Your Retirement Lifestyle Ultimately May Determine Your Retirement Success

Retirement isn't a monolithic phase of life, relegating people to a set lifestyle or a series of choreographed activities. You don't wake up on your first day of retirement and ask yourself what there is to do. Instead, life goes on, and all the things that were important to you before retirement remain integral parts of your life. If you were active at the gym, for example, chances are routine workouts will stay with you as you gain more free time. The same goes for golfers, beachgoers, and/or hiking enthusiasts.

One thing that does change, however, is the amount of time and energy you can put toward those hobbies. Avid golfers who religiously follow action (and the huge paydays) on the PGA tour might consider investing in a club membership to play more rounds themselves. Hikers, meanwhile, might look to increase their vacationing schedule to get out into nature more often. There are plenty of changes that take place in retirement, and financial standing is certainly one of them.

Even though you won't be drawing a paycheck any longer in the traditional sense, your retirement investments, pension funding, and Social Security benefits will combine to replace that income. Even with careful retirement planning in place, it's possible to outlive your assets and arrive at quite the fiscal bind. A recent study by Morgan Stanley (March 2024) outlines one aspect that can point to relative "retirement success:" Your overarching lifestyle profile.

Dan Hunt, a senior investment strategist at Morgan Stanley, suggested six distinct profiles of a typical retiree. His analytical team explored financial data and lifestyle trends among retired people to develop these models, and then tested them against one another and the rigors of the consumer marketplace. His analysis revealed six common archetypes (although they don't suggest that this is exhaustive): Home Hobbyist, Entertainer, Globetrotter, Early Bird, Health-Care Spender, and Average Retiree.

The Average Retiree is a sort of blank canvas that isn't invested heavily in any specific activities, acting as a sort of baseline to gauge a more or less "standard" retirement lifestyle. The other five profiles feature unique passions (or in the case of the Health-Care Spender, a need). They each share the same basic essential spending needs like food, shelter, and clothing, but focus their discretionary dollars on personal interest. The Entertainer, for instance, is someone who tends to enjoy hosting friends and/or family for dinners, drinks, or parties, while the Globetrotter takes advantage of as many travel opportunities as possible.

The study also notes that retirement is financially segmented into three distinct phases, placing unique weight on the spending priorities and needs of each retiree type. In the early years, retirees are often active and spend more on hobbies and entertainment, while mid-retirement years are somewhat leaner, as habits become more ingrained and budgeting paradigms begin to take shape, creating a sort of equilibrium. Finally, retirees tend to ramp up spending again in their later years due to health care spending and other financial necessities.

In the study, all six retirement lifestyle profiles were more than likely to manage their essential spending without much issue. Health-Care Spenders fare the worst in this category, however, simply as a result of their increased need to purchase medicine, finance treatments, and maintain increased contact with doctors. Early Birds also fell slightly below the norm. This is due to their early entry into the world of retirement. Naturally, retiring early translates into fewer years of direct contribution to your savings accounts (and fewer years of building compounding interest in those investments, a simple savings rule that can propel your net worth). It also creates a longer draw period in which your funding will have to last, potentially stretching the budget too thin.

Globetrotters fared well in considering the essentials, but in terms of discretionary spending, they appear to be in serious jeopardy of maintaining retirement success. The study found these kinds of retirees only had a 12% likelihood of being able to fund all their spending priorities in their entirety. Traveling is expensive, and making it one of your benchmark spending categories is a great way to find yourself struggling. The same goes for Early Birds, who will need to make their lifestyle last for longer — perhaps much longer. These retirees came out with only a 2% likelihood of fully funding their essential plus discretionary spending!

No profile saw marked confidence in their ability to fully fund everything a retired person might want to engage in; Average Retirees and Entertainers (who are largely homebodies by nature) fared the best with each measuring a 66% chance of successfully navigating both their essential and discretionary spending.

While these numbers may be comforting in one breath and alarming in the next, a tightening of the belt isn't necessarily the best remedy. Spending on only essential financial demands won't generally signal a "successful retirement" either. Retirees will want to balance their financial resources with a lifestyle that makes them happy and provides a fulfilling daily existence. What that means for each individual retiree will be unique, but the overarching principle remains the same. It's simply essential that you find the things you like to do, whether they be expensive hobbies or free activities, and create a budgetary picture that helps incorporate them into your life.

If you find yourself falling into one of these archetypes, the Home Hobbyist, for instance, you will need to consider how to square your passions with the realities of your finances. Home Hobbyists are generally those who engage in woodworking or shop projects, embark on routine home improvement projects, or simply like tinkering with tools and equipment around the house or in the garage. They are slated in the Morgan Stanley report to consistently meet essential spending needs (calculated at a 100% success rate), but only enjoy a 51% likelihood of meeting discretionary spending goals when added into the picture. Home Hobbyists might consider making something they can sell online to add an infusion of cash, or focus on projects that won't blow the budget. This brings them the joy they're seeking while still helping to power their finances throughout their retirement years.

At the end of the day, your savings strategy while you're still a part of the workforce plays perhaps the most prominent role in the health of your retirement finances later on, and in turn your retirement success. The more you're able to save, the more money you will have at your disposal when the time comes to begin drawing down on your investments. Saving isn't the only feature of a well-considered plan, though. As the Morgan Stanley study demonstrates, it's a good idea to take a look in the mirror and think about the kind of retiree you will want to be, even if you're an early-career employee with a full working life ahead of you. The earlier you understand what the finances of your retirement might look like, the better able to plan you'll be.

Meeting the financial needs of your later years requires discipline and above all else, a fully formed idea of what those demands will take shape as. For a routine traveler today, a Globetrotter retirement lifestyle may be in the cards. This means you'll perhaps want to focus on high-growth assets to create as much capital appreciation as possible. You'll also want to take advantage of programs like 401(k) matching at work, in order to add as much free money as you can to your investment portfolio.