The Behavioral Side of Retirement
Are you gearing up for retirement and starting to “check the boxes” as you make the final push to this next chapter? Retirement is an extremely exciting time and something we strive for our whole lives. Although this is a great time to look forward to, there are some aspects to prepare for emotionally as you get closer as well.
Consider your social circle
Have you considered who you will want to spend time with in retirement? Many of us find over time a huge majority of our friends and social circle are all in the workplace. This may not seem too significant today, but can be extremely important as you move into retirement. You may find yourself feeling lonely as you experience much more free time and fewer people to socialize with. However, you can prepare for this by simply starting to work on developing an outside social circle or plans to maintain regular contact with your co-workers after you leave the workforce. One of the many reasons this is so important is that a lack of social and physical activity in retirement can sometimes lead to diminished capacity which could impact your retirement plans not only emotionally but financially as well.
TOO much free time
Ahhh, we made it to retirement and are finally free. We now have all day, every day to do exactly what we want and when we want to do it. While this may sound great, there are some unexpected consequences that come with this newfound freedom. Many folks find themselves feeling bored and having a hard time finding a rhythm with a lack of structure, which can lead to excessive spending. Although retirees will generally settle in after a few years, we really notice this impact in the early stages of this transition. If you turn this free time into a positive, you can begin to map out your ideal retirement. Consider what you will do with your free time, and activities or organizations you can join to provide some structure and be sure you incorporate some fun in your day without overspending!
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Market swings in retirement hurt even more
Not only will you find you have more time to track your portfolio, but you may also find market swings create more angst than ever before. During the distribution phase we typically notice a much stronger feeling of concern with market swings; returns seem to feel smaller, and downturns feel much more harsh even though the market may be performing as usual. Fast forward, and imagine yourself in retirement. You are now completely free to enjoy your years and have set aside your retirement nest egg, but it MUST last through your lifetime. As you are pulling out your typical distribution, you run into a few tough months in the market. Because you are taking money out as the market is also dropping, you might imagine the significant difference you will feel during these down periods. This is one reason the distribution phase of retirement can be more complex than the accumulation phase. Taking time in determining asset allocation, discussing risk, and creating a plan around how to sell assets to create income in retirement can help you prepare for this change in mindset in order to fully enjoy your retirement.
Be sure to avoid a plan based on emotions
Sounds pretty simple, right? A huge consideration in the success of your retirement plan is the reality of biases in your planning assumptions. When we meet with folks who have not sought out any outside counsel, many times we find their assumptions around taxes, expenses, and returns force them down one path, not providing much room to course correct when there is change. By developing a plan with flexibility, you can be sure there are strategies in place if or when tax laws and other forces outside of your control changes – which is almost a certainty.
Even though these may not seem significant now, most retirees we talk to struggle with at least one of these areas, so having someone in your corner to work with in advance can be your best defense. Retirement is one of the most celebrated times in life, but is also a significant change in your day to day. By addressing these areas proactively you can better prepare yourself for this next chapter of your life and feel more confident knowing you gave a game plan to enjoy the years ahead.