A retirement trial run can help you correct mistakes early. | iStock.com/dmbaker
You can never be too prepared when it comes to
retirement.
You might think you’re ready to kick up your heels and enjoy the
retired life, but you could be wrong. One way to make sure you’re really
ready is to do a retirement trial run. It’s one of the best reality
checks for your retirement plan. This involves living the lifestyle you
imagine you would want to live when it’s time to leave the workforce for
good.
A retirement trial run will help you see whether your plan is
feasible. If not, the beauty of the trial run is you can find out what
you need to adjust before you’ve hung up your work hat. By the time you
retire, it’s harder to make adjustments if you realize you don’t have
enough money to sustain you.
Someone who decided to try a retirement test run is John Udo, founder of the personal finance blog Retire by 40. Udo
retired at age 38.
Part of the reason for his success was he made a plan to cut back on
spending, save all of his earned income, and live on one household
income (his wife’s).
“It let us test if we could really live without my paycheck,” Udo
said on his blog. “I’m happy to report that this has worked out very
well. The test run prepared us for the lower household income, and we
kept our expenses moderate since then.”
Do you think you’re ready to retire? Have you considered everything
that might affect your post-work journey? Even if you’re positive you’re
retirement ready, try a test run first to be sure. Here are five
elements that should be part of your retirement trial run.
1. Test your retirement budget
Will your budget be realistic? | iStock.com
Your
retirement budget
might look great on paper, but will it work out when you try to live on
it? Make sure your retirement budget is realistic. And don’t forget to
account for
easily forgotten costs,
such as health care and transportation. Take roughly three to six
months, and live on the budget you have set for yourself after you
retire. Can you comfortably afford all your expenses on this new budget,
or do you find yourself running short on cash at the end of the month?
Why this is important
Make sure you’ll have enough to retire comfortably. | iStock.com/dolgachov
If you find you can’t comfortably live on your trial retirement
budget, this is an indication you might not be saving enough, or you’ve
set an unrealistic budget or timeline for retirement. It’s not a great
sign if your calculations show you’d have to withdraw more than the
savings percentage you’ve set. Most pre-retirees estimate they will
withdraw no more than 3% or 4% of their savings, depending on timeline,
asset allocation, and confidence level.
Take time to re-evaluate your retirement savings goals. Your best bet
is to meet with a certified financial planner, who can go over your
budget and help you make the appropriate adjustments. You might find
you’ll need to spend a few more years in the workforce or take on a
part-time job during retirement.
2. Try out your desired retirement city
Make sure you’ll love where you plan to live. | iStock.com/monkeybusinessimages
It’s not the best idea to decide on a retirement city solely based on
a list you read or on the opinions of your friends and family. For
example, maybe all your friends are planning to retire in Florida, so
you’ve decided you want to retire there, too. However, your best bet is
to live there for a couple of months to see whether you really like it.
Try staying with a friend or even doing a home swap.
Why this is important
Will a new city work for you? | iStock.com/gpointstudio
Deciding to move to a particular city is a very personal decision.
What works for one person might not work out for you. Your friends and
family might say the weather is perfect, but after staying there, you
might decide what they consider warm is downright hot for you. Or you
might discover there’s not much to do, or your seasonal allergies are
much worse than you thought they would be. Live there first, and then
decide whether it’s for you.
3. Test your retirement job
Decide now whether your encore career is a good fit. | iStock.com/warrengoldswain
If you don’t desire to leave the workforce completely, you might be contemplating a
“second act” career
(also known as an encore career). This is when retirees decide to leave
one career and work in a completely different industry. Roughly 47% of
retirees say they have worked or plan to work during retirement. In
addition, about 72% of pre-retirees age 50 and over say they want to
keep working after they retire, according to a Merrill Lynch
study.
However, the only way to know whether an encore career is really for
you is to try it out for a couple of months. You can ask friends and
family, as well as those in your professional network whether they know
of anyone who might let you shadow him or her for a few months. If you
have the time, you might also want to consider applying for summer
internships.
Why this is important
An internship can help you decide whether a certain career is right for you. | 20th Century Fox
It’s a good idea to test a job before you commit to something you
later find out makes you miserable. In addition, some second-act careers
require quite a bit of money to get into, so you’ll need to do your
research and take that into account before jumping in. For example, some
new careers will require you to obtain an additional degree or to pay
for certification courses. Will there be enough room in your retirement
budget to accommodate going back to school?
4. Test drive your retirement activities
Relaxing at home might get boring. | iStock.com/monkeybusinessimages
What will your social life be like? You might think all you want to
do is watch television, read, and spend time with your cat, but are you
absolutely positive? The
work stress
you’re experiencing now might make you think just sitting at home and
relaxing is the ultimate retirement lifestyle. But once you test it out,
you might change your mind. Don’t base all your future decisions on
current circumstances.
Why this is important
You might decide spending time with friends is more enjoyable. | photogolfer / Shutterstock
Once you’ve had a taste of your desired retirement lifestyle, you
might decide to make some changes. The way you think you want to live
might be too boring, fast-paced, or expensive. You might decide spending
time with your cat isn’t what you wanted after all. Instead, you want
to spend time with friends and family, join a senior center, or travel
the world. It might not seem like it now, but a rich social life is
important during retirement. A
study conducted by the Institute for Economic Affairs found retirement can increase clinical depression risk by 40%.
5. Re-evaluate your retirement wish list
Now is the time to rethink your wish list. | iStock.com
The trial-run period is not only about testing your retirement plan,
but also thinking through some of your retirement goals and wishes.
Perhaps you and your partner hope to
retire at the same time.
If this is the case, it would work best if both of you did the trial
run together. Or maybe your secret wish is to live the single life and
get a divorce when you retire. If that’s your desire, take this into
account when you devise your retirement budget because you’ll have to
adjust to not having your spouse’s income.
Why this is important
If you plan now, you can have the retirement you want. | iStock.com/Ljupco
Taking the time to carefully go over your retirement wish list will
give you an opportunity to see whether some things are better left as
wishes. For example, you might find a “
gray divorce” isn’t in your best interest. One reason is your spouse might be entitled to some of your
retirement savings. Can you afford to give up a portion of your nest egg without significantly impacting your desired lifestyle?
Culled from Money & Career Cheat Sheet
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