4 Common Fears in the Year of Retirement

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When thinking about the idea of entering retirement, many people experience a combination of emotions – some excitement, but also some fear. You may be thinking to yourself, “I think I’ll be okay financially, but I still have some questions.” Well, you’re not alone. We have found that there are four very common fears in the first year of retirement.

How will I replace my paycheck?

Income is a significant factor in feeling confident about retirement. Transitioning from 30 plus years of earning and saving to spending down your savings can be daunting. How can you know that you will be okay without the paycheck you’ve come to rely on? In retirement, there are a few different levers to pull on:

Social Security. There are strategic ways to approach how and when you, or you and your spouse, turn on Social Security payments. Maximizing the larger benefit and taking advantage of spousal benefits are two of the many strategies that can help replace the paycheck you are used to receiving every month.
Pension Payments. Although there are very few companies who offer pensions anymore, if you do have one, there are typically multiple options available for how you can receive these payments. Options range from 5 years of payments to lifetime payments along with the choice to have your benefits extend through the lifetime of your surviving spouse.
Retirement Account Withdrawals. This is probably the most commonly-known option for any needed income. Choosing which accounts to withdraw from based on income tax or capital gains timing can make or break your long-term plan.
Lifetime Annuity Income. Annuities tend to get a bad rap, but there are some great options out there that have low or no rider fees and can offer lifetime income streams down the line.

As you can see, there are many ways to replace your paycheck but one thing is for certain, it is important to make a plan. Once you feel confident in your financial plan, you can begin to turn your focus to the other areas of your life that are impacted by retirement.

What will I do with my time?

One day you’re at work with people who you may have known for many years, the next day you’re at home with no deadlines, tasks, or expectations of your time. So, what now? The fear of boredom is common when considering stepping into this new phase of life. Thankfully, you aren’t alone. There are others who may be thinking the same thing! Joining social groups; resurrecting old hobbies or taking up new ones ; spending time with family; or volunteering for a cause that is important to you are just a few of the many ways you can choose to spend the time you’ve worked hard to be able to enjoy. If the endless options seem daunting, a good place to start is by choosing one new thing to try, do it maybe 3 days per week, for one month and then evaluate how it went at the end of the month!

Loss of Identity

When we meet someone for the first time, we often ask, “So, what do you do?”, which really means “What do you do for work?” Spending the majority of your waking hours at work is a part of your story – part of who you are. Having that part of your story come to a close can feel like the main piece of your identity is gone; like you need to get to know yourself again or reinvent yourself. While work is absolutely a part of your life and what you do, your identity can also stem from your values and passions. Taking time to reflect and write down the things that are core to who you are and what you care about can help you discover (or rediscover) an identity that goes much deeper than your career.

Living longer than my money

45% of baby boomers say outliving their retirement savings is their biggest fear about retirement (1). Not knowing whether or not your money will last through the rest of your life can make you hesitant to even consider retiring, but making a budget is a big step toward curbing this fear. Knowing how much you will need in savings in order to retire really depends on how much you plan to spend. It is important to track your spending and identify which budget items are fixed (consistent every month with little to no variation on amount) versus variable (not consistent every month, amount changes, or discretionary spending). Once you have identified your fixed budget items and hopefully have also added in some things you hope to spend on like vacations and hobbies, you will have a much better sense of how much money you will need each year to feel financially stable in retirement. There are other elements that may come into play like the possibility of going to a nursing home, which is when safety nets like Long Term Care could be something to explore. But, the baseline to not outliving your money is making sure your spending does not exceed your savings or other sources of consistent retirement income.

There are many things that people worry about when deciding to retire. But, as we have seen, there are a few key things you can do to build confidence and give yourself the freedom to step into this next exciting chapter of your life.

Sources:

(1) https://transamericacenter.org/docs/default-source/retirement-survey-of-workers/tcrs2020_sr_retirement_security_amid_covid-19.pdf