What Makes a Satisfying Retirement? Practice, Practice, Practice

When Christine Fahlund of T. Rowe Price asked a packed crowd of NAPFA advisors on Wednesday afternoon if they had clients who weren’t prepared financially for retirement, nearly every hand went up in the audience. Almost the same number also agreed that their clients were not psychologically prepared for retirement, either. Speaking at a breakout session at the NAPFA annual conference in Chicago, Fahlund then laid out a way to improve retirement preparation for clients while also giving them hope and helping advisors to differentiate themselves from their competitors.

“It’s all about the 60s,” said Fahlund (left), a CFP, a Ph.D. and a former fee-only advisor herself. She described those years as the age that for many years was considered “Nirvana” for clients who hoped to retire and spend that decade of life enjoying all the activities on which they had delayed gratification while working. With the Practice Retirement program (recently trademarked by T. Rowe), Fahlund said advisors can tell clients, “Yes, you have to keep working, but you can start playing” as well. She also argued that the research is clear that “lives built exclusively around leisure do not deliver the satisfaction level hoped for,” which has led to what she calls the “unretirement trend.”

The program encourages people who have reached age 60 to begin ‘practicing’ retirement by cutting back on the number of hours worked to start exploring on a part-time basis those activities that they envision themselves doing once they are totally retired. As an example, she said that some clients might see themselves as wanting to travel around the country in an RV. “So buy an RV and try it for a few months,” the program would suggest, or even better, rent an RV and discover whether such a lifestyle is really rewarding.

However, continuing to work while practicing those retirement activities helps clients in multiple ways. For one thing, it allows them to put off the day when they start receiving Social Security benefits, thus increasing the level of those benefits when they do begin distributions. Fahlund said her research shows an increase of about 8% in Social Security payments for every year that a client waits from age 62 to age 70.

She also shared with the audience her research (available for free at practiceretirement.com) on the financial effects of following one of the three most common paths toward retirement. First is the “cliff diver mindset,” under which a worker works until arriving at age 62 and then completely retires. Second is the “worker bee mindset,” under which a worker continues to work full time until age 70 or older. The third approach would be a “retiree in training,” who continues to work while practicing retirement. That third approach provides the highest income to workers in their 60s, and allows them to achieve more than 75% of their income replacement goals when they reach their 70s. She also said that following the practice retirement approach benefits advisors. While other advisors might harp on the lack of sufficient money saved for retirement, the T. Rowe plan allows advisors to tell their clients that “the glass is half-full,” and that they can enjoy their 60s after all. “Others will want to hear that same upbeat message, too,” she predicted, resulting in referrals. In addition, presenting the Practice Retirement program to clients will allow advisors to have conversations with their clients on both the financial and emotional issues around retirement.