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The key to a successful transition to retirement lies in several tactics, and preparation – both financial and non-financial – is among the most important, according to one expert.
“The highest correlation to this success is the time you spend preparing before retirement – not only on the financial aspects, which is obvious, and everyone does it, but it is not as obvious on non-financial aspects,” said Fritz Gilbert. , author of “The Keys to a Successful Retirement” and guest on a recent episode of Yahoo Finance’s Decoding Retirement.
According to Gilbert, who also publishes the Retirement Manifesto Blogthe more time you spend planning for both aspects of retirement, the greater the chance that “you’ll find those things in retirement that will bring you the sense of fulfillment you hope to have in retirement.”
Many future retirees only begin thinking about their post-retirement plans after leaving the workforce. Gilbert, however, took a different approach, starting his planning years in advance – a decision he considers essential to his success.
“It definitely helps,” he said. “It has been shown that the more you plan in advance, the smoother the transition will be.”
So retirees can ensure they have enough money to maintain the lifestyle they want, Gilbert recommends tracking their spending even before retiring.
“You can’t retire without having a good spending base,” he said. “It’s a math problem, ultimately. And the more variables you can eliminate, the better your plan will be.
Learn more: Retirement Planning: A Step-by-Step Guide
According to Boston College’s National Retirement Risk Hint39% of working age households will not be able to maintain their standard of living in retirement.
In Gilbert’s case, he and his wife tracked every expense for 11 months to establish a baseline, then adjusted retirement to account for downsizing, travel and other changes. He also used tools like the 4% rule (spending 4% of your portfolio each year) as a guide.
“See how that compares to that estimated spending number,” he said, noting that if it’s close, you should be fine. But if it’s not close, you’ll need to consider working longer or cutting back on your expenses.
Gilbert also recommended his “90/10 rule.” Before retiring, the self-proclaimed spreadsheet enthusiast said he spent 90 percent of his time thinking about money and only 10 percent of his time focusing on the non-financial side of retirement.
“I was a real money freak,” he said. “I was really focused on the numbers.”
However, once he determined his finances were secure and retired, the time he spent focusing on money completely shifted.
“As this transition happens, you think less about money because you’ve kind of gotten over the problems and you know what you need to spend,” he said. “And you start thinking: What am I going to do with my life? What will give me this fulfillment and excitement every day? And it’s not the money. Money is a means to an end. But as we retire, we begin to look for the end and not just the means. »
And this change came as a surprise to Gilbert. “It’s a mental change I didn’t expect,” he said. “It was one of my biggest surprises. It’s a fairly common reality: we worry a lot less about (money) once we’re settled. »
Gilbert explained how work often provides people with the “big five”: identity, structure, purpose, sense of accomplishment, and relationships.
Retirees must find a way to replace them. How could they go about it? First and foremost, it is essential to recognize the importance of replacing the big five, since they disappear once the retiree leaves the job.
Many struggle early in retirement to find structure, purpose or relationships, Gilbert said. “That’s when you start to recognize that [you’ve] lost these things. Suddenly you have no structure in your life.
In his case, Gilbert began replacing the “big five” by launching his blog three years before retiring. “I was looking for things that could potentially become things that would allow me to thrive in retirement,” he said. “So I continued…and what does that give me now?
In short, it gave him a sense of identity, purpose and structure.
That’s why he encourages potential and current retirees to replace the “big five” by actively exploring their curiosities.
“Pursuing your curiosity is not a skill we practice for long,” Gilbert said. “So it’s about rebuilding that muscle and learning to explore and just have fun and recognize that you’re going to try a lot of things that aren’t going to work…it’s a serendipitous process. This is not a spreadsheet. But if you get better with time.
Retirement is not just an individual decision: it also affects the entire household.
Gilbert stressed the importance of discussing expectations before retirement. In his own experience, he and his wife conducted a “test retreat”, spending 10 days together talking about their goals, the balance between “me time” and “us time” and their travel preferences.
It also allowed for regular post-retirement check-ins to meet changing needs and expectations, he said.
Linda Ryall and Todd Nielsen look at their phones at a charging station located in the Issaquah Senior Center in Issaquah, Wash., Friday, Nov. 22, 2024. (AP Photo/Manuel Valdes) ·ASSOCIATED PRESS
Despite all his planning and preparation, retirement came with several unexpected surprises and challenges for Gilbert.
The transition from a saving mindset to a spending mindset was harder than expected.
“It’s difficult to go from building your nest egg to using it, knowing it has to last a lifetime,” he said. And this is particularly the case for retirees who fear running out of money. “It is a very common tendency to continue to be conservative [and] underspend.
By 2024, 67% of retirees surveyed in a Goldman Sachs survey said they had too many monthly expenses, while 55% said they had credit card debt.
Gilbert suggested using the bucket approach to creating a retirement income plan as a way to ease the fear of running out of money. The bucket approach involves dividing your assets into distinct “buckets,” each designated for a specific time horizon or goal.
Typically, it includes a short-term tranche, which contains cash or low-risk investments to cover immediate expenses (e.g. 1-3 years); a medium-term tranche, which contains moderately conservative investments for spending over the next 3 to 10 years; and a long-term tranche, which includes growth-oriented investments, such as stocks, intended to be used more than 10 years after retirement begins.
In terms of mindset, Gilbert’s retirement unfolded exactly as he had imagined: he pursued his curiosity and explored new interests as he had planned.
However, where this mindset has taken him is completely unexpected. For example, he never thought he would have a dedicated woodworking shop or writing studio, but these were born out of unexpected opportunities, such as charity work.
“The biggest surprises – and the biggest excitement – came from following where my curiosity led me,” Gilbert said.
He also discovered that he could thrive in retirement by focusing on others. Retirement, he said, is a great time to give back, whether through mentoring, volunteering or charitable work.
“Start looking at people who maybe haven’t made it yet,” he said. “And find a way to use your time to benefit those who need it.”
Every Tuesday, retirement expert and financial educator Robert Powell gives you the tools to plan your future on Decoding retirement. You can find more episodes on our video center or watch on your favorite streaming service.
