By Bennett Whitlock, CRPC® Private Wealth Advisor
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 pre-retirement checklist— a practice run.
How you choose to spend your time and money in retirement is your decision. But as we age, our interests, hobbies and relationships change. Your idea of an ideal retirement when you’re 55 may not fit when you’re 65, making it hard to plan accurately. Changing your mind in 10 or 15 years could throw a wrench in your long-term financial plan. It’s natural to change your mind, but to avoid unintended consequences it’s better to understand the potential implications before you actually retire. You may need a practice run.
Consider an individual who has lived his entire life in New York, retires to Florida, where taxes and cost-of-living expenses are generally lower, but decides to relocate back near family in New York, meaning the dollars he saved for a Florida retirement may not go as far as planned.
Practicing retirement can mean switching from a 40-hour workweek to part-time, through your employer or as a consultant, instead of fully retiring right away. This can also let you continue to receive important financial benefits that help preserve your nest egg.
Additionally, a “dress rehearsal” can help you see how you’ll manage your expenses in retirement. Create a separate account for household and lifestyle expenses that you expect in retirement, including all necessities, insurance and “nice-to-haves”: dining out, traveling, etc.
In a second account, manage expenses expected to end in retirement, such as mortgage principal and interest if your home will be paid off, current car payments, retirement plan contributions and your kids’ college costs.
Inflate your estimated retirement lifestyle expenses, which could rise with more free time. Before retirement, take that trip to Europe to find out first-hand what you can do within your budget. If it costs more than expected, adjust your financial projections to more accurately reflect reality.
Bennett Whitlock, CRPC®, is a private wealth advisor and managing director with Whitlock Wealth Management, a franchise of Ameriprise Financial Services, Inc. Learn more at WhitlockWealth.com or call 703-492-7732.