As you transition from work to retirement, you should be prepared for the inevitable emotional roller coaster ride you’re about to go on.
Year after year, client upon client all report that their first year of retirement, from an emotional point of view, is the most difficult year of all. What may surprise you is that the emotional challenges occur regardless of your net-worth.
Imagine, that after 40+ years of working and being accustomed to receiving a bi-weekly or monthly paycheck, suddenly, there are no more paychecks coming your way.
Next, let’s assume you were diligent when it came to saving and living within your means. It surely never hurt your feelings watching your 401k/403b and IRA’s grow in value over the years. Now imagine, instead of seeing the values of all those account rise over the years, now the values are moving in the opposite direction.
Below are five recommendations for successfully making it through your first year of retirement:
1. Develop an annual spending plan
If you’re a couple, and you’re a little rusty when it comes to negotiating with your spouse/partner, now’s a good time to flex that muscle because you’re going to need it. Maybe you were the breadwinner and got used to calling all the shots when it came to spending decisions. Those days are over - now, you both have an equal say in terms of spending. Let the fun begin, enjoy the sharing of responsibility, and allow the closeness this exercise produces to enrich your relationship.
2. Discretionary vs. Fixed Expenses
Inevitably, there will be years when the stock market performs poorly and that means the stock portion of your portfolio will also perform poorly. It’s during these times, when your investment return is negative, that you must know how much of your annual spending is discretionary. This is essential to your peace of mind. If you have to trim your spending, knowing what gets trimmed is a key to not just managing your cash flow, but also to managing your emotions.
3. Create a slush fund
One of my favorite and most widely accepted recommendations I make to couples is that they create individual slush funds. The amount for each is decided when we design their retirement plan and refilled annually. This is important for two main reasons. One - it avoids a lot of potential conflict around your spending choices, and two - it just feels good having an amount of money that’s all yours to spend as you wish, knowing also that it’s been incorporated into your retirement plan.
4. Compare actual to projected spending every 3 months your first year
Sometimes it’s relatively easy for people to develop a spending plan for their first year of retirement. What’s not so easy is holding yourself accountable to the spending goals you’ve set. My retired clients have nowhere to hide when it comes to comparing their actual annual spending to the spending goal they set, and many also say they like knowing that I’m holding them and the plan we co-created accountable. Make sure, if you’re flying solo and do not have an advisor, that you hold yourself accountable to financial goals.
5. Expect there to be conflict - that’s normal
You may never have had a conflict around money during your working years, and perhaps there was more than enough money to meet your financial goals while you both were working. That’s all about to change, big time. And from my observation watching clients go through their first year of retirement, conflict usually arises over stuff you never considered a flashpoint.
First, realize it’s ok to disagree and perhaps strongly disagree with the choices around spending you and your spouse/partner will need to make as you adjust to a new lifestyle.
Secondly, reach out to a professional financial coach that specializes in helping couples communicate better around their relationship with money. We highly recommend Pat Chambers, Ph.D, a true superstar when it comes to helping couples deal with this tricky and at times difficult issue.
And finally, remember, the first year is the hardest. You’re going through lots of changes at once and it’s ok if after years of peace and tranquility in your relationship, suddenly, you find that you’re arguing about money stuff. It’s normal, it happens to most couples and as I’ve observed, it does get easier over time. Keep the faith.