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Mental Struggles of Retirement – Are You Ready?

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Welcome back to another episode of The Retire One Show! Your hosts, Johnathan and Melissa Rankin, the mental challenges that come with retirement. Most people think that planning for retirement is all about the financial aspects that come with retirement. Whether that is how much should you save for retirement, how much you should spend in retirement or how to invest for retirement. What most retirees find is that there is so much more to retirement than money. Planning for the parts of retirement that can create mental stress is equally as important.

Have questions about your retirement? Email us at Retire@theoremwm.com or use the link below to schedule some time with a member of our team.

Hello, and welcome back to another episode of The Retire Once Show. I'm your host, Johnathan Rankin, and I am joined by my lovely co host. Hi, I'm Melissa Rankin. Thank you so much for joining us. We're so happy to be back. We took a little bit of a break for Labor Day. We didn't want to labor ourself on Labor Day, right?

No, absolutely not. No, we did not want to do that. But we are back, and today we have a great show where we're going to be talking about the mental challenges. That come with retiring. So I'm looking forward to digging into this one. But before we do that, Mel, what do we want people to do? We want you to subscribe not just to the show, so that you never miss an episode, but also to our almost weekly newsletter.

It is almost weekly because sometimes things like Labor Day come into play and you know, we're just not here. And we want our team to be able to, uh, to relax and, and not have to get that out on a, on a holiday. On a holiday. You don't want to work on a holiday. No. So you, you should expect, I would say, based on the amount of holidays that are out there, uh, I, I haven't done this calculation.

But anywhere between, I would say, 45 up to 50. Because we already met. Give or take. Yeah. So, uh, but we do try to get that out at least on a weekly basis. And make sure we put a lot of good retirement content out there for you to help you as you plan your journey to retirement. So. With all of that said.

Hit that subscribe button, but let's jump into the mental challenges that come with retiring. There's so much focus on saving, investing, and budgeting that there's a lot of aspects of retiring that I think many people overlook. I think that we should break down a few of the biggest hurdles. That's a great idea.

So the, the first one that comes to mind that we help clients with all the time is the comfort and the unknowns. And I know this might sound cliche of, well, you don't know what you don't know. And, you know, the life's full of uncertainties and all those things. But it is true, especially with retiring because we get the question all the time, which is, how do I know my retirement plan is working?

We do get that question a lot. And you know, unfortunately, there are things that we're just not going to know. We're not going to know what your health or longevity is going to be. We don't know what the market returns are going to be or, you know, inflation, especially. I mean, look over the past couple of years, that's been a big one.

Most people don't even know what their financial goals are going to be. They have a good idea, but those are likely going to change over time. And so it's always going to be a best guess. And that's going to have to be comforting at some point, but it takes time to get there. So with all that in mind, how do you actually get there to where you feel comfortable?

That wasn't a good enough answer. No, we'll, we will dig into ways where you can actually feel comfortable with that unknown and the. The first thing is you have to have a plan and this could just be some arbitrary number or arbitrary lifestyle that you want to achieve. You just have to start somewhere to see if that's achievable.

And this is where, you know, running simulations and running different variations of your retirement lifestyle are going to come into play. You should be modeling if we get under performance in the market, or if you end up living to 115 years old, which we hope everybody does. I always tell clients. Our job when we're planning for your retirement is to break your retirement.

We want to figure out what is it going to take for you to run out of money. Because if we do that, then we know what we need to avoid. If we know that, okay, a spending rate of 5 percent plus, you know, high inflation of 4. 5 percent and underperformance in the market and you live until 115 years old, all that's going to make it very difficult for this money to last forever.

You have to have a plan. And that brings us to the second thing you have to do is you have to be reasonable with your assumptions. That's the assumptions for inflation and some assumptions for market returns. I'm sorry, Dave Ramsey, but, uh, 12 percent performance assumptions every single year. are just not okay.

That's just wrong. It's not something that has been achieved. The historical standard for stocks is not 12 percent despite what he wants to say. So you have to be reasonable with those assumptions because imagine if you retired thinking, well, as long as I get 12 percent a year. And I'm taking out four, I'm netting eight, I should be completely fine.

It's just, that's not realistic. I'm going to retire. And then last year happens and we have a bear market and you go, Hey, Dave Ramsey, where's my 12 percent at? What happened? Yeah, you said. And so you have to be reasonable with those assumptions. And that goes back to breaking your retirement, figuring out what is it going to cost.

You're the pressure cooker. You want to know what it's going to take to fail. Uh, then that brings us to the third thing. You have to understand the difference between your retirement plan performance and your investment performance, because your financial plan that's going to account for bear markets, or at least it should.

And as long as there's long term expectations that things are going to average out over the long run, you just need to stick to your plan where we find people struggle is they go through a period like last year where the markets down and say, well, my financial plan looks like it's not working because the market was down.

That was your investment performance. Your financial plan is accounted for that. You don't need to deviate and just start, you know, not retiring or not spending money or not investing in the market. You don't want to abort the plan. No, you don't want to abort the plan just because there was one year that.

Didn't look as rosy as the others. So that's a big part. Um, because we do see a, another big problem is when there are shifts in spending that aren't accounted for where, you know, yes, over time, your spending is going to increase. But if you're not actually putting those new spending plans in your retirement plan to see, is that sustainable?

What's going to happen if you have larger expenditures, especially in a down market? Those spending changes are a big part of that retirement plan. So you have to factor those things in. And that brings to the last thing is you have to account and try to forecast any major purchases, home remodels, new cars, you know, new AC, whatever you might think you might need.

factor that in, even if it means you have to delay your retirement by just to be safe, just in case, because what we found is that those one off purchases of, well, I need a new, I needed a new roof. And then the next year it's, Oh, my car broke down. I actually, I'm just going to replace it and get a new one.

And then, you know, a few years down the line, it's all my, all of my friends, you know, were going on this one trip. I couldn't miss out on that. And every single year you realize, There's always a new one off. It's just an annual one off. Yeah, it's no longer a one off. That's the new norm. And so it's important to forecast those things.

So that brings us to the second mental challenge. Now that we've got that all covered of how to feel comfortable. Spending money. Yeah, this is a big one because one of the hardest things to do in retirement is switch from saving to spending. Because that fear of running out of money, that is a, still a real fear.

That's the number one fear. You only have one shot to get it right. I mean, it's a whole mindset change. It is. You know, for your entire life, you go through, you know, thinking I have to save this money because I eventually am going to use this to live off of. And then you get to that point and you go, oh, well, I've been saving now, what am I supposed to do?

I don't, I was told for my entire life, don't touch this money. And so yes, it's, it's that part of it, but also even those who've saved and, you know, have earned a good income for their entire career, most of those people don't even feel that well off. You know, there was this study done by Bloomberg that, uh, the article was, are you rich?

And what it did is it surveyed people who made at least 175, 000 of income. And it was interesting because what they found is that most millionaires feel comfortable, but some millionaires still feel poor. Which is just crazy to think about. It is. And you think of more, you know, the majority of high earners still stress about money.

So this doesn't mean just because you have seven figures in your investment portfolio That you're going to feel comfortable the moment you get to retirement that you're going to be able to be able to switch and go from saver to spender in a comfortable mindset. It's going to be a challenge and really reminds me of that Wall Street Journal article that we were talking about.

It was titled, here's what a 5 million retirement looks like. It was just fascinating to see, you know, they had a chart that showed how much, what percentage of people actually have saved over 5 million and it's 0. 1 percent of people have saved over 5 million. 0. 1%. I think it's funny that that kind of goes to show that because the article actually referenced one guy who had saved More than six million and he spends I guess about a hundred and forty four thousand a year He expects to receive forty thousand annually when he claims Social Security yet.

He's He's in the norm. I mean, he's in the minority there. That's not clearly well. And if you even think about the standard law that some people want to put out there of 4 percent per year, you have to spend 4%. I mean, he'd have to spend another 100 grand just to get to 4%. So he's got a lot of room yet.

You know, yes, either one of those quotes was that he wants to continue living, you know, with within or below his means and he wants to be able to leave something to his kids. So that's a part of his plan. However, if you know, we don't know if he's sacrificing any purchases or anything he wants to do, uh, Uh, you know that he's not spending money on, but he has the room to do it and yet he's still living with what some would call a very low distribution rate, which would mean that he's got a lot more room to spend money and he's just not doing it.

So I found that really interesting. And then one couple of the highlighted actually saved over 4 401ks by maxing it out from an early age, which for younger people that shows the power of compounding. So do that if you're watching this, uh, but they only spend 130, 000 annually. Which, once again, less than that four percent, and they do things like drive used cars, they live very modestly, and I think that's important.

I think for a lot of people, it's a, it really is, it's a huge mental challenge, it's a hurdle, if you will, to switch your mindset from saving to spending. Like you said, it's something you're told your whole life. Save, save, save. But obviously you have to get past it. You do. You, you, well, most people want to get past it, but it's there, there's a barrier.

Most people, they, you know, at least people that we talk to, clients that we work with, they want to spend more money. They, they talk about, I want to buy an RV, I want to go on this trip, but I just, there's this nervousness of, can I actually spend that amount? And that's the part where you have to be comfortable knowing that yes, you can spend your own money.

It's, it's your money. You saved it. And the only way that most people feel comfortable is running numbers of saying, okay, let's, let's increase how much you're spending and let's just go through this exercise of. Once again, putting the retirement plan into the pressure cooker, trying to break it because nobody, very few people stick to the 4 percent rule as prescribed.

Nobody lives in a Monte Carlo simulation and they just don't, you know, financial planning is not just a model that's on a computer screen. It's something that you have to constantly update, something you want to go through and Bounce ideas off of to see okay. Is this going to create an issue for me in five or ten years?

That's what people want to know. They want to know if I spend money this year on this on you know, RV or Second home or vacation or whatever that is. Is that going to create an issue for me long term? That's That's really the question. It's not, I just don't like spending money because I very rarely, I think I've met people, you know, that can fit on one hand that don't like spending money just for the sake of, they just don't like spending money just for the sake of it.

Yeah. Most people can find something out there that, uh, that they can spend money on, but you want to be able to. Make sure that your financial plan is something that's not set in stone. If you did it once, well, you better readdress that thing on how to set it and forget it. No, it's not. We're not baking chickens here.

As we always said, it does require constant updating. And you know, what I've found is that most people, a lot of people, they don't want to do that constant updating because it does take work. You have to update and track your spending and who likes tracking their spending. Nobody, nobody likes tracking their spending.

And once again, those, those one off big expenditure years, they typically tend to repeat unless you're actually tracking it. If you, you know, okay, here's what we exactly spent last year. Here's what we're spending this year. Here's what we plan to spend and what we budgeted. It's always important to do that work, especially when you're retired.

And unfortunately, a lot of people think. Just because I did all the work before I retired and I put together this plan that got me here now I'm done the the biggest thing I can you know, tell someone who's struggling with spending and that's just a mental hurdle They need they want to overcome and they just haven't yet is find a professional to work with You know, we do this with our clients where?

They bounce spending ideas off of us all the time and we don't just say, yes, that sounds like a good purchase or that sounds like a bad purchase. That's not what it's meant to do. What you're supposed to do is take that, take that data and start running the numbers to see is this going to be an issue?

It's that it's having someone else help give you that confidence that you're going to be okay if you do spend this money because ultimately that's what people want. They just want someone to say. You know what? Yes, you could spend your own money and you're going to be okay. Uh, but to make sure that there's data behind it as opposed to just, yeah, that sounds like a good idea.

It's kind of like going to see your hairstylist thinking you want bangs. And she, you know, once you talk her through it or, you know, with her about it, it's more of a, no, maybe, maybe we add some layers. You know, it's, it's kind of just getting People comfortable with the choices they think they want to make exactly and I'm glad that you Decided not to get bangs because it was you know, it was a real real tough call We love your hair and you know, I know the audience loves you here So, you know, please don't get bangs and to your hairstylist for being there to bounce that idea off Thank you for talking her out of that But really dodged a bullet there we did and and that brings us to the third hurdle And a really big one and that is what to actually do in retirement.

This is a big mental challenge for, for people to overcome that they usually don't realize until they're actually retired. This doesn't really become that mental challenge of retiring until you're actually retired. For example, there was an article, um, that I read called getting myself ready. So, this guy kind of took the opposite approach.

The author was a software engineer. He discussed how he was preparing himself for retirement. He discussed his approach to financial stability. Could he be happy and fulfilled without work? He asked himself all these questions. He came up with four strategies, though. That's kind of what he narrowed it down to.

He wanted to try new activities that he might enjoy. So, and that was before he retired. And I think. I would love to do that. But how much time do you actually have to try out all these activities before retiring, but it is smart to think about because when you go into retirement, you have all this extra time.

So yeah, trying to find something that you like doing, you might want to do while you have all the extra time. The best part is that this guy. I don't know him, but he definitely sounds, we work with a lot of engineers. He sounds like an engineer. This was mapped out. This is, this is what we love to see. I mean, he's thought about this before he retired.

And even the thought of trying activities before you're retired. I mean, it's, it's smart. It's a planner's mindset. It's a, it's very, very engineer mindset. That's right. He also wanted to try to find something that would get him out of the house each day. That's a big one. We see that with clients that, you know, just trying to find something that's going to get you out, be in public because you go from working in an office where you're interacting with hopefully coworkers that you like, but even if you don't like them, you're still human interaction.

You don't want to just be, you know, hold up on the couch all day watching the news or what have you. He also wanted to keep two years of living expenses in cash as a cushion. Which is a great idea, very good idea. He wanted to use the three bucket approach for deaccumulation. Very software engineer mindset of, I've got that bucket, you know, I've got the short term bucket of those two years of living expenses and I'm going to use this mental accounting bucket system for deaccumulation.

Very very smart of him. I like that he kind of went about it. from a personal side, but also from the financial side. He wanted to make sure he was maybe finding new hobbies, reasons to leave the house, but then also back to the financial part of it. So after his two years of, um, after his assessment, he did it for two years.

He said that getting out of the house was pretty easy. Which is good. That's good. Yeah, hopefully he can keep that up because I know there's certain times where if you're doing something in the house Let's say you're working on the house or you're doing yard work Maybe you just don't feel like going out but at least this way, you know, you're getting easy.

Yeah, that's good He said that he underestimated how much cash he should have on hand He said he no longer he needed a larger cash buffer to sleep well at night And this is common. This is where you start realizing that there's no magic number. There's no prescribed amount of cash that you should have on hand or there's no prescribed asset allocation for retirement.

For example, he wants more than two years of living expenses in cash. Whereas for some people that might stress them out to have that much cash that's not working for them. So this has to be something that is a personal decision for, for each individual. I found that part to be very, very important because a lot of people think, okay, just tell me how should I invest when I'm retired exactly?

What do I need to do? Well, the hard part is when you answer someone with a question of, well, it depends. What, what makes you stress out? Yeah, you have to figure out what's important to you. Is it for him? It's very important that he has cash on the side so he can avoid dealing with market volatility. But, you know, like I said, it's a personal decision.

I'm glad that he was able to realize that. He did say that his spending was a lot higher than he anticipated because he did home remodels and, um, he traveled more. So, I mean, those are the one offs. Yeah, it was exactly. One year it was a one off. The next year it was another one off. Uh, that's why I always think it's important if you are starting to plan your retirement and you have an income goal in mind.

So let's say in, in your retirement plan, you think of. I'm going to spend called 100, 000 a year. Well, just increase that by 20 to 25%, just for a few years, just to see, does that create a meaningful negative change in your long term portfolio? Because the reality is. I have very rarely seen people retire and actually spend less in retirement than what they were initially planning.

Most people will spend more, and it's always important to factor that in. Which kind of goes to, um, his next point. For the three bucket strategy, it didn't work. Didn't work at all for him. He said that it was too complicated managing all the buckets across different accounts, factoring in taxes. It was just way too much.

Instead, he simplified it and went for the two bucket strategy, or the barbell approach. Cash on one side, everything else on the other. Yeah. And that's important to know that it is in that you're only going to know that once you're in retirement, you're going back to, you know, assessing exactly, you know, how you're managing your finances, how you're managing your income.

And this is someone obviously who's very detailed, who likes to be thorough. He likes to be in the weeds on things. We can, we, you could just tell that's an engineer mindset, but a lot of people don't want to do that. They just want to be hands off because, I mean, think about it when you're making a salary at work.

You're really only hands on to your work. You're not hands on to, you know, your salary's X And you know, you're gonna get a raise next year. You don't have to manage the salary component of it You just have to do your job. And so, you know, to dive into the weeds Most people don't want to do that but you have to figure out what's going to make you feel comfortable with the financial aspect and Because then you're able to take everything else and spend your energy just living life for retirement.

Hopefully getting out of the house each day and hopefully some of those, uh, activities that he tried before retiring, you know, panned out for him. Well, actually he, he never got around to doing that, which kind of like you said, who has the time to do that beforehand? So it was, it was a very good idea. Or a thought for him to want to try, but he never got around to those.

Yeah, I can. I mean, when you're working and you're thinking about retiring, there's always, especially for engineers, like I said, we work with so many, especially in aerospace defense, where you just see that there's always something going on travel or some sort of deadline models. There's something going on where you just don't have the time to try out new hobbies.

Hey, look, pickleball looks fun. I would love to play pickleball, but where am I going to find the time to play pickleball? Do you think, can I pick up pickable? I don't think so. I don't think you have any room for new hobbies. So that's, that's where in retirement, you should have a list of things that maybe you want to try and give yourself that flexibility and freedom in retirement to try those now that you have all this new time, but don't, don't feel like you have to stick with something forever.

If you don't like it, just. Cut the band aid off. This isn't like work where you have to actually do something you don't like choose what you like Just to keep going with it to say you're doing it Yeah But that's where one of the biggest challenges that we see people deal with is They retire and they don't know what to do with all the time The time is a big one time is a very big one because so many people think that retirement planning is all about The financial aspect, how much am I saving?

What am I investing in? How much am I going to spend? You know, what are my expenses going to be? And am I going to have enough income? That's the financial part. But there's so much more to prepare for retirement and that's where, you know, hopefully we're able to go through some of the mental components of it that will help you out as you're thinking about retiring.

You know, that will help you get over some of those mental challenges because that's what we want to do. And, you know, if you have questions about your retirement and you don't know where to start and. Maybe you haven't put your retirement plan through a pressure cooker yet and you want to do that. We'd be happy to help you out with that.

So there's a link in the description below. Check that out. Uh, but before we get out of here, what's the last thing we want people to do? We want you to subscribe again. Don't miss these episodes. Amazing stuff here, guys. Right. Then make sure you subscribe to the weekly newsletter as well. That is usually weekly, you know, we're planning for about 46 of them per year.

So, uh, we've got some holidays in there, but, uh, we appreciate you joining us today and look forward to next time. I'm Johnathan Rankin. I'm Melissa Rankin. Thank you so much.

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC.– Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. –  Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. – Theorem Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. Third party posts do not reflect the views of Theorem Wealth Management or Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by johnathan@theoremwm.com. For additional information, please refer to one of the following consumer websites: www.FINRA.org, www.SIPC.org.

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