Reaching retirement can feel like crossing the finish line at the end of a 30-, 40- or even 50-year-long marathon. Therefore, many of us look forward to the endless vacation days and the rest and relaxation of retirement. Although a life with no alarm clock is something we dream about, the truth is that retirement really throws a wrench in how we view our money. The switch from receiving structured, employment-driven income to drawing down investment accounts can be harder than we realize.
If you’re retired (or nearing retirement), you’ve worked long enough to see a vastly transformed economy. Factors like PCs and offshored workforces to corporate acquisitions have accelerated the transition from a manufacturing-based economy to one of service. The information and technology-based economy has fundamentally changed employment dynamics. So too have we seen the transition in retirement income from defined benefit plans to elective 401ks. This means the burden of saving for retirement has shifted to you. And just as your money mentality has changed over the course of your career, so too should it change when you retire.
Changing Your Financial Mindset in Retirement
You used to ask yourself if you were saving enough money for retirement. Now you’ll have to ask yourself how long you need that money to last for both you and your partner. Have things changed since you last made your monthly budget? Maybe you used to commute to work, and now you’re on the golf course. Or you used to spend every Friday at happy hour with friends, now you enjoy a quiet evening at home. It’s very likely that your daily habits, and what you spend money on, have been affected by retirement.
In many cases, this could be good news. You’re spending less on gas or commuter passes but maybe more on travel and vacation. How about eating out, gyms and don't forget medical expenses. Have you reevaluated what your spending looks like.
Your one time budgeting goals have switched from a savings mentality to withdrawal goals that make sense for your lifestyle. Working alongside your financial advisor can help you feel confident and comfortable with your plan for retirement.1
You used to optimize your portfolio to reflect your growth needs and risk capacity.
Now that you’re retired, you may look at volatility in the market and other risks in an entirely different way.2 Market volatility is inevitable. In uncertain times times it is natural to react out of fear. A balanced portfolio that reflects your your goals, risk tolerance, time horizon and income needs can help you weather market volatility while still taking advantage of long term market opportunities.3
You (probably) used to work full-time for your primary source of income.
You need to anticipate potential sources of income in retirement and the mix of pension, savings, social security, and potentially still working more. Most of us assume our work will be enough and whatever is taken out of our paychecks will pay for our later years. For a few with a defined pension plan, that might still be the case. But for the rest of us, the exact income sources will matter. While Social Security offers a steady, reliable income source in retirement its benefits vary depending on when you begin claiming benefits.4
Retirement Mindset Means More Than Just Money
When you think about it, suddenly moving from working 40 hours a week to zero can be a real shock to your system. Although it may sound great in theory, the truth is that we’re creatures of habit—and we don’t always react well to quick and dramatic changes. Some employers will allow you to ease into retirement by gradually shortening your workweek over a year or a couple of years. This can be a great way to get your toes wet before diving right into full retirement. Use your days off to discover new hobbies, start volunteering, meet with friends and begin developing a new routine you can expand on throughout retirement.
If your current place of employment does not offer a gradual retirement option, you could search for a part-time job, perhaps something that’s more laid back or of interest to you. Easing into retirement not only helps reduce the shock but also can be a great way to continue earning income without committing to a full workweek.
Everybody Needs a Helping Hand Sometimes
If you’re struggling with your transition to retirement there are things you can do to help. For many, this starts with making sure they’re aligned with their passions—friends, family, travel, hobbies, volunteering and so much more. Some look for role models, people like them who are wonderful examples of thriving in retirement. Others get help from their financial professionals to meet their retirement goals. Consider working with a knowledgeable professional who can help address potential financial, budgeting, investment and tax related issues.