By SJS Investment Services Managing Director & Senior Advisor Jennifer Smiljanich, CFP®.
Retirement. There is a lot of emotion and change tied up in this single word - beginnings, endings, opportunities, uncertainties, regrets, excitement. In our conversations with clients over the last 25+ years, we have observed that one of the most challenging transition points in life is the move from “work” to “retirement.” In some ways, as much as this change results in a physical shift - no longer going to work - the mental shift from saving to spending sometimes is a bigger adjustment.
We spend a lot of our adult lives developing habits; hopefully, most of them good ones! Author James Clear has written about human behavior and how we form habits. He commented on a study by Phillippa Lally that found that people take somewhere between 18 to 254 days to form a new habit, depending on behavior, the person, and the circumstances.[1] So if we think about developing a retirement mindset as a new habit, transitioning from the idea of saving our nest egg to being comfortable spending it, it might take between two and eight months to gain comfort. Clear’s takeaway is that “understanding this (is a process) from the beginning makes it easier to manage your expectations.”
So how do we get comfortable with transitioning our nest egg to an income stream? In our working lives, we are used to receiving a regular income stream, whether from a bi-weekly paycheck, paid invoices for consulting income, or payment on completion of a project. So why should it be different in retirement? Receiving a distribution of income on a regular basis - monthly or even twice a month - helps to create that regularity that is comforting. Others may find that a quarterly distribution is adequate for meeting cash flow needs. Consider the frequency that seems most comfortable, and we can work with you to support it!
Second, the need for emergency or “rainy day” funds doesn’t go away. Just because you may now be retired, the twists and turns of life don’t stop. Emergency funds can cover pleasant opportunities like taking an unplanned trip, or it might be available to cover unexpected necessities like an air conditioning unit that suddenly needs replacement or a bill for a dental emergency. We typically recommend setting aside three to six months’ worth of expenses, so when life throws a new opportunity or cost our way, we can feel a little more comfortable knowing there is some financial leeway!
Third, we understand that your “routine” is bound to change. As you have more time to spend time with family, friends, & loved ones, to enjoy new or old hobbies & activities, to travel, or to focus on all those neglected home projects, normal routine is about to be redefined. Take some time to find the rhythm of your new life and endeavors, and we will help guide you along the way.
Finally, we can help you answer the questions of “how much to withdraw” and “from what account do I take it.” We can model how your nest egg can best supplement income from part-time work, pensions, and / or Social Security to meet your lifestyle needs, as well as when you might start those different income streams. In collaboration with your tax professionals, we can help evaluate whether your income should come from after-tax or retirement accounts. Likewise, we can help you determine the stock-to-bond mix that supports the growth you might need, at a risk level you are comfortable with.
When we spend as much as thirty or more years of our life working and saving for retirement, the idea of “undoing” our life’s work might seem a little unsettling. At SJS, we have had the privilege of guiding many of our clients through the preparation and transition to retirement. We are here for you, to lend an ear, to listen, and hopefully to help make the transition a more smooth and enjoyable one!
Important Disclosure Information & Sources:
[1] “How Long Does it Actually Take to Form a New Habit? (Backed by Science)“. James Clear, jamesclear.com.
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