Planning for retirement can mean different things to different people.  The word “retirement” may cause some to keep working indefinitely while others may be counting down the years/months/days.  I believe it’s important to think about what you will do in retirement well before your actual retirement arrives.

Some professionals may be asked to retire earlier than anticipated.  This can be an unwelcome surprise or an opportunity depending on your outlook.  It can be stressful to redefine yourself professionally after a successful career, especially one you’re not ready to leave.  What will you do with your time when you don’t have responsibilities and people to manage?  Here are some suggestions in preparing for retirement before it’s necessary.

Life is expensive.  Housing and transportation costs are likely at the top of your list of fixed expenses.  Childcare costs typically follow and can quickly add up beyond the mortgage.  These costs don’t really go away overtime as much as they are exchanged for other activities as children grow (dance classes, travel sports, etc.).  After high school, the dollars to these activities are redirected again to college tuition and housing costs.  Then, twenty-two years later, plus, or minus, your children are hopefully living independently!  Now, for the first time in decades, you have more control on your spending.  Through your 50s you can ponder what retirement means to you.

The financial aspects of retirement can be daunting, how much will it take?  One solution is to track your spending history.  A review of your credit card or bank statement will tell you exactly what dollars are going where each month.  Spoiler, nobody really knows what they are spending today until they set time aside to reflect on where the money goes.  Dollars arrive and depart your bank account much like trains at Union Station.  Balancing a successful career and family often take priority over following the money.

Having details of your spending prepares you for retirement.  This is less obvious and doesn’t get the recognition it deserves when compared to investing.  Some investors make the mistake of putting all their time and energy on selecting investments as their retirement solution.  Look no further than all the money that’s been chasing “more”.  Crypto, NTFs, SPACs, Metaverse, meme stocks, you get the idea.  This speculating is not investing or supportive of sustainable income.  Investment results can’t be controlled.  The sooner an investor genuinely accepts this fact the easier it may be in defining an ideal retirement they may enjoy.

Retirement may never arrive if spending can’t be quantified.  Life is cash flow based and so are the years in retirement.  Having a rough idea on what it will take to maintain your lifestyle may increase your engagement on where your dollars are directed today.  This influences your habits, spending, and what’s invested to generate future retirement income.

Setting aside money in advance makes a difference.  This allows an investor to prepay future expenses before they arrive.  529 accounts can be funded before the kids leave for college to lessen the financial burden.  Retirement accounts can receive increasing contributions to support future income.  You can even shorten the duration of your mortgage by paying more each month, lowering your housing costs before retirement.  The key is putting money away with purpose before it’s necessary.

Most investors realize this and are diligent with their dollars.  Challenges arrive when a promotion or job change takes place.  Congrats on earning more, which in human nature terms likely leads to spending more.  It’s natural to enjoy the results of your hard work and increase your spending.  It takes discipline and revisiting a financial plan to ensure your savings and investment contributions keep pace with your growing income.

Examining spending and giving your dollars a job description is necessary to figuring out what it will take to retire successfully and stay successfully retired.  You will have to make investment decisions along the way and as you reflect on your progress.  If you don’t have a plan to consider, then markets like this year will lead you to changing your investment strategies frequently.  This is expensive and avoidable.  Goals, spending, and planning first, your portfolio second.  Many have this sequence backwards.  You can only invest for tomorrow when you have quantified how much income you may need.  The ability for your spending to keep pace through decades of retirement may help you figure out where you should invest today.

With financial aspects revisited on an annual basis, you can turn your attention to what you may do with your time.  You may volunteer, teach, open a business, or pivot to a new career and learn different skills.  The key is not waiting but exploring your possibilities earlier than necessary.  Knowing what financial resources are available may allow you to judge opportunities not by the dollars attached to them.  This is life changing.

There will come a point in your life, where all you really want to do is control your time.  You can do this and be work optional by getting the most out of your plan and planner.

Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated. Cambridge does not offer tax or legal advice.

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