Should you have a mortgage when you retire?
I’ve seen some people retire with mortgages and be just fine – they had the cash flow to support the mortgage payment. For others, a mortgage payment was like a ball and chain, keeping them from enjoying their retirement years as fully as they might have.
The difference was financial flexibility.
As we age physically, some loss of physical flexibility is inevitable. But with extended life expectancies, ours is the first generation to witness a number of seniors both aging and active. Nobody told them they had to have a walker to move into their golden years, so a significant number have continued cycling, swimming, walking, running, weight lifting and practicing yoga into their 80's and even 90's.
The physical flexibility these seniors maintain is a helpful and inspiring picture to the rest of us of the financial flexibility we need as we enter retirement.
Such financial flexibility is necessary because life doesn’t stand still, even when you’re retired. Retirees should be prepared to experience changes in tax laws, investment returns, interest rates, prices, health care costs and many, many other things.
The significant benefits of being financially flexible are discovered through a personalized financial plan, updated regularly to keep with your changing circumstances.
Here are a few ways to maximize your financial flexibility in retirement.
1. Maintain a modest lifestyle funded by dependable income. By dependable income, I’m talking about little or no risk of fluctuation. That would mean Social Security, pension income, guaranteed income annuity payments or small systematic withdrawals from a well-diversified investment portfolio. And by modest, I mean equal to or less than your sources of dependable income.
2. Cash. Retirement may differ from working years in many ways, but not in every way. During retirement, you’ll encounter emergencies, unexpected opportunities and irregular needs to spend money (yes, you’ll probably have to replace that roof in retirement or buy a new car). An amount equal to six months of income is a good goal.
3. Insurance. If an event would be a disaster to happen, you probably need insurance against it. Just make sure your coverage limits are adequate, which may necessitate you having a high deductible. One more reason for keeping some cash nearby.
4. Diversification. Did you work for the same company for forty years? Please don’t tell me half your investments are still tied up in that company’s stock. No matter how wonderful the company for whom you worked was, I recommend no more than 10% of your portfolio be made up of the stock from your (former) company.
5. Self-care – physical, emotional, spiritual. This part is not about money, but it may be the most important part. What’s the point of a bullet proof financial life if you’re living in a bankrupt body? Or psychologically or spiritually bankrupt? No one has total control over how well they age, but we all have a high degree of influence. How do you care for your body, handle stress and remain joyful and connected to those around you are all things you largely control, or at least influence. Do you have a plan for those kinds of self-care too? If not, you should.
Retirement is not the finish line. Done properly, it can be just another starting line for the next phase of your life.
Just remember to get and stay flexible.