Thinking about your desired retirement activities can motivate you to save more and invest appropriately. Your chosen retirement activities will determine how much you need to save.
Who has time to dream about the future when there isn’t even enough time to focus on the present? That’s why many people jump into retirement without really knowing what they will do all day. Planning is hard work and can be time-consuming, but you need to make time to do it. Thinking about what you will do in retirement is not an activity you want to shortchange. Here is why planning how you will spend your time in retirement pays off.
Planning your retirement days puts you in the right frame of mind to retire. Retiring to a good life is much more pleasant than retiring from a bad career. Too many people quit because they don’t want to deal with the nuisances of the everyday grind. If you can’t find a solid reason to get up to go to work every day other than the paycheck, then it’s time to find a new job, not necessarily time to retire. By laying out what you will do in retirement, you are putting the focus on the possibilities of retirement life instead of the negative aspects of the workplace.
Daydreaming, or retirement dreaming, helps motivate you to work harder toward the goal. Saving money to fund future expenses is hard. One way to mitigate the feeling of sacrificing is to visualize your golden years. What would you like to do in retirement? You might want to golf, go out with friends, play bridge or all of the above. Not every fun activity will cost a ton of money, but you do need a bit saved so you won’t have to worry about where every dollar is going to come from. Think of how much the lifestyle will cost, and save enough to fund that dream life. Saving money isn’t a sacrifice, but a down payment on your future lifestyle. You don’t lose the sum you put away. Someone who saves is actually gaining more financial security in the future.
Coming up with a plan will help you foresee potential issues. Many people start slowing down in retirement. You might develop lower energy levels as you age, and perhaps choose to sit around instead of getting up and being out and about. Even if no catastrophic health problems surface for years, your quality of life can suffer as you get older. However, when you have a plan laid out, there will be fewer empty squares on your calendar. Maintaining a social calendar will prompt you to stay more active. Planning some activities and social engagements for retirement will give your days more meaning and leave you more satisfied.
Your chosen activities will determine your budget and help you come up with a retirement number. Once you know how your days will generally be filled, then it’s much easier to estimate how much to save for retirement. Figure out your typical annual expense and multiply that by 25 to come up with a good starting point. This amount should allow you to safely withdraw four percent of your portfolio annually, adjusted for inflation, for the rest of your life. Of course, you can also reduce your withdrawal rate or skip the inflation adjustment if there is a significant dip in market performance in retirement. You can’t fully foresee all the risks you will face in retirement, so the only reasonable plan is to stay flexible.
Like most activities, you will notice that the more you think about retirement, the easier and more pleasant the exercise will get. Once you start your plan you will naturally make appropriate adjustments to secure a more comfortable retirement.
To Your Successful Retirement!
Michael Ginsberg, JD, CFP®