What makes for a happy retirement? On the face of it, the question seems like an impossible one, with no clear answer.
But the keys to happiness may not be so difficult to acquire as we age after all. In fact, George Vaillant, a Professor at Harvard Medical School, says he knows exactly what is needed for a happy, fulfilling retirement.
As the former long-time director of the respected Harvard Study of Adult Development, Vaillant has devoted 42 years to the study of happiness and ageing. His research has revealed that the formula can be as simple as exercising regularly, having fun, making new friends and continuing to learn.
Even better, as our lifespans increase, the fruits of retirement can be enjoyed for much longer. That means more time for retirees to watch grandchildren grow up, take that holiday they’d always planned, or pursue the hobbies that always seemed to take a backseat to work.
This, of course, means that retirement savings need to go further, and those leaving the workforce may have concerns that their finances will fail to keep up with the cost of living.
But the good news is that there is a solution for retirees who worry about outliving their savings. It is possible to have both the keys to happiness and the financial security needed to hold on to them. For some retirees, an ideal way of securing this peace of mind is through an annuity.
An annuity offers retirees regular payments in return for a lump-sum investment, and can provide tax-free payments for those aged 60 or over if bought with superannuation money. In effect, an annuity functions as a regular paycheque for retirees.
Annuities interact efficiently with the Age Pension benefits and can guard against two crucial risks – that a market collapse could wipe out your savings, or that you may outlive your money.
Financial advisers say that using annuities to achieve a happy retirement need not break the bank. They offer some advice for making sure Professor Vaillant’s keys to happiness can be attained:
David Reed, a retirement specialist at The Retirement Advice Centre, says: “While every retiree knows what they are retiring ‘from’, it is crucial that you identify what you are retiring ‘to’.” Whatever you retire to, a fulfilling retirement takes good financial planning and serious thought.
“Fulfilment is achieved through experiences and memories. We encourage retirees to adopt a new vision of retirement. It’s a time to rekindle relationships and place less value on ‘things’. Building memories is the key. But you still have to think and plan those activities to make them work for you. They just don’t happen by themselves.”
To help retirees plan their future, Reed often asks them to write out what their ideal year looks like, then what they would like to do in their ideal week and then ideal day, hour by hour on a piece of paper. Each day should include an activity that aligns with their personal values, such as time with friends and family, or learning new things. This, he says, helps give retirees a purpose to get out of bed every day and live the next phase of their life with vitality.
Draw up a budget
To live within your needs, you need to draw up a budget and stick to it. It should include necessities first, such as rent, council fees, food and other bills, and then your “wants”, such as holidays, meals out and entertainment.
Meeting these needs can be achieved through income layering. This is where an annuity comes in. Acting as the retiree’s regular paycheque, an annuity ensures that the essentials will always be covered. Knowing exactly what your income will be each month not only makes budgeting for clothes, food and utilities much easier, it also offers something priceless – peace of mind.
The annuity can then be coupled with market-linked investments. These investments can be used to cover the luxuries, such as entertainment, hobbies and holidays, that truly make retirement ‘the golden years’.
Change your thinking
Sarah Riegelhuth, co-founder of Wealth Enhancers in Sydney, suggests retirees to question how far they make their money go. “More often than not, when it comes to spending money, we do it out of habit. We miss asking ourselves a vital question: ‘Am I personally getting value in return for the money I am spending?’
“Adopting this mindset can be very helpful when you need to stick to a budget, as you’ll find there are many things you do that are not so much of value to you, but you’re just going with the flow. There are also lots of ways to extract the same value out of things you enjoy, while spending less.”
Knowing how to keep busy at low cost is also important Riegelhuth says. “In retirement you’ll have a lot more time on your hands. During my time working with retirees, I often saw expenses skyrocket in the year or two immediately following retirement, and then settle down as time went on.”
Take up low cost hobbies
Jenny Brown, founder and CEO of JBS Financial Strategies, agrees that having fun doesn’t have to cost a fortune. For example, she says you could join a group or club that goes on low cost outings or meets for coffee on a regular basis – the local RSL, church affiliations or Rotary often have activities planned. Many local councils also run tai chi, yoga or other classes.
“Spending quality time with the grandkids and getting involved with charities or volunteering has helped many of my clients,” she adds.
Instead of dining out, Brown suggests catching up over coffee. BYO or avoiding alcohol can also substantially reduce the bill.
Another tip is not to meet at shopping centres. “It’s far too tempting and easy to spend money when you’re surrounded by things to buy,” says Brown.
“Going for a walk or a jog is free and can be done in beautiful surroundings and with friends.”
John Hazell, executive financial planner at Professional Wealth Services in Sydney, recommends checking if you will save by prepaying annually, especially some service providers, such as private health insurers, have their annual rate hikes.
“If family members have the same service providers, consider having family-based bills, to get a better deal,” he says.
“Check what discounts you are entitled to through, for example, the Pensioner Concession or Seniors Card. And don’t get sucked into credit cards that have higher fees.”
Most importantly, Hazell says retirees must be disciplined in using their credit cards and take care to pay them off on time. “Store cards and credit cards can really trip people up. Get rid of unnecessary credit cards and establish loan limits to remove temptations.
Hazell says if you are going on a trip, look at the early bird specials, and question whether you have to travel during school holidays or peak periods.
“If you have friends with similar interests, it can be worthwhile travelling with them and getting a group discount or better deal. Some of my clients have also bought a caravan with their friends and they use it at different times, almost like boat sharing.”
Hazell says when it comes to that holiday house, consider the cost of maintaining it, especially if you are not renting it out when not using it. “Retirement is about having income. Assets that don’t produce income, or that actually cost you money, are not conducive to a long-term retirement,” he says.
Hazell suggests that if your holiday inspires thoughts of making a sea change (or a tree change) and are dead set on moving into a new area, consider renting in the area with a short-term lease to test the area out first. “Holidaying in a place can be very different to living in a place,” he says.