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Almost everyone looks forward to that day when they can leave the workplace behind and start doing the things they’ve always dreamed about. But as you get closer to your actual last day at the office, a little anxiety may arise about what lies ahead, knowing you’re giving up your paycheck. The question that could keep you up at night is – have I saved enough to live the lifestyle I’ve envisioned, knowing that I might reach 90 or beyond?
It doesn’t help that the stock market has taken a downturn over the past year, which can test your emotions as an investor. Although you think you can protect yourself by selling all or most of your stocks, it’s the biggest mistake any soon-to-be-retiree can make. Many retirees made this mistake in the great recession of 2008 and paid the price.
It’s emotional knee-jerk reactions that can be your most expensive mistakes. When you’re inching toward retirement, you don’t have as much time to recover those losses. The key to a successful retirement is developing a plan and a strategy that you understand and can stick with, so you stay on course financially.
A real retirement plan has to be both holistic and dynamic. With dynamic retirement planning, you base your retirement spending on how the market is actually performing and prepare for unknowns like unplanned healthcare costs, inflation, and stock market fluctuations.
A huge component of your retirement piece of mind will come from getting the big questions answered. This is when the real retirement planning begins. But retirement planning for those closest to the milestone isn’t just about getting the numbers right. Once again, emotions play a big part. Retiring from work is a life-changing event. Your emotional well-being can either help or hinder your decision-making when it comes to financial security throughout your retirement years.
It’s wise to consider how your emotions influence your financial decision-making. Some experts say there are five stages of emotions you go through when planning for retirement. Those stages are:
Stage 1: Pre-retirement – During the early phases of your career, the focus is on earning and investing more using tax-favored accounts like a 401(k) or IRA that help you build wealth. But retirement is still a long way off. The real pre-retirement planning starts about five years before you actually retire from work. At that point, you may visualize your retirement lifestyle. The question then becomes whether you’re on track to retire within the timeframe you’ve imagined. The planning focus is on stress-testing your own assumptions and projections. Some people are confident using their own spreadsheets and don’t want outside help. Still, many pre-retirees want to collaborate with an experienced, independent fiduciary financial planner who specializes in retirement income planning. The pre-retirement phase is when the big decisions about timing are made. It can be stressful to second guess yourself, so a fresh pair of eyes may be valuable.
Stage 2: The honeymoon phase – This stage happens the day after you retire. Throughout the first three years of retirement, you’ll experience a sense of freedom from the daily 9-5 work life. Financially, this is when you decide that you can afford to spend money on big items. It may be renovating the family home, experiencing destinations you’ve only dreamed about, turning a hobby into a side hustle, or volunteering your time helping other people doing something you love. It can be an exciting time.
Stage 3: Disenchantment – After about the fourth or fifth year into retirement, the retirement spark can start to fade, and disenchantment can set in. It may not seem as fun as you thought it would be, and there’s often a sense of feeling disconnected from the rest of the world or losing your sense of purpose. Money-wise, bills still need to be paid and responsibilities taken care of, but things may have changed. You may be dealing with physical challenges or unexpected medical issues. Financially, if the economy and stock market suddenly change course and are in a downturn, this is when retirees become the most stressed worrying whether they truly have confidence in their plan.
Stage 4: Re-orientation and finding yourself – Once you’re in your 70’s, even if the initial thrill of retirement may be gone, as a retiree, you may find a new sense of freedom. This is when you settle into your own definition of a retirement lifestyle. You can’t control what the stock market does, but you can worry less about running out of money by cutting back on your retirement spending. This is when you might decide downsizing to a smaller living space to relieve cash flow pressures is the right answer. You realize during this phase that you’re comfortable making changes– big or small on your own terms.
Stage 5: Stability – Ten or 15 years after your first day of retirement is when having a solid financial plan pays off most.Your plan has been tested to its limits. This gives you and your family a sense of stability and peace of mind from what you’ve built all those years working.
To make your transition to retirement as smooth as possible, you should start developing your own roadmap once you’ve hit the pre-retirement stage.
Static retirement spending rules dictate that you must only withdraw a certain amount annually while adjusting for inflation. That type of retirement plan doesn’t consider changes you may need to make to your spending when you hit a bump in the road.
This is where dynamic retirement planning comes in. Your life changes and your plan has to change with you. Similar to how you use a map or GPS to plan your route for a road trip, your retirement plan should map out the direction you want to go after leaving the working world behind. But your plan needs to be dynamic and flexible so you can adjust for unforeseen bumps in the road you may experience along the way.
You can’t expect the plan you had in 2005 to still work for you in 2025. Things within your control and outside your control change constantly — interest rates, inflation, stock prices, and the bond market. You or someone in your family may experience medical issues that throw a wrench in your plan. You must be willing to make changes to your retirement roadmap if necessary.
Your roadmap to retirement needs to be proactive. It must be a collaboration with your financial advisor. Instead of just responding to unexpected curves in the road, you co-develop a plan and investment strategy that anticipates them so you will be prepared to navigate through them..
Peace of mind comes when you’ve dealt with the details and unknowns. A financial advisor who is paid only by you, (fee-only) can help you build your roadmap to retirement. Find an advisor who specializes in dynamic financial planning and can respond to you whenever necessary as key decision-making moments arise during your life.
Finding the right financial advisor can be challenging. Let Wealthramp help you find the right advisor who will help you with your personal financial needs and situation.