Just the other day, I saw a post on Instagram that said, “50 is the new 30.” With people living longer and thriving well into their 80’s, preparing for retirement is taking on a whole new meaning. Many are no longer having a hard break between their work and play at 65, like once imagined. Instead, these people are choosing to transition into another phase of life—one filled with expanded experiences, new roles and a renewed sense of purpose. In order to fully get prepared for this transition, your understanding of your money must also change.
Whenever I work with someone who is looking to transition into the retirement phase of life, their biggest concern is making sure they don’t run out of money. For some, this is easier than others. Those who have been diligent in saving along the way, worked with a financial professional, or lived within their means often feel more secure about their income in retirement than others. Regardless, the steps you take when you are transitioning into this phase can make or break your financial future going forward.
The first mistake many people make is focusing too much on the amount of money they have versus their burn rate. What do I mean by burn rate? This is the amount of money you spend to maintain the lifestyle you desire. Yes, it is true that you may have to make changes in how you spend money in retirement, but that is not always as easy as it appears. It is challenging to go from spending money in the way you are accustomed, to all of a sudden having to track every penny. This can put additional pressure, not just on your resources, but also on your sense of independence. Easing into this starts with making adjustments prior to entering into this phase of life, if possible. It requires you to shift your thinking from being a conscious saver to being a conscious spender. Ideally, if you could save unconsciously and spend consciously, you will make this transition easier for yourself.
Another way to look at not running out of money has to do with where and how your money is invested. If all your money is invested in the stock market, then you may feel you have to monitor the daily ups and downs of the market with diligence to make sure you are ok. This can create stress and anxiety and prevent you from being an active participant in the things in life that give you joy.
You see, when you are taking money as income in retirement, you are typically doing that consistently month to month. If the market is down when you are taking this income, you eliminate the money that is supposed to be earning you money. Therefore, it is harder and harder to make up the difference. The result is you could run out of money at a much faster rate than you had planned. Part of your financial plan should include making sure you are properly diversified in such a way that if the market has fluctuations, you have other sources of money to draw from that are not connected to the market. What this does is give your invested assets a time out of sorts, which can mean years of additional income if you plan for this ahead of time.
Finally, when you are entering into retirement, you want to consider more than just your money. After all, money is just a medium of exchange. What we choose to do with it, is what really matters. Have you considered what you want your legacy to be? Do you want to make sure your family is taken care of? Are you interested in leaving money to an organization or cause you care deeply about? Or do you want to spend the last years of your life making a difference in some other way. This may include continuing to work, volunteering, or picking up a new hobby.
When thinking about our legacy, it is important to consider our own personal values. These are things that we hold dear in our lives. They are responsible for determining our priorities and the standards upon which we measure how our lives are developing. Keep in mind that most of the time our values remain stable throughout our lifetime, but they can evolve as we grow. Revisiting your values regularly should be an ongoing process and a foundation upon which you develop your financial goals and actions.
When our actions and behaviors reflect our values, we can experience a sense of satisfaction and contentment. No matter where you find yourself, as you are thinking about the transition from work into a different phase of life, taking into account your true purpose of money is a great place to start. Or as Walt Disney once said, “When your values are clear, your decisions are easy.”