Most people spend the majority of their life working towards, saving for, and dreaming about retirement. But an interesting thing happens to many people when the time comes to actually make the transition from working to being retired.
It’s not uncommon for individuals to have fears about retiring. While everyone has different concerns, there are a few that tend to be common among those getting ready to enter this next stage of their lives.
What will I do with all my time?
While most people can’t wait to retire, when the time comes, the fear of actually doing it can be overwhelming. People spend so much time in their working years saving and trying to put their financial life in order that they often forget about, and under estimate the emotional side of the equation. What we often see is a person who has a hard time adjusting from working every day to not working at all. In fact a good portion of individuals that retire find themselves looking for a part time job because they miss that feeling of accomplishment and productivity. One of the best things you can do to is to find a hobby or something you are passionate about that you can work on during retirement. Who knows, you may discover a passion you didn’t know you had!
How will I replace my income?
A retired person can have many different sources of income such as Social Security, pensions, rental income, part time work, just to name a few. One thing many people nearing retirement may not realize is that the 401k or IRA they have worked so hard to contribute to over the years can be invested in a way that can generate an ongoing stream of income, much like a paycheck. This can help provide or supplement retirement income needs. People don’t always realize or know that their money can last a lifetime if managed in a prudent way. Of course things like market returns and spending habits all factor into how long the money will last, but people are often surprised at how much money they can withdraw on a monthly basis and still have their money last through their lifetime and beyond. If you are interested in learning more, we are always happy to sit down and talk or run a calculation here in the office to help illustrate this.
When should I begin taking Social Security?
There is no correct answer. For people who are in good health or have family histories of living long lives, the best answer may be to wait. Taking benefits as soon as possible at age 62 locks in payments that are only 75 percent of what they would be at age 66, which is currently defined as the full retirement age. Delaying benefits at age 66 will raise them by 8 percent a year until age 70, after which benefits do not increase with age. These are all factors that need to be considered when trying to figure out where you stand and if you have enough to retire. According to socialsecurity.gov, benefits are designed in such a way that a person who lives the average life expectancy will receive about the same amount in lifetime benefits whether they choose to start receiving benefits at age 62, 66, 70 or any age in between. The question really becomes, do you want less now for a longer period of time? Or more later on for a shorter period of time? This will be different for everyone and may depend on how much you have saved for retirement.
Will I outlive my money?
This is a legitimate concern, especially when you consider the fact that we now are living longer than ever before. Add inflation into that equation and you have a genuine reason to fear outliving your money. The best way to be sure you don’t outlive your money often lies in more than just good portfolio returns. It often comes down to figuring out how much income you will need and trying to manage your spending during retirement. If you are nearing retirement or are currently retired, make a list of your expenses and create a monthly budget that is realistic so you can plan your spending. Doing this will show you where your money is being spent and help you to make decisions and prioritize your spending. We try to help clients regulate this by periodically discussing how much money they have left and what they can reasonably expect to spend on a monthly or annual basis. You may realize that your retirement expenses are not as high as you thought; if that’s the case, retirement could be possible sooner than you think!
One of my favorite things to do is sit down with someone that is thinking about retiring or just entering retirement, and working through these issues with them. I can remember on one occasion meeting with a client who wanted to retire but was terrified that she had not saved enough. When we sat down and ran the income stream calculation together, it showed that she could draw more money out of the account every month than she thought she would need and that her money was projected to last well beyond her life expectancy.
Thinking about some of these issues before you retire can help make the transition that much easier.
Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.