Moving from full time work to partial or full retirement is a huge change in our lifestyle. We have to adjust to how we spend our time, fit into our relationships, and our finances. Trying out your new lifestyle can make the transition more enjoyable.
Retiring from full time work or switching careers is difficult because our normal patterns get disrupted and creating new ones takes time and energy. Instead of having no time to do the things we enjoy, we may now have too much time. We may not be used to being around our spouse all day or losing contact with our fellow workers.
Retirement also brings many changes to your financial picture. If you retire, either partially or completely, you will not be relying on a regular paycheck. Your investments must generate the income not provided by Social Security, pensions or other current sources. People often find they must be more vigilant about watching their expenses. Since you are now using your savings, you can be hurt more by market downturns and poor investment results than when you were growing your nest egg.
If you have not put together a financial plan for your retirement, now is the time. You must have a picture of where you will get income and what expenses you can expect to cover. A plan will help you avoid running out of money and identify where you have risks. To identify the income side of the picture, add up Social Security, pensions, rents, subsidies and other continuing income streams. You can estimate a reasonable, sustainable income from your investments by consulting with your financial planner or using various calculators. To get the expense side, look over your expens
es and make adjustments based on your new activities. Having more time for travel, hobbies and sports will increase your expenses. At the same time, you might be able to lower your gasoline bill, clothing or business meals. You will also be putting less towards savings and may have a lower tax bill. You can then try out this new expense and income scenario to see if you will be happy.
One way of trying out your retirement is to keep your "working life" expenses in a separate account. Any excess income from working, above what you will get in retirement, also needs to be put into the account. Living with these circumstances for a month or two will give you a chance to see if it will work. If you are planning to move to a different location, you may need to plan farther ahead. Take several extended trips at different times of the year to try out your new hometown. Remember to arrange for similar living conditions.
If your finances don't look like they will work, it is time to make some changes before you actually retire.
Today almost 50 percent of new retirees have a mortgage. This is up from 32 percent just ten years ago. Finding a way to reduce your housing costs by downsizing, paying off your mortgage or moving to less expensive space can make a huge difference. If your family is downsizing, it might make sense to shrink your home.
If it looks like you will need more income, plan for it now. This may mean working longer, cutting expenses or planning to work part time. A word of caution is needed on continuing to work in retirement. More than 50 percent of retirees plan to work part time however, less than 20 percent actually do. Health, availability of work and lifestyle choices can determine whether you actually work. Depending on your situation, working a little longer, at the job you already have, may improve your finances faster than working a part time job for longer.
There is a lot to consider as you approach retirement. Taking time to put together a financial plan and trying out retirement can help you avoid problems that may be difficult to resolve later. At a minimum, start planning three to five years ahead. If you find you are too busy, find an experienced financial planner to help get your plan together. Next, try out your retirement at least a year before you retire. It will give you a chance to design the right lifestyle for you.
Tom Roberts, a certified financial planner and owner of A New Approach Financial Planning in Lakewood Ranch and Sarasota, can be reached at (941) 927-9590 or Tom@ANewApproachFP.com.