5 Key Roadblocks to Retirement & How to Solve Them
Over the last year, quite a few clients have entered what I call the “retirement on-ramp.” Retirement is in sight and they are trying to address the last few major concerns or questions they have before pulling the trigger. Some of these triggers are strictly financial, while others are a little harder to define.
I identified common roadblocks preventing people from steering into retirement with confidence. Is it possible that one of these things is holding you back from retiring?
1. You don’t know how much you spend.
EVERY financial advisor will ask how much you spend now or will spend in retirement. They might ask this question in different ways, but when it comes down to it… they (and you) need to know. This is something that I just really don’t think you can get around. You need to do the work here and figure out how much you spend. It doesn’t have to be precise or difficult. If the idea of reviewing bank transactions makes you sick, try this:
- Look at the balance of your checking/savings account 3 months in a row. Write it down.
- Look at your monthly paystub. – Example $10,000
- Deduct any automatic savings plan you are contributing to. – Example $1,000 /mo to your brokerage account and $500/mo to your Roth IRA. This brings your net pay down to $8,500.
- Look at your checking / savings balance. How much did it move over those 3 months? Average it. If it increased by an average of $1,000 /mo over those 3 months, that means you are spending $7,500/mo.
Note, more detailed planning is helpful, but at the very least – get to this number.
2. You Don’t Know How Much $$$ You Can Spend.
Much more important than how much you want to spend in retirement is how much you can spend. If you are like a majority of Americans, this is your financial picture:
You will have Social Security and/or a pension. Social Security is unlikely to be enough to cover your living expenses (as written in Don’t Count On Social Security Alone to Fund Your Retirement.) The rest of your needs will be funded from your portfolio.
So, how much can you withdraw from your portfolio on an annual basis without putting it at risk for depletion? I have no idea. However, if you sit down with your financial advisor, you can come up with an estimate.
Here is a rough start.
Estimate your portfolio balance at retirement.
If you are near retirement, add your annual contributions to your current portfolio balance (don’t worry about the growth rate if it is just a few years away – this will be a conservative factor in the calculation). If retirement is still far off for you, here are my thoughts on how to save.
Example: (Annual Contributions * Years Until Retirement) + Current Balance = Balance at Retirement
($20,000 * 2) + $960,000 = $1,000,000
Most financial professionals believe that a portfolio invested mostly in equities can safely fund a 4-5% withdrawal rate without diminishing the portfolio. Since conservatism in retirement planning is important, let’s go with 4%. You and your financial advisor might determine whether you can go either higher or lower.
Calculate your safe annual portfolio distributions (use 4%).
Example: $1,000,000 * 0.04 = $40,000
Now you have an important question to ask yourself. My Social Security is $X. A safe annual withdrawal from my portfolio is $Y. If that is my only income, will I have enough money to cover my needs?
If the answer is no – you might not be ready to enter the retirement on-ramp quite yet.
3. You Don’t Know How To Get Health Insurance.
Nothing seems to give people “the ick” more than health insurance. In fact, the fear of having to go out and find private health insurance is one of the most common deterrents to retiring before age 65 (a.k.a Medicare age).
Thankfully I have found numerous professionals who can help you find a health plan. Often, plans purchased on the marketplace have premium credits. The higher your income, the higher your premium. If your health insurance agent seems to think this is the case, work with your advisor well in advance to come up with a plan to reduce your taxable income during your early retirement years. More than likely, they have some ideas. PLAN AHEAD. And if it is too late to plan ahead… don’t panic. Health insurance is solvable and it should not prevent you from retiring.
4. You Can’t Even Envision Quitting.
Some of my clients have worked for the same employer for DECADES. It can be difficult to walk up to your boss and tell that that you want to leave (especially if you are retiring earlier than expected). Sometimes quitting involves hurt feelings or placing more burden on your co-workers. Other times, quitting involves leaving behind thousands of dollars of unvested stock options or profit sharing.
When you retire, you are leaving something behind – whether it is money, relationships, or both. Visualize having the conversation ahead of time so you are more confident in your decision when the time comes.
5. You Don’t Have Purpose Beyond Your Job.
There are 24 hours in a day. How will you spend them in retirement…?
Exercise – 1 hour
Leisure (tv, reading) – 3 hours
Visiting with friends/family – 2 hours
Home Maintenance – 2 hours
Volunteering/side-hustle – 3 hours
Sleep – 8 hours
Meals – 2 hours
General Errands – 1 hour
That is all I can come up with, and it only adds up to 22 hours total. How do you ensure you find fulfillment and don’t end up rotting away in front of a TV?
Whether or not people realize it, I know that fear of the unknown side of retirement keeps many people stuck.
I encourage you to consider the 4 Pillars of Retirement from Refocus Workshops to help you address your purpose outside of work.
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Change is hard, and retirement is one of the most stressful changes to go through. However, it is necessary! I don’t know of anyone who laid on their deathbed saying, “I wish I worked just a few years longer.” By addressing the roadblocks early, your on-ramp to retirement can be smooth and full of anticipation.
