my kids.

Those are some things on my “maybe” list.

Anyone had any of the problems above in retirement (or are worried they might be issues for you)? If so, how did you deal with them?

7. How to handle looming tax issues caused by high RMDs.

Both the third direct mail retirement dinner and the retirement workshop we attended focused on how RMDs are going to kill many retirees tax-wise.

Their solution was to pull out dollars from IRAs and move them into Roths before reaching 72, thus paying taxes today at what they saw as lower rates than in the future.

But they lacked specifics. Fritz provides specifics with an idea so easy I can’t believe I didn’t think of it.

His words:

Don’t wait until RMDs kick in at age 72 to manage your pre-tax retirement savings. Consider “topping off” your tax bracket each year with withdrawals from your before-tax IRAs.

The following example helps to clarify this strategy. Though tax brackets continually change, I will use the tax rates in effect for a married couple filing jointly during 2019. Any income between $19,400 and $78,950 is taxed at a rate of 22 percent. If your income is $50,000, you could withdraw $28,950 from your before-tax account while staying within the 22 percent tax bracket. “Topping off ” describes the act of achieving the $78,950 income level via pre-tax withdrawals ($50k + $28,959), which represents the “top” of your current bracket.

Of course it’s hard to know the cutoff for when you do or don’t hit another bracket (my income is widely variable from this site and my properties — it can swing tens of thousands of dollars each way), but in theory this will work.

I’m going to try it. This year should be more calm (I won’t be selling a business like last year) and thus I should have more predictable income.

Though after the recent market meltdown, my RMDs aren’t looking so high…LOL!

8. Life changes throughout retirement.

If you’ve never been through retirement you wouldn’t know this, but there are actually phases to it.

Here’s how Fritz discusses the issue:

Your life in retirement will change over time. Realize the initial euphoria will fade and enjoy the transition to a longer-term approach to retirement that works for you.

I have noticed this transition myself.

My euphoria-phase actually lasted at least a couple years, maybe close to three.

It’s what had me up at 5:30 am and at the gym by 7 am.

These days I’ve settled into a different routine. I stay up later (until about 11 pm), get up later (7 am or so), and get to the gym later (around 9 am).

If I workout at home or go play pickleball, I usually work/write first and then hit the basement/courts around 11 am.

In short, the “Christmas morning” feeling has been replaced with a “this is just normal life” feeling.

That said, I remain grateful for being retired. I’m reminded of it now and then when friends mention something about work. A shudder runs down my spine and then gratitude overwhelms me.

And sometimes on Sunday afternoons I remember that this was the time I usually started dreading the next day and I’m thankful I don’t have to feel that way any more. Not sure I’ll ever lose the feeling of gratitude.

Intrigued by the whole “phases of retirement” idea, I did some Googling and found a couple posts about it.

This one lists the emotional phases of retirement as:

  • Planning
  • Excitement
  • Honeymoon
  • Disenchantment
  • Reorientation and Stability

I must have gone straight from honeymoon to stability as I don’t remember disenchantment. Here’s how they describe it:

At this point in retirement, you might begin to think retirement isn’t as fun as you expected it to be. There are only so many hobbies you can learn and places you can visit before everything starts to feel the same again.

This feeling of disenchantment can sometimes be accompanied by more serious feelings of meaningless or depression. In this stage, it’s important to ask for help if you need it. Talk to your family and friends about your feelings, and have them help you look for ways to create a sense of purpose again.

This might be a good time to invest in something bigger than yourself—you can volunteer at a local organization, consider continuing education opportunities, or even plant a garden.

Nope. Never had this.

Then again I’ve always had plenty to do/be interested in. So maybe if those things ever die out I’ll become disenchanted. Time will tell, but I doubt it.

This article lists the six stages of retirement as follows:

  • Pre-Retirement: Planning Time
  • The Big Day: Smiles, Handshakes, and Farewells
  • Honeymoon Phase: I’m Free!
  • Disenchantment: So This Is It?
  • Reorientation: Building a New Identity
  • Routine: Moving On

Again…what’s with the disenchantment?

Here’s how they describe it:

This phase parallels the stage in marriage when the emotional high of the wedding has worn off and the couple now has to get down to the business of building a life together. After looking forward to this stage for so long, many retirees must deal with a feeling of letdown, similar to that of newlyweds once the honeymoon is over. Retirement isn’t a permanent vacation after all; it also can bring loneliness, boredom, feelings of uselessness, and disillusionment.

Shanna Tingom, the co-founder of Heritage Financial Strategies in Gilbert, Az., says: “The toughest transition most of my clients make is the one from working and saving to retirement and spending. It can be emotionally and financially harder than they ever expected. If they are younger retirees, and they have friends and family still working, it can also be very lonely, especially if they don’t have a plan.”

Tingom adds: “A proper retirement plan includes three things: a financial plan, a budget, and a FUN plan! The fun plan includes things that they want to do, places that they want to visit, and how much money is included in the budget for those things.”

Looks like having a wide variety of interests and activities is again the recommended antidote for retirement disenchantment.

This must be why You Can Retire Sooner Than You Think says that happy retirees have at least 3.5 “core pursuits”. These keep them enjoying retirement (and likely skipping the disenchantment phase).

What do you retirees think? Did you ever experience disenchantment with retirement?

Well, that’s it for my coverage of the new book Keys to a Successful Retirement. What do you think of it based on what I shared?


Originally posted at

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