Congratulations!! Today’s going to be an exciting day, today is your Retirement! Today will be filled with a lot of emotions like excitement, exhilaration, and maybe even peace. However the days leading up to ‘Retirement Day’ may not have been as rosy. Often some individuals feel loss, sorrow, emptiness, anxiety, and more. They are not sure what this new phase of life will look like. It is common for pre-retirees to think about how they will spend their eight hour day, how to recreate their paycheck, where will they meet new people, or even something as basic as "What am I supposed to do now?" Questions like these create doubt and uncertainty which can lead to paralysis and eventually convince individuals to delay retirement as long as possible. It is this uncertainty that makes preparing for retirement, both financially and emotionally, critical before venturing into this new stage of life.
Retirement is unique. There is nothing else like it and it typically only happens once in your lifetime. Many people approach retirement as an end. An end to a 30 year work history. An end to their professional network of friends. An end to a life's purpose. It is a phase of life that essentially is uncharted and can be perceived as unnatural. For over 30 years you woke up, went through your morning routine, and fought traffic to sit in a career that captured your attention for 40-50 hours a week. Then you woke up one day faced with the question of "How much longer will I live in this cycle of rinse and repeat?". Some people may panic when faced with a potential identity crisis but plenty of people look at this transition with excitement and eagerness. To be a part of the latter you will need preparation and planning before making such a significant life change.
The psychological impact of retiring can have a significant impact on one's outlook to life. To some individuals their career is the culmination a lifetime's worth of accomplishments. To others it was just a place to go in order to pass time until their next adventure. Regardless of your motivation, transitioning from working to retirement can take a while. In order to make for an easier switch retirees should look to their financial planner as a resource to help them uncover obstacles and understand the current retirement picture.
To prepare for the financial and mental challenges of retirement I encourage every client to answer these five questions:
- What does retirement mean to you and what are your top concerns associated with retirement?
- How much money do you need monthly to achieve your ideal retirement lifestyle?
- Which accounts should you withdraw from first?
- What is the average annual required rate of return needed to grow your portfolio to meet your ideal monthly income and have your portfolio last your lifetime? (i.e. The target return needed to offset inflation, taxes, and your desired withdraw rate across all market environments)
- How will the impact of healthcare and long term care expenses impact your retirement calculations and can you afford to self-insure?
Each of these questions are designed to provoke real world concerns that many people have failed to address. Furthermore, these questions can help you prepare for conversations with your planner as you think through some of your biggest retirement fears. Today’s retirees cite the following as their top fears to retirement (in no particular order):
- Loss of income.
- Running out of money.
- Rising healthcare costs.
- How to plan for long term care expenses.
- Market volatility.
- Boredom, or loneliness.
’Retirement Day’ does not have to be an “end”. Rather it can be the beginning of a new chapter in the evolving story of your life. However, in order to get the most out of your retirement we encourage you to start thinking about what you want to do, who you want to spend your time with, and where your circle of friends will be once you decide to transition. Retirement should be an exciting time and understanding the psychological impacts before you make the leap will help abate the fears.