"23 Essential Lessons for a Successful Retirement"

Key Points:

• Financial health is not the only predictor of retirement success.
• Avoid making financial decisions based solely on tax avoidance.
• Embrace the idea of enjoying your wealth rather than hoarding it.
• Prepare for cognitive decline and establish a continuity plan.
• Discuss your intentions and set up a valid will to prevent family disputes.

As financial planners, my team and I have helped hundreds of people navigate through retirement. Along the way, I've identified the common misbeliefs that end up causing retirees undue stress and the blind spots that lead to the biggest mistakes. I’ve also identified the attitudes, tactics, and frameworks that anyone can apply to dramatically improve their chances of success in retirement.

So today, I’m going to share with you 23 essential lessons for anyone who wants to achieve the best quality of life in retirement.

Lesson number one: When you think about planning for retirement, what is the first thing that comes to mind? It’s probably money, right? “Am I saving enough? Is my money invested correctly? How am I going to create a sustainable income for myself in retirement?”

But the irony of this is that I have seen people retire with millions and be miserable, while others who retire on a fraction of that go on to live happy and rewarding lives. The first lesson is that beyond a certain point, money is not a good predictor of success in retirement. As we get closer to retirement, money is the main thing that we worry about and obsess over.

Of course, it's important to make the most of what you've got and to save what you can in those final few years, but I find that people tend to get tunnel vision, focusing on the financial aspects of retirement. They become blind to the other factors that, in my opinion, are much better predictors of success in retirement: a person's health, the strength of their relationships with friends and family, their attitude, curiosity, and ability to find a new purpose in life, and importantly, their expectations about the future, which I'll explain more about in lesson 7.

Lesson number two is to make sure that you spend the time investing in your health, relationships, and your passions outside of work well before you retire.

Lesson number three: Since the budget in October and Rachel Reeves's decision to include pensions in our estates for inheritance tax purposes, I've heard of some very creative ideas for how to avoid inheritance tax. One example involves divorcing your wife and marrying her elderly divorced mother-in-law.

Don't get me wrong; minimizing tax is important, but you need to zoom out and recognize that that is not the end goal. If your goal is to have a stress-free retirement—spending time doing the things that you love with the people that you love—getting married to your mother-in-law is probably not going to solve that problem, even if it does happen to save you a lot of tax.

In reality, I don't expect anyone to actually go that far, but I often see retirees diving down similar tax-saving rabbit holes and coming up with ideas about moving to Dubai, setting up offshore trusts, or investing in schemes that are ultimately just borderline tax evasion.

Again, maybe these solutions will save you some tax, but if they make your life more stressful and take you away from the places and people you actually want to be around, then clearly you're solving the wrong problem. So, lesson number three is: don't let avoiding tax get in the way of living a good life—unless, of course, that is what makes you and your mother-in-law really happy.

Lesson number four: At the point of retirement, you will have spent the last 30 or 40 years of your life working, with a monthly income coming in that pays the bills. There is a certain comfort that comes with trading your time for money because it’s something that you're in control of, and it seems like you'll always have more time to trade.

However, at the point of retirement, you'll have to say goodbye to the security of that monthly income and replace it with drawing money from the pool of savings and investments that you've painstakingly built over the last 40 years.

This is money that you have worked hard for and saved for this very purpose. But for those that are financially responsible, it's often hard to feel good about spending money in retirement, even if you've done all the math and you think that what you're drawing is likely to be sustainable.

Lesson number five is to try and embrace the concept of “dying with zero.” In this great book, Bill Perkins argues that we should all be trying to die with as close to zero left on our personal balance sheets as possible because if we do, it means that we've actually spent and enjoyed the money that we’ve worked so hard for.

Of course, you'll never be able to do this exactly, but I think that trying to get the most fulfillment out of every pound or dollar that you have is a great attitude to have in retirement. You might be thinking, “What if I want to leave an inheritance to future generations?” Well, as Bill points out in his book, if you actually cared about that, then you should probably have given the money away well before you died.

The average age that people inherit money in the UK is about 60 years old, and yet most people agree that the most impactful time to receive an inheritance is in your 30s or 40s, even if that inheritance ends up being smaller.

Lesson number six: Nobel Prize-winning economist William Sharpe called this the nastiest, hardest problem in finance—decumulation, or deciding how much you can draw from your portfolio each year without running out of money. We have no idea what the stock market or inflation is going to do in the future, and you also have no idea how long you're going to live.

It's this uncertainty that makes spending money in retirement so hard, and this pushes retirees to seek out investments that are yielding high incomes because it's much easier to wrap your head around spending income than it is drawing down on capital.

Firstly, taxes aside, you should not care whether your monthly cash flow comes from income or selling down assets as they grow. Secondly, retirees who focus on income are often attracted to investments or funds that appear to produce high income yields but actually end up being extremely risky and often produce poor returns compared with the risk that’s being taken.

So, lesson number six is to be very skeptical of investments that are promising high levels of income.

Lesson number seven: The way we interpret the world and the events that happen in life are defined by our expectations. If you go in expecting the best but get an average outcome, you're going to be disappointed. But if you go in expecting the worst and it turns out being okay, you're going to be delighted.

We often have little control over the events we experience in life, but we have a lot of control over our frame of reference. So, lesson number seven is that in retirement, as with life, expectations are everything. Don’t go into retirement expecting it to be plain sailing; go into it expecting to see your fair share of ups and downs.

The same goes for your investment returns. Hoping for the best but expecting the worst will make it much easier to weather the storms when they inevitably arrive.

Lesson number eight: As we've seen recently, tax legislation can change at any time, and these changes can dramatically affect our financial plans. I know this really sucks, and it certainly makes long-term planning really hard. But this should not be a surprise; governments have always tinkered with the rules, and they always will.

Over the course of a 40-year retirement, you could see 10 different governments, each with drastically different views on how the country should be run. So, if you try to build your financial plans on top of speculation about who may come to power in the future and the changes they may bring in, you're likely to tie yourself in knots and never make good quality financial decisions.

In most situations, I suggest that you play the rules as you see them. But if you find yourself in a position of trying to decide whether you should contribute to or withdraw from one investment wrapper or another and there is no obvious answer as to which is best, remember lesson number eight: having diversification between different tax wrappers, assets, and income sources can help reduce the impact of changes to legislation.

The more diversified you are, the less damage individual legislative changes are likely to cause.

Lesson number nine: If you've spent the last 40 years building a career, it’s highly likely that a lot of your identity will be tied up in the work you do. Your sense of status, social connections, and sense of purpose may largely be derived from the work you do.

Being needed and feeling useful are fundamental human needs, and you often won't realize how important these things are until you've lost them.

In many lines of work, once you're out the door, there's no going back. So, lesson number nine is: don’t underestimate how much of your identity is tied up in the work that you do. The solution to this is to really think about where you’re going to get your new sense of purpose and social connection in retirement. Don't just assume you’ll get it from playing golf or traveling the world, or whatever it is that you have in your mind. Because when you actually get there, you may find that you don’t want to do those things, and you’re bored senseless.

Lesson number ten is to find a way to give your retirement a trial run. Take a sabbatical or find a way to go part-time. If you think of this as an experiment and as only something that is temporary, you're much more likely to give it a go.

When you're in it, you’ll quickly learn whether your assumptions were wrong and you need to go back to the drawing board or you’ll actually love it, and you’ll end up retiring way earlier than you anticipated. If you can test the water before you dive in or slowly transition into retirement, it will dramatically increase your chances of getting off to a good start.

Lesson number eleven: The freedom that retirement brings is great for many reasons, but humans thrive on structure. The lack of structure, especially in the first few weeks and months of retirement, can really knock you off balance.

So, lesson number eleven is: don’t underestimate the power of a routine. Setting a daily or weekly rhythm to your life can really help maintain a sense of purpose in retirement.

Lesson number twelve: Roughly one in four people end up in a residential care home towards the end of their lives, and the average length of stay is three years. This means that for a couple, there is a 43% chance that at least one of you will need to go into a care home.

Here’s the kicker: over the years, as healthcare has improved, the chances of this happening and the average length of stay have increased, as have the costs. If you're in the south of England, you can expect to pay £1,500 per week or £80,000 per year, if not more. It is absolutely brutal.

So, lesson number twelve is to start thinking about this early on and build these costs into your financial plans. If you don’t, your future self—and perhaps more importantly, your family—won't thank you for it.

Lesson number thirteen: It’s been over 15 years since the great financial crisis and 15 years since we’ve seen a prolonged economic downturn or persistently poor stock market performance. This means that none of us can be certain as to how we’re going to react when the next stock market crash comes around.

Even if you think you're a seasoned investor, you're now 15 years further along your life journey with different circumstances, goals, fears, and vulnerabilities. Maybe you've even retired in that time, and you're now dependent on your investments for income. Nothing can prepare you for how you're going to feel seeing your investments fall by 30 or 40%.

So, lesson number thirteen is: never underestimate how brutal the next stock market crash is going to be. To help address this, as we discussed before, you need to manage your expectations. If you're investing for the next 30 or 40 years, you should expect to see another five or six stock market crashes. Although they may be disappointing when they arrive, they should not be unexpected.

When a crash occurs, you'll undoubtedly have to make changes to your financial plan. But at that point in time, you'll be bombarded with so much negative information and emotions that you'll find it incredibly hard to make good decisions. They may seem like good decisions at the time, but they often turn out to be the worst mistakes.

So, lesson number fourteen is to make sure you have a predetermined plan for how you’re going to react during the next market crash. A plan you’ve thought through when you have your wits about you, so you know exactly what levers to pull when the time comes.

Perhaps you've planned to hold a cash buffer of several years' worth of expenses that you can tap into while you wait for the markets to recover, or you've decided in advance what discretionary spending you're going to cut and what changes you’re going to make to your portfolio.

If you've already planned this stuff out, not only does it prevent you from making decisions when you’re in a bad head space, but it also helps you to manage your expectations and recognize how resilient you can be because you've already acknowledged and accepted what changes you can make if you need to.

Lesson number fifteen: As someone who spends most of his day talking and thinking about retirement, I find it fascinating that retirement is actually a relatively new invention. If you go back 100 years, most people were still working six-day weeks, and retirement was something only racehorses could dream of. Most people expected to work until they died.

Even 50 years ago, when retirement really started to catch on, it was still only seen as the final few years of life when you're too old and tired to work, where you get to put your feet up. Since then, largely due to improvements in life expectancy, it has evolved into this entire new second season of our lives that could last 30 or 40 years.

It’s an incredible opportunity to redefine how you live your life and even the way you work, giving you time to work on the things you’re most passionate about. So, lesson number fifteen is: don’t think of retirement as your final act; think of it as your second act. You only have one shot at life, so don’t waste this opportunity.

Lesson sixteen: If you want to have a long and fulfilling retirement, you’re going to need to look after your health. That part is obvious, but what retirees often overlook is the mental effects of aging. You might have seen this with your own parents or grandparents, how they often complain of being busy despite not seeming to do much, or how even making small decisions takes ages and causes them a lot of stress.

So, there are a few lessons here: firstly, acknowledge the inevitability of cognitive decline and prepare for it. Cognitive decline will make it harder for you to make financial decisions, leaving you more prone to mistakes and falling for scams.

You need to ask the question: who is going to make financial decisions when you're no longer around or able to do so? If you died or became mentally impaired, who is going to run your household finances? I find that men—yes, it is typically men—tend to assume that they’ll live forever and as a result, don’t end up putting an adequate continuity plan in place, which means their spouse and family end up left in a financial mess.

This can even result in disputes and families falling out over money. So, lesson number seventeen is to make sure you have a financial continuity plan in place for when you're gone. Discuss this with your family years before you expect to need it. Decide on who is going to make decisions and what those decisions should look like so that everyone is clear and agreed on the plan.

Start delegating these responsibilities before you go into cognitive decline because if you’re sitting around waiting for the signs to show up, you’re leaving it too late. If you don’t think there’s anyone in your family that you trust or who has the competence to do this stuff, well then, think about working with a financial planner like myself. Someone who can build a relationship with you and your family, understand your goals and objectives, help facilitate these sometimes difficult family conversations, and then be there to help your family navigate through the bad times when they inevitably arise.

On that note, if you are looking for help planning your retirement and you’re wondering how a financial planner like me can help, there is a link in the description of the video where you can find out more about working with us and book an initial call with my team.

Lesson number eighteen: As you get older and your physical health deteriorates, it's likely that your current home will become unsuitable for your needs. I can tell you from experience that you really do not want to have to move home in your late 70s or 80s when it can be a huge upheaval and cause a lot of stress, as well as create more of a burden for your family members who you inevitably have to lean on for support.

So, lesson number eighteen is to make sure you start discussing later-life housing early on and move way before you need to.

Lesson number nineteen: A few years ago, a client of ours who was in his 50s fell ill very suddenly and became mentally incapacitated for several weeks. Obviously, this was an incredibly stressful time for his wife and family, but it was made even worse by the fact that his wife could not access his bank accounts to pay for medical expenses or travel costs, as he was being treated a long way from their home.

His wife was also surprised to find out that even though they were married, she had no legal say in her husband's medical treatment. Although doctors took her wishes into consideration, they did not need to abide by them if they thought another course of action was best. However, both of these things could have been avoided if only the husband had set up lasting Powers of Attorney, which would have given his wife the ability to make financial and healthcare decisions in the event of him becoming incapacitated.

Therefore, lesson number nineteen is to make sure you set up lasting Powers of Attorney—and again, do this way before you think you'll ever need to use them.

Lesson number twenty: It’s incredible and saddening how many families there are that don’t talk to each other or have estranged members of the family. The number one reason for these family feuds is money, especially after someone dies, particularly if that person did not have an up-to-date will in place.

If there’s no will, it means that money ends up going to questionable places, or if they did not discuss their intentions with their family before they died, problems can arise. If your family is learning for the first time what’s in your will once you’ve already died, then you are asking for trouble.

So, lesson number twenty is to make sure that not only do you have a valid will that is up to date, but also discuss your intentions with your family. Having these conversations up front could very well save your family from falling apart after you die.

I've left some links in the description to where you can do a will online and set up lasting Powers of Attorney for less than £100 per person, so you've got no excuse—get this stuff done now.

Lesson number twenty-one: Over the last 30 years, UK house prices have grown much faster than average incomes. Back in 1995, the average house price cost just four times the median annual income, whereas today it’s eight times. Although this is not good news for those that are trying to get onto the property ladder, it’s great news for retirees who own their own home because the relative value that they have tied up in their homes is so much higher.

This means that downsizing even by 20 or 30% can unlock a huge amount of value, dramatically improving your quality of life in retirement. Don’t get me wrong; downsizing is not for everyone. But lesson number twenty-one is to think about how you can unlock the value in your home because you may find that you get a lot more fulfillment from spending that money than sitting on it.

Lesson number twenty-two: Everyone's circumstances are different. We all have different financial health and family situations. We all have different goals, values, and desires. While one person's dream might be traveling the world in retirement, others might spend quiet days on an allotment.

There is no single right way to approach retirement. So, lesson number twenty-two is to commit to finding out what works for you, not what works for other people. As ever, try not to compare yourself with others, especially if you see people spending a lot of money right at the start of retirement because there is a high chance that they’re getting it wrong.

They may be spending unsustainably, or it’s not actually bringing the fulfillment that you think it is.

Lesson number twenty-three: As we've already touched on, spending money in retirement is really hard because you have no idea how long you're going to live and what level of spending is sustainable.

But there is one solution to this problem that has recently come back into favor and can help you to feel confident spending money in retirement, which is why you now need to watch this video here, where I explain what it is and how it works.