Test Drive Your Retirement Plan

Two emotions are common for those who are nearing retirement—excitement and fear. Leaving the working world behind can feel empowering; however, apprehension about entering a new life stage may also creep in. If you’re nearing retirement, you’ve likely taken steps to prepare financially for the future. But there’s one important thing you might not have considered adding to your preretirement checklist—a practice run.

Test driving aspects of your plan before you’re actually in retirement can help provide a sense of security for this next phase of life.

Consider What an Ideal Retirement Looks Like in the Long Term

How you choose to spend your time (and in many cases, your money) in retirement is your decision to make, but it’s not always an easy one. As we age, our interests, hobbies, and relationships change.

What you may consider your ideal retirement when you’re 55 may not be the same when you’re 65. This evolution can make it hard to plan accurately for retirement.

Consider sitting down with your spouse or family members to explore how aging and future milestones may alter your retirement. Your financial advisor can help you make a plan that aligns your ideal retirement with your financial situation.

Test Drive Your Retirement Lifestyle

Many people pledge a significant amount of savings toward a particular lifestyle in retirement. This could be a home in another part of the country, a timeshare, or a trip abroad every year.

Problems can arise if you have cemented a financial commitment to a certain lifestyle but change your mind down the road. It’s natural to change your mind about what you want, but it’s better to understand the potential implications of altering your plan before you actually retire.

For example, those who have based their financial plan for retirement on the idea that they will be living in a new location may benefit from a practice run before making the big move. Consider an individual who has lived their entire life in New York but moves to Florida when they retire—where taxes and cost of living are generally lower. Deciding after several years to relocate back to New York to be near family can mean savings may not go as far as planned. Be prudent and build some flexibility into your plan to avoid unintended consequences.

Simulate Your Retirement Expenses

Practice can also be beneficial in another way—simulating how to manage your expenses in retirement. The idea that your cash flow no longer comes from a reliable paycheck but from other sources, such as Social Security and personal savings, can come as a shock even to those who are well prepared for this change.

One idea to accomplish a sense of financial security is to run 2 accounts for a certain period of time. Through one account, manage all of your household and lifestyle expenses that you expect during retirement. This includes the costs for necessities like food, clothing, shelter, utilities, taxes, and insurance, as well as “nice-to-have” items like dining out, traveling, etc. Keep in mind that you may have to estimate or inflate your lifestyle expenses for retirement as they could rise when you have more free time.

Through the second account, manage all of your expenses that are expected to end in retirement, such as principal and interest on a mortgage payment (if your home will be paid off), current car payments (although car payments can certainly happen again in retirement), college costs for your kids, and contributions to retirement plans. Keeping these 2 separate accounts will help you more appropriately plan for and quantify your expenses in retirement.

The best way to get a handle on these expenses is to experience them while you’re still working. Take that trip to Europe before retirement and find out firsthand what you can do within your budget. If the cost is different than expected, make adjustments to your financial projections to more accurately reflect reality.

Perfecting Life in Retirement

A little practice can go a long way toward easing emotional and financial concerns when it comes to making the jump into retirement. Consider working with a financial advisor who can help you determine a budget and a retirement income plan that fits your needs and desires.

About the Author

Dianne Lynch, CFP, ChFC, APMA, AWMA, CRPS, CRPC, is a financial advisor and vice president with Ameriprise Financial Services, LLC, in San Jose, CA. She specializes in fee-based financial planning and asset management strategies and has been in practice for 43 years. Ms Lynch can be reached at www.ameripriseadvisors.com/dianne.lynch/, 408-963-2303, and 225 W. Santa Clara St. Ste. 1600, San Jose, CA 95113.