Here’s a question to ask yourself: “What if I retired today?” Many of us spend years thinking about and planning for our retirement, but that question – “What if I retired today?” – can really help bring things into sharper focus. If I retired today, would I be financially and emotionally prepared?
Sometimes it takes a familiar question asked in a different way to really get us thinking. For those not yet retired, the answer to the “when will I retire” question can remain vague and uncertain, allowing us to keep some of the troublesome issues at arm’s length. But in this Kiplinger article from last fall, Tennessee-based financial writer Phil Wright asks the question in a far more direct way that forces us to stop and think. What if today was the day?
In his article, Wright lists three essential areas he suggests we need to consider when we evaluate our response to the question, “What if I retired today?” Considering his financial background, it’s hardly surprising that two of the three are financial, while the third requires quite a bit more imagination and creative thinking. Still, like most of the articles like this that we read, Wright has some good ideas, although in our view they’re incomplete. Let’s take a look.
If I Retired Today, Would Self-Doubt Cloud My Decisions?
Wright begins his Kiplinger article with a harrowing but illuminating story about a challenging hike he took through the Great Smoky Mountains. When he realized halfway through that he was in over his head, he started to panic. “Underprepared and overwhelmed, I felt done,” he writes. “Whether pushing ahead or turning back, I had 7 miles to travel. Just as I was questioning my life choices, my son suggested we call the park ranger station or even 911. “
The suggestion made Wright pause and really consider where he was at. “Wow. What would that look like?” he thought. “Was I really in that bad of shape?”
But that simple question – “What would that look like?” – clarified the level of difficulty for him. He didn’t need a rescue helicopter. He just needed to keep going. “Six hours later, legs battered, ego bruised, I finished the hike in the dark,” he writes.
He concludes the story with the moral that will lead us through the rest of his article: “We all face moments of self-doubt and indecision. Sometimes we reset and sometimes we retreat. It’s the same on the road to retirement — some of us feel stuck and others are striving. If you’re rethinking your next planning move, don’t panic! Instead, ponder: If I retired today, what would that look like?” In thinking the issue through, Wright breaks it down into three components, so let’s consider each one.
If I Retired Today, What Would My Cost-of-Living Be?
Wright admits that the answer to this question is probably the bleakest part of the current picture, thanks to 2022 inflation rates soaring up to historic highs. (They’ve eased since then but are still worrisome.) An ideal time to retire? Not exactly, he acknowledges.
But for the sake of argument, Wright still asks us to think about what even the least ideal circumstances would look like. He writes, “Whatever direction inflation goes from here, it’s having an impact on us all, and in some ways. What are we seeing? Higher energy prices — including a recent record high for gas — and cost increases for a broad range of other items, such as groceries, travel and shelter.”
He adds, “What does this mean for retirement? An inflation rate of just 4 percent will cause the cost of everyday items to double during the course of the average 18-year retirement. At an 8 percent inflation rate, everyday costs could double in nine years.” Those are sobering numbers.
But oddly, inflation has an upside. In 2023, the Social Security Administration raised benefits by 8.7 percent, the largest cost-of-living increase in decades. That has been be a big help to millions of beneficiaries. We should note that updated inflation figures now peg the projected 2024 COLA at about 3 percent, but nevertheless, as cost of living goes up, Social Security – at least to some degree – follows suit.
If I Retired Today, What Would My Nest Egg Look Like?
“If you take a peek at your 401(k) balance in this volatile market environment, the picture can change frequently,” Wright warns in his Kiplinger article. “However, if you do look, try not to touch because your portfolio can be like a bar of soap — the more you handle it, the smaller it might become.”
Thankfully, digital tools and calculators exist to help you track your investments and move forward. Wright provides the following list as examples:
- No Normal Retirement Journey Map and Guide — Alliance for Lifetime Income and Aging Well Hub at Georgetown University
- LifePath® Spending Tool — BlackRock
- Retirement Calculators and Tools — Fidelity
- Find Your Path — Jackson
(We think the best tool to gauge your saving, spending and investing is a financial dashboard, which you’ve heard Rajiv describe many times. Contact us and we’ll explain this invaluable idea.)
Following the hiking metaphor, Wright explains, “Retiring today could be compared to starting a hike at the bottom of a hill. You may face a steep climb before you can set a more comfortable pace. When taking withdrawals from your portfolio, the order of your investment returns can impact the overall value. Remember, timing matters.”
The overall goal, according to Wright, is to have the right emotional mindset about your nest egg. Three-fourths of average retirees see their nest eggs remain the same or increase in retirement. Why? Wright believes “the fear of running out of money in retirement continues to haunt a generation of Boomers.”
What about security down the road? Wright advises, “Looking ahead, converting some of your assets to a revenue stream, such as an annuity with a lifetime income benefit or a dividend-paying stock, for example, could help fuel your retirement without the worry of running on empty.”
In any case, living in fear is never the goal. “If you are spending retirement days worrying about your savings, rather than comfortably spending your savings to self-actualize, you are not on the right path,” he writes.
If I Retired Today, What Would My New Life Look Like?
But as our regular readers no doubt know, money isn’t the only important commodity in retirement. Time is a crucial aspect of your new routine, having an additional eight or so hours free in your day. Wright warns that many retirees have an exciting start, suddenly able to do all the things they wanted to do, when eventually the “retirement sugar rush” wears off and leaves them with the unexpected challenge of managing additional time.
Having a plan is vital for both your emotional and physical health. “If you have an intentional plan with purpose, your clock can be filled with reward rather than regret,” Wright explains. “Those who lack purpose in retirement have a significantly higher likelihood of experiencing a heart attack, stroke, Alzheimer’s disease, early mortality and other health risks associated with aging. It’s obvious that a financial plan is not a retirement plan. There’s a bigger picture in play.”
And social interaction is key in that bigger picture. Wright quotes Vivek Murthy, former U.S. Surgeon General to President Barack Obama: “Loneliness and weak social connections are associated with a reduction in lifespan similar to that caused by smoking 15 cigarettes a day and even greater than that associated with obesity.”
According to Wright, this could be why—along with the uncertain economic landscape—so many are now “unretiring” after the quick-decisions made during the pandemic. They miss the social connections that working brought them.
Wright concludes, “Whether you push forward or turn back, reset or retreat, take a moment to talk through your retirement plan with your financial professional. That’s one decision you can’t go wrong with.”
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(originally reported at www.kiplinger.com)