22 May 2020
How Have You Enjoyed Your ‘Practice Retirement’?
For many of us, these last weeks have been remarkably similar to being retired. We didn’t have the regular commute and familiar routine of the working week, we were at home 24/7, and, for many, our regular income has been severely curtailed.
What a great opportunity to give some serious thought to what life in your actual retirement is going to be like!
Research shows that the earlier you start planning for your retirement (ideally in your forties), the better prepared you will be, financially and mentally, for what is one of the biggest lifestyle changes you’ll ever face.
The most obvious of these (but surprisingly not necessarily the most significant), is your finances.
Your Money in Retirement
The three major stressors that affect many people as they enter retirement are their health, their relationships, and their financial security. And of these three, financial security is the one that many feel they have less knowledge about and less control over.
Your financial health will play a very important role in your overall retirement happiness and it is valuable to think about how you view money, investing, and your “financial comfort.”
Regardless of whether you have a great deal of it or believe that you don’t have enough, money can be a source of stress. This may arise from the belief that money is a reflection of success or failure in life. In fact, having money is often confused with “being happy”— “the more money I have, the happier I will be.”
Worries about money in retirement are often compounded by the fact that many people don’t have a clear picture of how much money they will actually need for the sort of retirement they envisage. This is where talking to a qualified financial planner can be very helpful – and the earlier you do this the better.
The Role Money Plays in Retirement
During our working lives, money is often a source of pride and a way to keep score of our growing success in earning and saving.
But when you reach retirement, money has a different emotional impact:
* • Money equals security. This is your ability to sleep at night and to know that regardless of what happens, you are going to be all right.
* • Money dictates lifestyle. Your spending tends to reflect the income you have. In retirement, your ability to do some of the things that you want to do is tied to whether you can afford it.
* • Money provides independence. As you get older, independence becomes more of a challenge and a goal. Your financial resources can dictate how much independence you really have.
* • Money helps family. Whether it is your ability to help a family member in need, provide caregiving for a spouse or distribute your assets as part of your estate, your money will dictate whether you can be there for your family.
* • Money creates a legacy. When you think about the causes that are important to you, the community you wish to help, or the legacy you wish to leave your family, the strength of your financial resources will determine the legacy you create.
Defining ‘Financial Comfort’ In Retirement
We define financial comfort as living with a financial situation that does not cause you undue stress on a daily basis!
* • You can do the things you want to do given the lifestyle you have created.
* • You can handle unexpected challenges to your financial situation.
* • You spend your money in a way that is congruent with your core values.
Most people work to achieve an income that will allow them to be financially comfortable. However, there isn’t one definition of financial comfort; it means different things to different people. And while many people can easily identify what being uncomfortable financially means to them, they have not really clarified what they mean by “financial comfort.”
The key to financial comfort isn’t how much money you have, it is how you feel about your financial situation. And what impacts how you feel about your financial situation is your definition of financial security, how that definition translates into what you want your money to do for you, how much control you feel you have over your financial situation, and how much you know about making your money work for you.
This information is taken from Cambridge Partners’ book ‘So You Think You Are Ready To Retire?’ written in conjunction with international retirement lifestyle expert Barry LaValley. Click here for your free electronic copy of this book or to talk to an Adviser.