If your final day at the office is fast approaching, chances are you are experiencing some retirement anxiety.
That anxiety can come from a number of sources- saying goodbye to your career and coworkers, embarking on an uncertain future and facing an unclear financial picture.
Although there is little you can do to soften the emotions of leaving your business, you can certainly make the transition more tenable by doing some advanced planning.
Step One- Make some plans! Plan out enough activities to make your transition to retirement fun, fulfilling and rewarding right from the start. Map out a vacation route, join a golf league or a card club, plan a fishing trip, pick a cause to support. Exiting plans will turn your anxiety into anticipation.
Step Two- Figure out exactly how you’re going to pay bills…for the next few decades! That may take significantly more effort than mapping out a road trip and can certainly cause more anxiety. So, what can you do to soften the blow for financial anxiety?
Know Where You Stand
The best way to reduce your financial anxiety is to know exactly where you’re at currently. That means sitting down with your spouse- and, when possible, your financial advisor- and mapping out what type of expenses you expect to incur over the next 10, 20, 30 years and beyond.
You will need to account for your everyday expenses, such as food, clothing, housing, utilities, and transportation. As well as things like travel, recreation, children, grandchildren, charities, your legacy, and other important interests. Add to that all of the medical expenses you can expect, as well as senior living, assisted living and long-term care expenses.
Add it all up- and don’t forget about taxes- then factor in a 3 percent average annual inflation rate that will double you costs over the next 25 years, and you’ll have a pretty clear picture of the type of annual income you will need in order to meet all of your expenses.
No question, just going through this process, in itself, can be anxiety-inducing. That’s why it would be helpful to have your financial advisor involved in the discussion.
Only after you come up with a budget of anticipated expenses can you then determine how well your retirement savings will cover that budget- and for how long.
Even then, it’s an inexact science calculating the amount of money your retirement investment plan is likely to yield month-by-month or year-by-year over the coming decades. Many factors can skew those calculations, including the types of assets in your portfolio, the performance of those assets, and your ability to stay within your spending budget. All of those factors over the first few years could have a significant effect on your ability to meet your goals in your latter years.
Going through this exercise may not necessarily eliminate all of your retirement anxiety, but it will help give you the peace of mind of knowing where you stand and what you need to do to live a prosperous retirement.
You might learn, for instance, that you have an ample nest egg even if you invest in the most conservative investments. You might learn that you need to generate a decent return above the inflation rate- maybe 5 to 7 percent- to fund your retirement long term. That might mean investing in more equity or higher-yielding fixed-income investment.
It’s a reality that many retirement age individuals discover after it’s too late. Well before you retire, you can help reduce that retirement anxiety by figuring out how much you’ll need to live the retirement life you want.
If that means working longer at your present job, embarking on a new career, or taking on a part-time or consulting role in order to meet your goals, it would be helpful to know that in advance so you can make plans and prepare for your second career.
On the other hand, if you discover that all your ducks are in order and you will have the means to live the life you want to live when you retire, that’s the best possible way to solve you retirement anxiety.