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For the Best Retirement, Build a ‘Social Portfolio’

A broad network of friends can be good for your health and wealth

By Elizabeth O'Brien | MarketWatch | August 21, 2014

(This article appeared previously on MarketWatch.com.)

Many investors recognize the importance of a diversified portfolio. And with good reason — a balanced investment mix can help ensure you don’t outlive your money in retirement. But fewer see the importance of diversifying an equally important asset: your social portfolio.
 
Just as it would be foolish to pour your entire savings into an individual stock, it’d be unwise to bank your retirement on a single activity or just one person, said John T. Cacioppo, a professor of psychology at the University of Chicago and the director of its Center for Cognitive & Social Neuroscience.

“We think about financial protection in retirement, but we think very little about social resilience after retirement," said Cacioppo.

Loneliness is a Health Hazard
 
Social connections matter, a lot. Cacioppo’s recent research found that feeling extreme loneliness can increase an older person’s chances of premature death by 14 percent. Researchers from Brigham Young University examined existing studies on social relationships a few years ago and found social isolation can be as harmful as cigarettes and drinking.

(MORE: The Senior Loneliness Epidemic)
 
One of the best ways to guard against isolation is to have a diverse network of friends and associates from different aspects of your life and, ideally, different generations.

You often hear people say they plan to travel and spend more time with the grandkids in retirement. While these are perfectly good goals, for many they’re not going to be enough: Most people don’t want to travel constantly and visits with the kids and their families probably won’t happen on a daily basis, even if they live nearby.

Couples Need Friends, Too
 
Spouses and romantic partners can provide good companionship for those who have them, but they’re not enough, experts say. For one, constant contact can strain even the strongest relationships.
 
So what’s going to get you out of bed every morning? Those who have spent decades raising families and focusing on work might need to spend some time rediscovering their passions and finding people with whom to enjoy them. (See also: New Retirement Communities Stress Bonding, Not Golfing)
 
Just as with your financial portfolio, the best time to broaden your network isn’t the day you retire, but in the years leading up to it, experts say. Make regular deposits into your friendship bank just as you would into your retirement account — deep reserves aren’t just for 401(k)s.

(MORE: The Married Couples' Retirement Crisis)
 
The best way to make such deposits is to follow your interests.

For example, take an art class, volunteer for Habitat for Humanity, or attend meetings at a veterans’ center. You can find so-called affinity groups — basically, clubs united by a common hobby, interest or passion — throughout the country at Meetup.com, a website where people can organize local groups enjoying everything from language exchanges to vegetarian cuisine to entrepreneurship.
 
Mike Piershale, a financial adviser with an eponymous firm in Crystal Lake, Ill., sometimes acts as a social director of sorts for clients who don’t have a strong network. He tries to find out where their interests lie and guide them accordingly.

For the religious, church can provide a supportive community, and for the adventurous, he often recommends group trips abroad. “There’s nothing like going into a foreign culture to make people get closer to one another,” Piershale said.
 
Financial Benefit of a Social Network
 
Financial advisers recognize that the benefits of a strong social network go beyond companionship. Those who don’t have close friends or family nearby have an extra challenge when it comes to preparing for possible future incapacity. Key legal documents that every adult should have, even if they’re far from retirement age, include a financial power of attorney, which names a trusted person to handle your financial affairs if you’re no longer able to do so, and a health care power of attorney, which names someone to make medical decisions.

(MORE: Dementia, Couples and Money)
 
Some people need a little help figuring out who can fill these important roles for them, said Jim Holtzman, a financial adviser with Legend Financial Advisors in Pittsburgh. For those without children, he’s seen siblings act in this capacity, including a local 80-year-old woman who looks after her 85-year-old brother and his wife, both of whom have Alzheimer’s disease and live in an assisted-living facility.
 
Scott Leonard, founding partner of Navigoe, a financial planning firm in Redondo Beach, Calif., sometimes delicately suggests to clients that they name a younger person as power of attorney, or at least as a backup if the primary proxy can’t act. Usually, asking whom the client plans to bequeath money to will reveal the name of a niece or nephew in a position to help, Leonard said, but if family isn’t available a younger friend could certainly fill that role.
 
Build a Diverse Network of Friends
 
Cultivating a broad network doesn’t mean collecting friends in real life like you would on Facebook. Yet while you’re not aiming for as many as possible, it does help to have friends from different parts of your life, experts say.

The former co-worker you meet for lunch every week, the friend you volunteer with and the buddy from exercise class: All three can keep you feeling engaged and connected.

A disparate group of friends can also cohere into a powerful caregiving unit in times of need, said Sheila Warnock, founder and president of the New York City-based nonprofit organization ShareTheCaregiving and co-author of the book, Share the Care: How to Organize a Group to Care for Someone Who is Seriously Ill.

Years ago, Warnock, then an advertising creative director, and a friend formed a group to care for a sick mutual friend — a divorced woman with two teenage children and a serious cancer diagnosis.
 
The caregiving group of 12 members came from all aspects of the friend’s life, and most were strangers to one another at the beginning. Not all were close friends of the sick woman. Yet they organized into a unit that took care of their mutual friend for 3½ years, until her death, using a system of rotating “captains” that allowed everyone to contribute in different roles (going to medical appointments, cooking, cleaning and even organizing a daughter’s wedding) without any one caregiver feeling overwhelmed.

Tap Into Your Inner Pioneer 
 
One reason why caregiving can feel overwhelming, both for the giver and the receiver, is because as a society we don’t often experience it until the need becomes overpowering, Warnock said. “Back in the pioneer days, if you didn’t have your neighbors, you wouldn’t survive,” she said. “These days, you walk down the street and everyone has their face in an iPhone.”
 
So make like a pioneer and practice giving and receiving help, Warnock advised. Go shopping for an elderly neighbor. Ask friends to come paint your apartment. That way, it won’t feel so foreign when you’re in a position to really need the help — or to give it.
 
Time spent cultivating your network is one of the best investments you can make. A diverse portfolio will give you something to live on in retirement, but friends will give you something to live for. 

Elizabeth O'Brien is a retirement healthcare reporter for MarketWatch. Contact her at Elizabeth.O'Brien@dowjones.com