By FPA member Scott M. Kahan, CFP®
Last Updated: March 29, 2010
With all the focus put on the financial side of planning for retirement, have you also considered the emotional side to what retirement might mean for you? Working with a financial planner to set goals, figure out how much money you need to save and later figuring out what a safe withdrawal rate is, are only a portion of what you need to consider when planning for retirement. Preparing yourself emotionally is an equally important component to your planning.
The great number in the sky many people aim for is 65, but with longer life spans and better quality of living, for some, 65 may just feel too early while others can't envision working past 60. Or maybe you've been forced into an earlier retirement due to the recent economic downturn. Regardless of the circumstances that bring you to deciding you're nearing retirement, proper planning can help you to avoid emotional, as well as financial, pitfalls.
Retirement is supposed to be relaxing and fun, but in reality, the early part of retirement can be a stressful time. There are a number of questions you should consider, along with your financial readiness, to establish if you are emotionally ready to enter retirement.
What does retirement mean to you?
You can spend years financially planning and thinking about what you'll do, but often the reality of retirement can be quite different than the concept. Understanding what this really means to each individual can take a number of years to determine. After a number of months, you may find yourself wanting to work again, even if it's a part time job. You may decide that traveling the world isn't all you had thought it would be. Be prepared to be flexible with a potentially changing outlook on retirement the first few years.
If you are married, in a relationship or have a significant other, you'll also want to check-in with one another to determine what retirement means to each of you. Retirement to you could mean traveling all over the world. Retirement to your significant other could mean only traveling to see your grandkids. Maybe one of you wants to keep working part time, which would limit any travel you can do together. Make sure you have open communication about what you foresee in this phase of your lives — start having these conversations early and often.
Are you ready for the non-structured life that retirement can provide you?
If you've ever spent more than two weeks at home during a vacation, had a sabbatical or experienced a job loss, you've gotten a sense of what retirement may feel like. Going to work every day gives people a sense of purpose and structure — the lack of this during retirement can be scary for some. And for some couples, the thought of spending more than two weeks straight together can be even scarier. This is where the mystique of retirement can wear off quickly. When all those chores you've been putting off are done, all the travel you've wanted to do has been checked-off, you may be left wondering — so now what?
To alleviate some of this anxiety, you may want to consider phasing into retirement, if it's possible. You may try working with your employer to continue your job on a part-time or contract basis. You may also want to try taking a few extended vacations but stay home; from the first day, wake-up and try to put yourself in a retirement mindset. Approaching it this way, may help you ease into retirement overall.
You should also be prepared to know what hobbies and/or volunteer opportunities you may want to get involved with. This is usually the time when people find themselves perfecting their golf game, improving that serve or becoming active in the community. Remaining active helps to keep you healthy physically and emotionally as well as providing the structure you may be missing.
Are you emotionally prepared to leave your job and not have a paycheck?
More than likely, you've been working and collecting a paycheck for over 40-years, which provides you with a certain sense of security. Rather than being in the accumulation phase, you will now be in the withdrawal phase and drawing a "paycheck" from your own savings. With the phasing out of company pension plans and the concern that Social Security benefits may not be there in the future, the responsibility now falls more on the individual for securing a comfortable retirement.
When that paycheck goes away, you have to be secure in knowing and comfortable with, a new sense of reality. For many, this can be very difficult and fears often arise, warranted or not, that down the road you will be left to rely on family members. You also have to be ready to monitor your spending and really maintain a budget to ensure that the money you've put aside will last throughout your lifetime.
If you're concerned the emotional withdrawal from receiving a paycheck may be too much for you at first, this is where the idea of a slow transition out of full-time work and into retirement might be a better option for you.
Depending upon when you retire, you may have a third or more of your life ahead of you. The best way to prepare is to understand that retirement, similar to other stages in life, will offer a number of different financial and emotional phases. Your willingness to plan, adjust that plan and be ready for the unexpected will help you enjoy those golden years you've worked so hard to reach.
FPA member Scott M. Kahan, CFP®, has devoted his career since 1982 to helping individuals, families and small business owners reach their financial goals. Scott is president and founder of Financial Asset Management Corp. (FAM), a fee-only wealth management and financial planning firm. He regularly serves as a valuable source for such media outlets as The Wall Street Journal, The New York Times and ABC Evening News.