Retirement Mindset Series - 1 of 5
Perhaps it is timing, but as we start to wrap up the year, it becomes inevitable that we start thinking about when to retire. Many of the individuals I have been speaking with lately have expressed their interest in considering retirement this upcoming year.
Maybe it has to do with the changing of the seasons, but I know that for many, the idea of retiring from work has been mainly driven not only from a personal one but also a professional one.
For some, the decision to retire was primarily driven by a personal one-wanting to spend more time with loved ones and family. Coincidentally, the pandemic that we have been facing spurred some of this mentality.
For others, the decision to retire can be professional. Years of long hours and hard work are something that an individual can only do for so long. With the recent labor shortage, more individuals are working for much longer than they ever have before, so it's no secret that they have been frustrated with excess work.
However, the certainty of work and its predictability make it difficult for many to determine when the right time for retirement would be. Because unless you have been working on your visualized retirement plan, it becomes complicated to see what the future would hold. In addition to that, without a clear-cut idea of how the path forward looks like, it could make the journey towards retirement murky at best.
So with that said, I wanted to introduce you to a new five-part series on the path towards retirement. Being in the financial planning and wealth management industry, I have been fortunate enough, by trade, to conduct numerous sessions with individuals who are planning for retirement.
While the individuals are diverse in background, the steps with each client are similar. My objective is to listen, analyze, and assess whether the numbers match up to the desired lifestyle of the retiree. The numbers determine whether the goal is attainable, and if it isn't, we calculate to see if the savings rate can be tweaked to make it work.
The five-part series will touch on all components of our financial plan design. I wanted to share this segment with you because many individuals do not know how their retirement will look. This past month, I had new consult meetings with four couples who are preparing for retirement. While unique, the similarity in the four was that while they knew they wanted to retire soon, as, within the next five or seven years, not a single one of them has ever sat down to go through what retirement looks like.
Can you imagine that? Seven years away from retirement and hell, these years are flying by quick but seven years away and no clear indicator of the following questions:
What their retirement nest egg can generate;
How much they need for retirement income purposes;
What their Social Security strategy would be;
No indication of what their taxes will be like;
How long their portfolio can sustain their income goals;
How to best transfer assets to their beneficiaries upon passing.
Eight individuals in four couples with one goal: to retire, but not a single one of those above questions could be answered. I wish I could say that is an outlier, but the reality is the majority of the people coming to me are in that same situation.
Perhaps you are as well. And if you are, I can't blame you; no one can. For too long, all we've been focusing on is to work and provide for our families. Retirement was always in the future, but it's easy to not think about it when you start with thirty-plus years before it happens.
But now that retirement is on the horizon, it is time to buckle down and tackle those questions head-on. I hope that you can intelligently determine what your retirement life would look like by walking through this exercise.
Part one of this five-part series is about defining your retirement goals, so let's dive in.
When do you want to retire?
It sounds like a loaded question. But let's simplify. What's the number that comes to mind? At what age do you want to retire? If you have not thought of that, think of it now. Is it at age sixty-seven, which is the full retirement age for Social Security? Or are you feeling pretty burned out and think that you might have to call it early at age 55? Perhaps you want to retire as soon as financially possible, but you don't know when. That's OK; the process still works.
With that age in mind, visualize what that retirement life looks like.
You do so by starting with what your current life looks like. How does it differ from that? Remember, you won't be spending 40+ hours on the job, so what will that free time provide you with?
Will you be volunteering? If yes, where at? How often will you volunteer there? What hobbies will you be pursuing? Are you planning on golfing once a week? Would you finally be joining that tennis league you never had time for? Since you won't be working, the entire day will be at your disposal, so does that mean spending more time exploring the restaurants you love?
What else do you enjoy doing that you would like to devote more time towards? Would you be going on more hikes or taking drives to explore the surrounding country?
By envisioning what your retirement looks like, you can better prepare for the cost of retirement and whether you have saved enough.
As you visualize your retirement lifestyle, think about your passions and what will drive you for the next part of your life. I implore you to do this because not having a plan on retiring is dangerous to your financial and mental well-being.
Once you have visualized what that day looks like, think about the bigger retirement goals you would like to explore. What are your travel goals? Have you longed to explore the world but have been putting that off mainly due to work? Well, now that you have the opportunity, where would you go and what will you see?
Many people I meet would like to go on one big international trip each year and a couple of shorter domestic trips. Are you similar in that mindset? If you were to spend a few weeks abroad, where would you go? Start visualizing those places and think about how you would want to spend your time there. Will you fly in economy for sixteen hours or upgrade to a seat more luxurious? What category of hotels will you be staying in? Or if a cruise is more your style, where would the destination be?
Big trips aside, where would you want to travel to during the rest of the year? Would you be making a few domestic-based trips or heading to a cabin up north? Or perhaps you intend on staying with your children and possibly caring for grandchildren. How much of your time do you think you'll want to devote to that?
Lastly, what are other goals that you want to pursue? These don't necessarily have to be for individual passion, but they could be wishes you want to happen. I know of many retirees with children and grandchildren who take it upon themselves to pay for the next generation's higher education. For example, I have a couple in their late fifties planning for retirement at age 65. However, at age 65, they anticipate their youngest child to be still finishing up college, and they are adamant about the kid not taking any student debt.
I know it seems like a lot to think about, but the truth is the average retiree will live until their early 90s, which is a heck of a long time if you are planning on retiring in your sixties or even earlier.
As I mentioned in another episode, you probably won't drive in a foreign country without some roadmap, which rings true with your retirement. Your retirement years will be unfamiliar because they will differ dramatically from your working years. Figuring out how you plan on filling up those hours will be crucial for a mentally healthy retirement.
What I would suggest doing is to open up your notepad app on your phone or take out a piece of paper and on there write down three things:
Your needs, your wants, and your wishes. Within each category, you start filling those buckets with everything you can think of. If you still have a mortgage and anticipate having it in retirement, well, that right there will be on your needs column. If you need to care for a child that hasn't entirely flown out of the nest yet, yeah, you know what I'm talking about, it's that one child who is still working on their masters, and you can't bear not helping them pay part of their rent. Well, there ain't nothing wrong with that, and that needs to be put on your needs column.
Now, these are your big-ticket items, right. But make sure you put on the little things that creep up, such as electricity, water, gas, food, and Netflix. These things are non-negotiable and are going to be a part of your life no matter what happens.
It's vital that as you go through this mental exercise, I want you to remember clearly what I'm about to say next. This is your retirement, and whatever it is that pleases you ought to go on that list. Don't let anyone dictate what your needs, wants, and wishes should be. If you are dead set on seeing the Pyramids of Giza after you have retired, that needs to be on your list, and it should probably be on the want or need column. No retirement goal in your mind is too silly or too far-fetched, or too unrealistic to be written down.
Now, whether or not you can afford all of these things is the bigger question. We can all dream big but realizing those dreams may be another concern. However, that won't be until the next episode. For now, start jotting down all of the goals that would bring a smile to your face. After that, we'll work on calculating how much of it can be afforded.
This is a five-part series with the following episodes being:
Episode 2: Figuring out your Social Security strategy;
Episode 3: Figuring out your investment strategy and overall withdrawal rate;
Episode 4 will be on your tax planning strategy, and finally, we will wrap it up with the final episode on setting up your estate for a seamless transition.
If you have not already, please subscribe and smash that like button. Also, be sure to follow the show within your podcast app so that you are immediately notified when the next episode drops. As I said initially, these episodes 1 through five of the retirement mindset are my exact formula for getting an individual through retirement. If you follow these steps and think through the process, you too will be on the way to securing your financial independence.