Broker Check

Are You Financially Prepared to Retire?

April 26, 2023

There’s a lot to consider when you go into retirement. What will you do all day? Who will be free at noon for golf with you? Do you have the finances you need to cover the years to come? 

Over the past 30 years of working with clients as they plan for and then transition into retirement, I've come to recognize a number of patterns that folks go through as they approach, navigate and settle into their new retirement routines. I would generally sort these into three common categories. First are the folks who just can't wait to be retired. They have the easiest transition and are often falling behind a spouse who is already retired. For these folks, they have been dreaming for years of the time when they no longer have to set an alarm, deal with annoying bosses and coworkers, and have all the leisure time to pursue their hobbies and other activities. As I mentioned, having a spouse who has already made the transition and is anxious for company in travel, entertaining, and other pursuits is often a factor.

Most of these clients will have a number of consuming hobbies and pastimes that take up more and more time over the years, putting stress on their work schedule. They're often avid travelers, volunteer in the community, and have strong interests like photography, music, golf, and fishing. Alternatively, they may have recently become grandparents and are relishing the idea of being involved on a regular basis in caregiving. Being able to retire allows them to devote the time necessary to really indulge these interests. For this group, making sure that they have adequate funds to pursue their dreams is enough, the rest is just gravy. The second group would be the diametric opposite. These folks really don't want to retire and are usually feeling like they're being forced out. Most of these folks really love their work. They find it fulfilling and they relish the interpersonal relationships in their workplace.

For these clients, the transition to retirement can be particularly stressful. Not only are they facing the prospect of giving up their sense of purpose and feeling of being important and useful, they're also looking forward to separation from friends and colleagues. They face the prospect of losing touch with friends who continue to work and feeling out of the loop. Even when they do manage to keep in touch, from a psychological standpoint there's also a sense of grief associated with the loss of identity that occurs when one goes from being an engineer, a doctor, a manager, or a technician to being “just another retired person.” That was the case for my sister. I remember her telling me how strange it felt to be just another woman standing in line at the grocery store at 11 o'clock on a Tuesday. Nobody knew she'd been an advertising executive, that she'd been a boss, that she'd been an important person.

Now she was just another housewife. Coupling this loss of personal identity with the lack of outside interests and personal relationships can be a recipe for depression and regret. As an advisor, it's particularly important to recognize these issues in advance of the retirement event so that you can counsel the client. Not only to expect these feelings to occur, but to minimize them as much as possible by encouraging them to build up relationships and interests outside of work. I often suggest that clients check out the community college nearby and read up on the flyers from the local community center. For a couple of years prior to retirement, I encourage them to start considering classes that might spark their interest, whether it be guitar lessons, foreign language, Chinese cooking classes, or whatever floats their boat. I also try to provide a list of volunteer opportunities in their area. Building outide interests and a community to share them with is vital for easing the transition for these folks.

We all know that transition from being a lifelong saver to actually living off those savings is going to be stressful enough. But if you're socially isolated as well, you're likely to go through a prolonged cycle of grieving and regret rather than embracing all the exciting options that retirement can represent. A lot of patience and reassurance is the name of the game when working with clients like this. It's also important to offer resources, support, and helpful suggestions. Encouragement can make the difference between a seamless transition and one that's fraught with anxiety.

The third and last group are those somewhere in between. They've been looking forward to retirement, certainly, but are torn between the dream of living a life of leisure and anxiety over what the future might bring. Most of the folks in this group are looking forward to having more flexibility in terms of travel and hobbies and spending time with family. At the same time, they have concerns about whether their nest egg will be sufficient to allow them to enjoy all that they hope and still be around to leave a legacy for their kids. Clients in this group, and all three of the groups for that matter, really benefit from a practical examination of their anticipated expenses. It's important not to overinflate or underestimate as well as providing an honest and frank discussion of the income their assets can reasonably be expected to produce. This involves an analysis of their various sources of income, whether it be pensions, IRA, social security, in some cases, rental income or other investment income. We also need to consider family obligations. Will their parents be a financial burden or a potential windfall? Are there kids independent yet? Will they ever be independent? It's different for every family.

We also need to review their budget. What kind of discretionary spending will they need? Will their fixed expenses be declining? Think of paying off the mortgage. Or will they be increasing due to higher medical costs? And will they be starting social security or Medicare soon? All of these moving parts have to be put together by the advisor to provide retirees with a reasonable picture of how the retirement will play out. This can give them the confidence to make the transition a seamless one. This is really where we as advisors earn our keep. Given our experience, guiding hundreds, even thousands of families through this life change, we're uniquely qualified to highlight the potential pitfalls in areas of concern, but also to lend that confidence and support that's so necessary. It seems crazy that some people have to navigate this challenging time alone when there are advisors like ourselves that have been through this process so many times, and with so many clients. Obviously all those scenarios make up the emotional and personal side of the retirement process.

Thankfully, we're also able to help clients navigate the practical and logistical aspects. From signing up for retiree medical benefits, deciding upon the timing, electing pension benefits and setting up retirement accounts, we're here to help the whole way through. We also help invest the pension and 401k proceeds to produce regular monthly income. And we help determine the appropriate amount of tax withholding. Balancing all these aspects while always considering the emotional journey is what makes the difference between an involved caring advisor and the “do it yourself” online planners and money managers. So, where do you find yourself? Are you excited to retire? Are you dreading being forced out? Or are you somewhere in the middle with lots of questions? No matter where you fall, Haussmann Financial is here to help. Give us a call today to set a time to discuss your personal situation.