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Behavior modification is tough at any age, but becomes especially challenging as we near retirement. When it comes to retirement planning, people often like to “play it forward.” For years I’ve heard people discuss the changes they intend to make in their standard of living as soon as they retire. What kinds of changes are they intending to make? A frequent resolution is, “I just won’t buy a new car every year.” Others resolve to “give up ESPN” or “start drinking boxed wine.”
After 27 years of helping people prepare to retire, here is my professional observation: You can give up chocolate to lose 40lbs but you can’t lose the weight and then give up chocolate! That approach leads to anger management issues! Yet many retirees unwittingly set themselves up for frustration by planning to change their financial behaviors upon retirement.
Another retirement concern is the number of people who plan to work longer; often into their 60’s and even 70’s. Things don’t always go as planned. A Wells Fargo & Co. retirement study revealed that half of retiree respondents actually retired earlier than planned. Many left the workforce for reasons beyond their control: 37% due to health and 21% due to an employer decision. Only 7% retired earlier than planned due to adequate savings.
A financial plan gives you confidence and direction for the future. Of course, you must be flexible as your life and the tax landscape changes. Accurate assumptions are paramount. The Employee Benefit Research Institute (EBRI) notes that workers have been inching up their projected retirement age. In 1991, 11% of workers expected to retire after age 65; in 2015 that figure shot up to 36%, and 10% of workers don't plan to ever retire, according to EBRI.
When it works out, delaying retirement serves several objectives. Obviously, you have more years to save money and let your savings grow. However, you also have fewer years in the future during which you will need to supplement your income. Successfully balancing the two can be a game changer for a successful retirement. For example, taking on a new position that doesn’t permit you to add to retirement savings but generates an income stream that delays withdrawals from your retirement nest egg can be significant.
There are things we simply cannot control in the economy and in our lives. That simple fact makes it imperative that we control what we can and focus on the right areas. Begin by creating a plan that makes mathematical sense on paper. Next, monitor for tax changes that can disrupt your plan. Remember, nothing will separate you from your retirement faster than a poorly thought out tax strategy when it is time to take distributions. Finally, don’t panic over short-term issues like market volatility.
Your plan must include wisdom and discipline in order to succeed. The more you think about the life you want at retirement and the more time you put into planning, the better your chances for success.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column offset=”vc_hidden-lg vc_hidden-md vc_hidden-sm”][vc_widget_sidebar sidebar_id=”sidebar-main”][/vc_column][/vc_row]
