Are You Mentally Prepared for Retirement? How to thrive before and after the transition

GetImageThis week, my family and I had the opportunity to celebrate the life of a truly great person, my mom.  On March 22, 2011, after a short battle with depression, she chose to end her life at a very young age of 61.  While thoughts and feelings continue to swarm in my mind, I’m truly convinced that one of the main reasons for this tragedy was her lack of preparedness for retirement.  She had been a nurse her entire career, and as such she was truly depended upon and needed in many people’s lives.  Upon retirement, the feeling of being needed diminished, and her mind spiralled downward from there.

Retirement is about much more than money.  It’s also about finding a new path in life and a new identity as a retiree.

For most investors, retirement is their primary financial goal. As financial professionals, we help our clients chart a course to get them to retirement. We work together with our clients to answer financial questions like: When can I afford to retire? How much money will I need to live comfortably? Surveys show that many Americans are woefully unprepared for retirement and financial worries can make the retirement transition stressful.1 Fortunately, working with a professional can help ensure that you enter retirement with confidence in your financial future.

But having the means to retire after a lifetime of hard work and smart financial decisions is not all it takes to enjoy the next phase of your life. Many people overlook the fact that retirement is a major life transition that can come with significant mental and emotional ramifications. In this post, I discuss some of the critical non-financial issues that retirees must confront, and present some solutions suggested by psychologists who have studied the experiences of retirees.

Retirement can leave you feeling lost

There’s more to retirement than financial and logistical concerns. Many new retirees are unprepared for the psychological aspects of the transition. “People go into retirement essentially flying blind,” says Dr. Robert P. Delamontagne, author of The Retiring Mind® book series. In his research, Delamontagne found that people often aren’t mentally prepared for the retirement transition and don’t fully grasp what retirement will mean for their identity and place in the world.

Studies show that retirement can improve psychological wellbeing by removing the strain of a demanding career.2 However, the corresponding loss of work relationships, career identity, and daily purpose can cause retirees to feel adrift. Dr. Nancy K. Schlossberg, a former professor of counseling at the University of Maryland and author of Revitalizing Retirement: Reshaping Your Identity, Relationships, and Purpose, points out that a career “is such a part of your identity that people can feel very much at sea when they retire.”

This loss of a career-oriented identity is key, Schlossberg explains; “when you make a major change, your identity – who you are – is at stake.” Until retirees find a new identity in retirement and develop a new sense of purpose, they may struggle with feelings of loss and depression. Research supports this view; a meta-analysis of multiple studies found that retirees who closely identify with their role at work or had high-stress jobs are likely to find the transition to retirement hard.3

Delamontagne found that your personality type can have a lot to do with how difficult the transition will be. Those with relaxed dispositions can more easily roll with the punches and adapt to the changes retirement brings. On the other hand, energetic hard-chargers and people who have invested themselves in their careers often face more trouble making the transition into retirement. Reflecting on your own temperament and personality can give you insight on how to better manage your transition into retirement.

 

Who will you be in retirement?

Through interviews with over 100 retirees, Schlossberg identified six different paths that retirees often take to create their retirement lifestyle. For example, continuers usually adapt their existing skills and interests to retirement, often volunteering or working part-time in the same or a similar career field. Research suggests that many retirees aren’t ready to hang up their spurs altogether and instead choose to embark on encore careers. A 2013 CareerBuilder survey found that 52 percent of workers 60 and over planned to work part-time once they retired.4

Adventurers take retirement by the horns by learning new skills and working on their bucket list. They are the retirees who become dedicated RVers or devote themselves to new passions. Many retirees start out as searchers who are looking for their new path. If you find yourself here, you may benefit from career counseling and support to find a new direction. Others become retreaters who withdraw from active life; while some retreaters just need a temporary timeout to figure out their next steps, others can become depressed and confused.

Schlossberg found that retirees “don’t stay on the same pathway forever” and instead shift from one path to another as their needs and interests change.

Don’t be in too much of a rush to find the perfect retirement; what engages you at one point may no longer be practical five or ten years down the line. Delamontagne recommends gradually easing into your new retirement lifestyle before making any drastic changes. If you find yourself itching to move or buy a vacation house, try it out temporarily before committing yourself, and your finances, to a serious life change.

Whatever path you take in your retirement, it’s critical to find a purpose and decide what role you want to take on as a retiree. Whether it’s working part-time, volunteering for a cause, or pursuing a new passion, studies show that retirees who are actively engaged in their lives report greater levels of physical and psychological wellbeing.5

 

How will your relationships change in retirement?

Many retirees find that key relationships change after retirement. Professional relationships are often the first to suffer. Though many maintain connections with their former colleagues, they will lose the everyday contact with their work friends as retirees move on to a new stage of life.

People who socialized regularly with their professional connections may find it especially difficult to lose the camaraderie of the workplace. Schlossberg recommends that retirees find alternative social outlets through church activities, community groups, and hobbies. Building a substitute community and support network can help diminish the loss of professional relationships.

Your relationship with your spouse or partner will also likely change as you both adapt to a new schedule and retirement lifestyle. Many couples don’t retire at the same time, causing the joint transition to retirement to potentially take longer. One study found that couples often experience conflict when one retires while the other remains working. Researchers pointed to expectations about the division of housework and transition-related stress as common sources of conflict.6

Delamontagne zeroes in on “marital compression” – the sudden increase in togetherness that retired couples may experience – as a key cause of discord. Most married couples are accustomed to being apart for hours every day and enforced closeness can turn minor issues and personality quirks into real problems.

Delamontagne speaks from personal experience. After retiring from a successful career as an entrepreneur and CEO, Delamontagne found that he needed to change the way he interacted with his wife. Without the daily challenge of running a business, he unconsciously became more controlling. “One day, my wife said, ‘Stop telling me what to do! I’m not one of your employees,’” Delamontagne admits; “I didn’t even know I was doing it.”

What can you do to help your relationship adapt? “Open lines of communication,” says Delamontagne, who also recommends delving into the personalities of you and your spouse to better understand your internal motivations and how you relate to each other. Couples who have very different personalities, communication styles, and needs for independence may find more potential points of conflict. In his book, Honey, I’m Home: How to Prevent or Resolve Marriage Conflicts Caused by Retirement, Delamontagne offers suggestions and a discussion guide for opening dialogue between spouses. Couples who struggle to communicate might also benefit from the mediation of a counselor or neutral third party.

What else can you do? “Get a part-time job,” suggests Schlossberg. Whether you’re consulting in your former field, pursuing a hobby, or volunteering for a local cause, independent pursuits and time out of each other’s space can give your relationship some much-needed breathing room. Building that critical support network of friends and activity partners can also help you avoid leaning too much on your spouse for your social needs.

Relationships with children and other family members may also change when you retire. Family is often a source of joy and relaxation to retirees but the expectations of your relatives can also offer unwelcome pressure. While some retirees look forward to spending more time with children and grandchildren, others are equally interested in pursuing travel or a more independent lifestyle. Schlossberg found that many retirees feel pressured by their children to make themselves more available for babysitting duty and other family obligations rather than focusing on their own interests. The burden of these expectations can create a stressful family dynamic.

Whether you’re delighted by the opportunity to take an active role in babysitting or not, The American Grandparents Association recommends setting boundaries early on.7 Think carefully about how much time you want to devote to your family and communicate your expectations in advance; otherwise, you might find your own life taking a back seat to family requests.

 

Our take on retirement

I hope that you’ve found this article interesting and that you’ve taken away some information to apply to your own life and share with those close to you. Like many important life transitions, retirement can be both exhilarating and stressful.

As financial professionals, our job is to help you prepare for retirement and to give you the financial confidence to pursue your dreams in whatever form they take. However, we also want you to see us as a resource on other aspects of retirement. Though we aren’t psychologists, we have helped many clients negotiate important life transitions and can offer support as you work to pursue your retirement dreams. I’ve identified some resources in this article that may be helpful in your journey and would be happy to direct you to other sources of help.

Whether you’re still preparing for retirement or you are already living in the next phase of life, there’s no single solution that can guarantee a happy, successful retirement. However, our experience teaches us that advanced preparations can help reduce the stress of retiring and help ensure that you’re financially, emotionally, and mentally ready to retire. Finally, we want you to remember that retirement can offer you the freedom to reinvent yourself and pursue new passions. “Retirement never ends, it’s an ever-evolving process,” says Schlossberg. Embrace it and enjoy the life you have created for yourself.

Please feel free to share this information with your friends and family; everyone deserves the benefit of professional recommendations and the confidence of knowing that their future retirement has been planned for. If you would like to review your current retirement plan or need help developing one, please call our office at 419-425-2400.  Lastly, if you or someone you know struggles with depression, please seek medical help immediately.

 

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How much income do you actually need in retirement?

One of the most common questions that we get from clients nearing retirement is, “How much income am I going to need to be comfortable?” It’s an important question that gets right at the heart of the retirement puzzle.

Although we wish we could give you a round number right here, that just isn’t possible. Too much depends on your personal situation. What is possible is to think ahead about your lifestyle and financial needs and come up with some approximations that can be used to develop a personalized retirement strategy.

We developed this blog post to be used in tandem with our Retirement Budget WorksheetClick here to get your copy of our Retirement Budget Worksheet now.

We recommend that you set aside a few hours with your spouse or loved ones, gather your bills and statements, and complete the worksheet together. Just the process of developing some income estimates can give you more confidence and a sense of control over your finances. We can arrive at an approximation of your target retirement income by answering a few broad questions:

How much are you spending each month right now?

The easiest place to start when developing a retirement budget is to understand where your money is currently being spent. Our detailed worksheet breaks down your expenses by category. The most accurate way to gauge your household spending is to look at your bills, bank statements, credit card statements, and other financial accounts to see where your money is actually going.

How will certain expenses change in retirement?

Your spending patterns will change in retirement. For example, many homeowners pay off their mortgages by retirement, significantly reducing their fixed housing costs. Research shows that food and job-related costs tend to drop because retirees have more time to shop and prepare meals, and no longer pay for a professional wardrobe or commuting costs. On the other hand, many retirees see increases in discretional spending as they take advantage of more time for hobbies, travel, and fun.

What major expenses should you plan for?

Once you have a handle on your monthly budget, the next step is to think about any large, one-off purchases that you will likely make in retirement. Buying a new car, updating your appliances, or taking on major home improvement projects may require extra cash at some point in the future. You should also think about the big items on your bucket list: a once-in-a-lifetime vacation, a new boat or RV, or large philanthropic gifts will definitely need to be considered in your income strategies.

What’s the next step?

The work doesn’t stop once you have developed your initial retirement income estimate. There’s a lot of additional analysis to be done to help determine how much income you will need at different stages of your retirement and where that income will come from. We take a look at many other important factors in your personal retirement income calculations, including:

Longevity & health history: Advances in medicine and healthcare mean that many Americans can expect to spend 30 years or more in retirement. According to actuarial tables, there’s an 18% chance that at least one member of a 65-year-old couple will live to see 95. We take a look at your personal situation and health history to help ensure your income lasts as long as you need.

Inflation: Increases in the price of goods and services mean that your expenses will rise over time. 3.2% inflation, the long-term average annual price increase, will cause prices to double in just 22.5 years. We also consider other types of inflation; many simple inflation calculators don’t account for increases in food, gas, and healthcare costs since these volatile categories are usually excluded from the headline Consumer Price Index. However, do they affect your personal bottom line? You bet they do.

We hope that you have found this blog post to be informative, educational, and – most of all – reassuring. If you’re worried about retirement, we want you to know that you’re not alone. We have helped many people just like you protect their lifestyles and develop a personalized strategy for their future income needs. If you have questions about retirement and would like to speak to an experienced financial advisor, please contact us for a complimentary consultation. We are here to be a resource.

Click here to get your copy of our Retirement Budget Worksheet now

Markets Slide Before Key Fed Meeting Weekly Update – September 15, 2014

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Markets closed last week on a down note – breaking five straight weeks of gains – as investors hedged their bets ahead of a pivotal Federal Reserve Open Market Committee Meeting. For the week, the S&P 500 lost 1.10%, the Dow dropped 0.87%, and the Nasdaq slid 0.33%.1

After weeks of great performance, markets finally hit pause as investors declined to push markets higher ahead of a big week. Fed decisions have driven a lot of market activity in recent months and the upcoming FOMC meeting is highly anticipated. Analysts are poised to leap on any hint of Fed economists’ thinking about the state of the economy and the return to normalized monetary policy.

What will the Fed be looking for? Overall, clues that the U.S. economy is still on the path to sustainable, broad-based growth. So much of what the FOMC does comes down to interpretation and reading the tea leaves; Fed economists are accustomed to delving deeply into the data and making judgments based on cloudy and uncertain data.

One of the biggest variables in the Fed’s evaluation of the economy is the labor market. So far, most indicators show that the labor economy is improving, albeit modestly.

The August jobs report was grim and showed that job creation slowed over the last three months. Worse, the labor force participation rate was a measly 62.8%, the lowest rate seen since the 1970s.2

However, fresh research by a group of Fed economists suggests that declines in labor force participation since the financial crisis – often attributed to discouraged Americans who drop their job searches – may actually be due to the natural aging of the U.S. workforce as boomers move into retirement.3 If true, this means that the Fed may be able to discard some of their concerns about discouraged workers.

Digging a little deeper, the number of job openings in the U.S. ticked down slightly in July, but is still close to a 13-year high. On the other hand, the pace of hiring hasn’t kept up with job openings, indicating that workers may be struggling to retool for new jobs or that employers may not be offering competitive wages.4 Unfortunately, these are not problems that the Fed can solve, but economists need to factor these issues into their thinking to ensure that they don’t take away the training wheels too soon.

There are a couple of decisions that could come out of the FOMC meeting. (1) The Fed could decide to continue steadily trimming back bond purchases as they have at every meeting since the taper began in December. This decision would keep us on track for an October finish. (2) If the economic oracles show that the economy is doing well, the Fed could decide to accelerate the pace of its taper, ending its quantitative easing programs ahead of schedule. While doing so would be a huge vote of confidence for the economy, markets might react badly to the news that the party is ending early. (3) If economic prospects look uncertain, the Fed could decide to pause its taper, keeping bond purchases going until the end of the year.

Whatever decision comes out of the meeting, investors can expect some volatility as markets adjust to the news. Investors will also want to gauge the expected effects of a fresh round of sanctions against Russia, which many analysts worry will dampen growth in Europe.5 All told, it’ll be an informative week and we’ll keep you posted.

 

ECONOMIC CALENDAR:

Monday: Empire State Mfg. Survey, Industrial Production

Tuesday: PPI-FD, Treasury International Capital

Wednesday: Consumer Price Index, Housing Market Index, EIA Petroleum Status Report, FOMC Meeting Announcement, FOMC Forecasts, Chair Press Conference 2:30 PM ET

Thursday: Housing Starts, Jobless Claims, Philadelphia Fed Survey

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HEADLINES:

Factory output in China drops. Chinese factory production growth fell to the lowest level in six years, stoking fears that the world’s second-largest economy might be cooling off. Weak readings in several other sectors increase the probability that China’s central bank may undertake additional stimulus.6

U.S. retail sales rise in August. Retail sales, which account for about one third of consumer spending, rose broadly last month. While retail sales levels are still below pre-recession numbers, this increase bodes well for future spending and economic growth.7

Consumer sentiment hits 14-month high. Friday’s report showed that U.S. consumer sentiment rose to the highest level in more than a year, as Americans felt more upbeat about economic conditions. Though Americans still worry about a labor slowdown, they are more optimistic about the future.8

Import prices decline. The cost of imports into the U.S. fell by the largest amount in nine months, largely due to a sudden decrease in petroleum prices. While this drop may be short-lived, lower import prices will help keep inflation down and cut Americans a break on imported products.9