Ep # 57 - Retirement Dress Rehearsal: Prepare for Retirement Like a Pro
Joe and Lindsay dive into the concept of a "retirement dress rehearsal.” Doing a dry run of retirement leads to a smooth retirement transition and prior planning prevents poor performance!
They stress the significance of understanding your cash flow needs in the year or two before retiring. They guide you through the process of setting up separate bank accounts for income and spending, ensuring that your retirement budget aligns with real-world spending patterns. They also explore common mistakes people make during retirement, such as underestimating their spending needs and leaving major projects for retirement.
Whether you're nearing retirement or just starting to plan, this podcast provides valuable tips to help you stage your own retirement "dress rehearsal" for a secure and fulfilling retirement.
What You’ll Learn in Today’s Episode:
Cash Flow Needs: Before retiring, it's crucial to determine your cash flow needs and ensure they align with your retirement budget. This involves analyzing current expenses, identifying which will disappear in retirement (e.g., mortgage payments, commuting costs), and ensuring your budget reflects realistic spending patterns in retirement.
Separate Bank Accounts: Consider setting up two bank accounts—one for income and one for spending. All your income flows into the first account, from which you continue to pay existing expenses like mortgage and retirement savings. The second account, with the budgeted retirement spending, helps you practice living on your estimated retirement income for at least a year.
Realistic Budgeting: Avoid the common mistake of underestimating your retirement spending by only considering regular monthly expenses. Factor in occasional or one-off expenses that occur regularly, such as vacations or special purchases. Ensure your retirement budget is comprehensive and realistic.
Renovation and Major Projects: Don't leave significant projects, like home renovations, for retirement without proper planning. Costs can increase over time due to inflation or unexpected expenses. It's advisable to tackle such projects while still working to avoid financial surprises in retirement.
Purpose in Retirement: Beyond finances, consider your sense of purpose in retirement. Retirement might not be all about leisure; some individuals thrive on staying active and productive. Plan for how you'll fill your time and find fulfillment in retirement, whether through work, hobbies, or social engagement.
Ideas Worth Sharing:
“Once you get to retirement, it's not likely that you're going to be spending less money because now every day is going to be Saturday.”
"Our most successful retirees are the ones that are getting their large projects done while they're still working so that if there are surprises, they can pivot and work a little longer and make sure they've taken care of it."
“You just want to take into account that what you're budgeting today isn't necessarily going to be the same a year from now or two years from now."
"Avoid the common mistake of underestimating your retirement spending by only considering regular monthly expenses. Factor in occasional or one-off expenses that occur regularly, such as vacations or special purchases."
"Beyond finances, consider your sense of purpose in retirement. Retirement might not be all about leisure; some individuals thrive on staying active and productive. Plan for how you'll fill your time and find fulfillment in retirement, whether through work, hobbies, or social engagement."
Resources in Today’s Episode:
Retirement Planning Simplified
Ep # 5 – YRPS – Creating Paycheques in Retirement
Ep # 12 – YRPS – Retirement Income Strategies Overview
Ep # 17 – YRPS – Cash Flow in Retirement
Ep # 19 – YRPS – Investing in Retirement
Ep # 20 – YRPS – Do I Need $1 Million to Retire?
Ep # 32 – YRPS – Do I Need $1 Million to Retire? Pt. 2
Ep # 33 – YRPS – Pursuing a Better Investment Experience
Ep # 39 – YRPS – Retiring with Purpose
Ep # 44 – YRPS – Unleashing Your Values: The Retirement Navigator
Mastering Retirement: How to Rehearse Your Dream Lifestyle
The concept of 'retirement dress rehearsal' is significant to practice the retirement lifestyle before officially retiring. The idea of simulating retirement by setting up a separate bank account to manage expenses increases your chances of success. It is a practical way of testing the retirement budget and identifying any potential oversights. This hands-on approach means you can enter your retirement with more confidence and less financial surprises. It is a form of active preparation, allowing you to plan ahead and adapt as needed.
In this episode, you will be able to:
Enjoy the merit of previewing your retired life to ensure a smooth and prepared transition.
Capitalize on crucial financial adjustments by aligning your retirement budget with your realistic spending patterns.
Venture into the practical idea of maintaining a segregated bank account for handling retirement-associated costs.
Replicate the retirement lifestyle during your holiday times and evaluate your emotions in the absence of day-to-day work obligations.
Avoid common pitfalls during retirement shift by effectively managing your expenses and finishing important undertakings before officially retiring.
Research and Specific Planning
Retirement is often seen as a time to let go of previous responsibilities and enjoy life, but some degree of planning is necessary. A lot of this involves research; understanding the lifestyle you want, how much it will cost, and exploring various ways to fund these dreams take center stage. The saying "fail to plan, plan to fail" sums up why it's essential to plan and simulate your retirement lifestyle before the actual time comes. The goal is to ensure your budget aligns with your actual spending habits. Putting you in control of your retirement spending and helping you avoid costly surprises.
Importance of Building Relationships with Contractors
If you're thinking about diving into home renovation projects, it pays off to invest time in finding a trusted contractor who understands your vision. It's not just about the dollar amount involved; it's also about having a straightforward, communicative relationship with the person who's potentially tearing down walls in your home. Just like finding an advisor, you need someone who's on the same page as you. Look for a contractor who not only does the job, but also contributes valuable advice and perspective—a real game-changer for that dream home project.
The resources mentioned in this episode are:
Visit the Retirement Planning Simplified website to access the Retirement Planning Simplified tool.
Use the Retirement Planning Simplified tool to create a holistic retirement plan, including cash flow needs and values.
Set up a new bank account for retirement spending, separate from your current bank account.
Calculate your cash flow needs for retirement by subtracting expenses that will go away (such as retirement savings and commuting costs) from your household take-home income.
Take into account all monthly expenses, including one-time or irregular expenses, when creating your retirement budget.
Consider lumping together some of your vacation time before retirement to get a sense of what it will be like to have extended periods without work.
Create a plan for staying socially engaged, active, and continuing to learn and grow in retirement to find a sense of purpose.
Avoid the mistake of not budgeting enough money for retirement by accurately assessing your current spending and considering all expenses, including one-time or irregular expenses.
Complete any big projects, such as renovations, before retirement to avoid potential cost increases and surprises.
Research and gather quotes for big projects and travel expenses to budget properly and avoid wild guesses or going over budget.
Budgeting for retirement requires more than just guesswork. Get specific and plan ahead to ensure you can live the retirement lifestyle you desire.