Sustaining your lifestyle post-retirement

Real success is not defined by one’s attainment of a higher status or wealth; rather, it is better measured by one’s ability to sustain such status. For a retired individual, success is really defined as one’s ability to sustain a lifestyle one has enjoyed in the working years.

Many people who live in retirement today are struggling to cope with life after enjoying a very successful working career due to inability to sustain the success achieved in the early days.

They actually once thought that their early prosperity was everlasting and failed to recognize the vicissitude of life. Nobody actually plans to fail deliberately in any venture/task but life is so dynamic that when it unveils its hidden agenda, it shakes us and sometimes affects the root of our existence. Life is a cycle where you move from one stage to another and each stage is associated with it’s nuances. Finance is so important that we all relate to our financial life as an integral part of our being.

As our growth has life cycle, from infancy to teenage and then to adulthood, each of these cycles has its respective financial implications.

Hence, as we grow in a normal life cycle, we must consciously plan how to make growth easy by conducting a good financial plan to attend to each growth stage in life.

At infancy, we have no clue as to our financial situation except by referencing the financial position of those who undertook the burden of our responsibilities and ensure we were catered for. We navigated from this state to acquire skills and knowledge, which place us in a better position to gain financial strength when we put both into use.

They become our endowment (human capital) with which we gain financial power. However , no matter how we work, it is inevitable that we become weak at a particular time  when we can no more boast of physical strength and when our knowledge becomes inadequate to cope with the advancement of time. This is a time of retirement! A phase of a cycle earlier described and which must be planned for.

As we grow up in acquiring our financial assets, we get accustomed to some set of habits, attitude that defines our personality and way of life. This defines who we are in the society and what we are known for. It defines the class we belong to and our social status. During our working years, we build relationships by our own choice and these relationships by our own choice and these relationships define our outer being.

This is our lifestyle; our own set of attitudes, habits, or possessions associated with us.

Maintaining a lifestyle comes with its associated cost implications. Meeting varied societal expectation could be costly given its effects on different aspect of our lives; our children’s schools, where we live, he car we drive, the type of household we keep, the clubs we belong to and the activities we engage in and what we are passionate about etc. we often spend humongous amount of resources to keep these lifestyles and most of time, because our financial quarterback is still like a spring, we have no problems financing our lifestyles. With longer retirement and fewer employer-provided post-retirement benefits, individuals are by necessity becoming responsible for a growing share of their lifestyle funding during retirement.

However, it is not simply a matter of having enough resources, but also how they are utilise to meet objective.

Consideration must be given to the many risks retirees face; risks that were previously less prominent or were mitigated by employer-provided programs or other sources of income.

Most importantly, for an individual who has chosen a particular lifestyle, the objective of “a Retirement Plan” is not only the return expectation from investment of financial resources, but the uncertainties surrounding the ability to sustain a lifestyle!

Many dread the ignominy and public shame associated with their inability to do what they have been doing before under the watching eyes of the society.

May professionals have been living flamboyant lifestyle that upon retirement, they hardly can keep same. It can become so much of psychological pain and emotional trauma to many having been active before, but now have to maintain a low profile lifestyle! “How do you explain my inability to be active in a boat club or join my colleagues sailing”?

A foreign client once said “Many of my colleagues have their private jets but can no more maintain same at the retirement phase of life.

Sustaining lifestyle during retirement can most be because of some risks associated with retirement generally. These risks are discussed as follow:

Longevity

This is the risk of living longer than one’s resources. The employer-provided retirement benefits in form of contributory pensions are increasingly being paid out in a form that does not guarantee a lifetime income. With inadequate resources, the longer one lives, the earlier the necessity of lifestyle re-adjustment.

Inflation:

This can have a significant effect on the purchase power of the financial assets of the retiree. Where the regular income of retiree is in fixed income or assets not aligned with the inflationary trend, it poses a great danger to the purchasing power and really most contributory pensions do have issues with inflationary risk.

Investment:

With an increasing share of responsibilities for retirement funding and longer investment horizon, retirees often invest a portion of their assets in equities, subjecting them to market risk. Another investment risk is interest rate risk. A common strategy of people who retired a decade or two ago was to invest their retirement assets very conservatively in fixed income products such as certificate of deposit or fixed rate annuities. They saw their income decrease upon renewal of these products as interest rates declined since then.

Economy:

The state of the economy can post significant risk to funding lifestyle after retirement. Many retirement funds have gone under drain due to economic downturn of one’s country. Unfavourable macroeconomic policies may endanger well-funded businesses that have become the main financial springboard of a retiree. It could be a case of force majeure or even shift in demand for key retiree’s business.

How to sustain a lifestyle

It is nothing usual to live a lifestyle or to dream of a lifestyle. We have discussed about the pains and disappointment that comes with inability to maintain a life style! It is very important that one is able to sustain one’s lifestyle after retirement or maintain a desired lifestyle so that we would minimise the regret effect of retirement.  To achieve this, it is very imperative to consider the followings:

Assess your lifestyle and be true to thyself: This relates to a critical assessment of oneself and a blunt self declaration whether the current lifestyle is sustainable or not. Are you borrowing to keep going or are there sources that are supporting your current lifestyles that evaporates at retirement? What percentage of employment income is currently sustaining your lifestyle and how replaceable is this?

Building a strong financial quarterback more than your lifestyle:

To sustain a lifestyle, it is important that we build up our financial sources in a way that accommodate all risks of retirement earlier identified. Once our financial resources are large enough that our lifestyle financing is not even up to a third of the annual income from our investment, and then we can talk of sustainability. It can also be that for a long time after retirement, we cannot even spend income made on our investment talk less of touching the principal investment. This requires aggressive saving and secured investments before retirement.

Pursue a goal based invest strategy: We must also be able to allocate resources and manage our investment such that it is adequate to cater for our lifestyle. This is described as goal based investment where our investment.

Put in place retirement risk management framework that will minimise your risk and optimise your goals: To do this, we must be able to diversify our investments channels in a way that minimises concentration risk. You can imagine a retiree from Borno, North East Nigeria, who has all his investment concentrated in the state. Crisis disrupts and destroys his investment and this effect can be truly devastating. Other measure is to have in place a long term health in addition to annuity arrangement to cater for longevity risk.

In conclusion, planning for retirement is not enough, but planning to sustain a lifestyle that one has cherished and enjoyed while is very paramount. Adequate plan can also be retirement. The goals must be very clear while working, which aids proper planning, and executing plan into action.