The psychology of retirement
“Retirement is not the end of the road. It is the beginning of the open highway” – unknown
The phrase may seem cliché, but it holds true. We can lose track of the big picture along the journey if we aren’t careful. This can lead to challenging adjustment periods, and even make us feel like we have lost our sense of purpose.
What follows is a framework to consider retirement and thoughts on how to mitigate common psychological pitfalls that can hinder us from enjoying retirement.
Picture what you will do when you stop working
You are probably clear about what you are retiring from and how certain daily activities will stop when you retire. The real challenge comes when you flip the scenario. Can you picture what you will do during your retirement? In other words, what you are retiring into?
Think of how you would define yourself in this new stage and where you want to focus your time. What will your daily life look like? Will you do volunteer work? Dedicate more time to family and friends? Take on a new hobby or get back to a favorite activity? Or maybe you will want to still work part time and enjoy a different challenge or less intense work routine. Or perhaps a mixture of all the above.
There is no right or wrong answer. Remember that retirement is supposed to be organized towards your goals, aspirations, and personality. The key is to have a goal and execute on it.
What about the financial aspects
Now that you have a rough idea of how you will spend your time, think about how you can achieve those goals. You have saved for this moment for many years, and it can be hard to flip the switch into spending mode. In financial planning we call this the transition from the accumulation phase into the distribution phase.
Many retirees may experience anxiety during this transition, asking themselves questions such as: “Did I save enough?” or “What if I run out of money?”
As financial planners, our role is to help you analyze the financial aspects of retirement, implement retirement income planning, investment portfolio management, tax planning and risk planning. Yet, even after considering all of these, great savers often have a tough time withdrawing funds.
At the heart of this struggle is our financial psychology. The same beliefs that have made us great savers can make it challenging for us to flip the switch and take withdrawals. These beliefs are called money vigilance money scripts®.
The Money Vigilance Money Script
The money vigilant are alert, watchful, and concerned about their financial health. Feeling that they have enough money is important to them and they believe it is important to save. Studies show that those with higher money vigilance tend to show higher levels of financial health. They are already making good choices and meeting their needs. They spend what they can afford. They value a bargain.
The downside to money vigilance is that can lead to excessive wariness or anxiety around money. These feelings can prevent people from enjoying their money since money provides them a sense of security and makes them feel safe. As such the money vigilance may struggle to enjoy the fruits of their labor.
Having financial comfort and security are important. However, excessive anxiety and wariness around money can keep you up at night and this kind of worry can be bad for your health.
What can you do?
The tips below are designed to help you prudently enjoy your resources. Your Advisor can help you set up a financial plan that works for you - one that balances your needs, enhances your life, and maintains your financial security. The goal is to be balanced and to enjoy what you have worked so hard to build.
- Have some fun
Set a “fun-money” budget. Put together a fun activity for yourself and/or your family. Take a long vacation. Buy yourself a new toy. Creating space in your budget to enjoy your hard work is valuable. It can pay dividends in feelings of gratitude and joy and in deeper connections with those you love most.
- Spend some money on something ridiculous (Within your means)
Gulp. This is a difficult assignment for the money vigilant. You may have spent a lifetime being frugal, but what is the point of all of that deprivation and saving if you never enjoy it?
- Check in with your trusted advisor
It can be difficult to talk about money with other people. In many instances a little secrecy is even a good thing. However, an advisor can be key. Discussing your financial situation with someone can provide insight and help you broaden your perspective.
When planning for retirement make sure you not only consider what you are retiring from, but what you are retiring into. Think of what you will do with your time and energy.
Picture in your mind what this new phase will look like for you, how you will redefine yourself and what you want to focus on.
While you work on this, there might a sense of anxiety about how to afford this new stage, especially if you are money vigilance. This money script is excellent for your bank balance. It is a valuable quality in terms of your ability to save and live responsibly. Yet, it is important not to let your healthy vigilance turn into anxiety. You should guard against a tendency to hoard out of fear. Make a mental note to reassure yourself. Write out a positive message on a sticky note kept near your computer. Remind yourself that you are exactly where you need to be and are on track to meet your financial goals. Remind yourself that you are entering into a phase of life that you have worked hard towards and one you are meant to enjoy.