ProFeds Founder Chris Kowalik was recently interviewed as a part of Authority Magazine’s series about the “5 Things Retirees Say They Wish They Were Told Before They Began Retirement.” Below is an excerpt from that interview.
Retirement is a dramatic ‘life course transition’ that can impact nearly every aspect of one’s life. Obviously, everyone’s experience is different. But in your experience, what are the 5 most common things that people wish someone told them before they retired?
We’ve conducted thousands of pre-retirement workshops for federal employees throughout the country. Although they certainly have some unique planning needs, they tend to have all of the same concerns that everyone else has as they step into retirement. It was tough, but I’ve narrowed this down to 5 overarching themes that are real eye-openers for retirees looking back on what they wish they had understood before making the transition. And because I always encourage taking action, I’ve included a bonus idea that will make those 5 concerns go away.
- What got you here, won’t get you there. You’re playing a different game in retirement than you were while you were working. You consume life — and money — in very different ways. For instance, the steps you took to accumulate wealth will not help you to preserve wealth. Both are important games, but they have very different rules and outcomes.
- No plan survives first contact. Some look at financial planning as a one-time event. They sit down with a planner, lay out the situation, make their decisions and then they’re done. Wrong answer. Financial planning is a life-long event and so your plan should be flexible as life changes — because it will. We need to continually reassess our circumstances and make adjustments as necessary.
- Blind loyalty is dangerous. Unfortunately, many of us are creatures of habit — sometimes bad habits. We’ve done something for so long a certain way, that we develop a blind loyalty to a person or a program that no longer serves us well. Whether that’s an employer-sponsored program you’ve grown accustomed to or the author or TV personality that has been your source of broad-brush advice, let’s get real about how continuing to blindly follow these paths will affect us in retirement. Retirement is too important to leave in the hands of misplaced loyalties.
- All progress starts by telling the truth — and math doesn’t lie. The biggest reason most people don’t begin the financial planning process is because they are not ready to face the truth. The truth about what they want and the truth about the current path they are on. Sadly, many would rather wander blindfolded into retirement than to acknowledge what the math tells us is likely to happen and build a plan to capitalize on their situation. Math can be scary — and powerful — so let’s use it to our advantage instead of allowing it to paralyze us.
- Confused people take no action. The financial planning world can be complex. There’s a lot to take in and for the average person, that can be an extremely overwhelming process. Here’s what most people don’t want to admit when they’re confused: Not making a decision is a decision — it just might not yield the result you want. When we let ourselves get tangled up in the weeds, we have a hard time cutting through that complexity to feel confident to make the right decision.
- BONUS: Get professional help. Work with a financial professional who can help you to articulate what you want, identify what is currently in place, and build a strategy to fill in the gap. These steps are essential if you want to confidently step into retirement.
Let’s zoom in on this a bit. If you had to advise your loved ones about the 3 most important financial issues to keep in mind before they retire, what would you say? Can you give an example or share a story?
- Timing is everything, yet unpredictable. Whether we’re talking about the timing of taking Social Security, the timing of when to take that long-awaited cruise, or the timing of when a loved one passes, it all matters. The best thing we can do is to give ourselves options so that we’re not stuck making bad decisions at inopportune times in our lives. For instance, choosing to take Social Security at a certain age is vastly different than being forced to take it because you have no other option. In this case, you need the money so desperately that you can’t leverage the opportunities available within Social Security that yield a far better outcome. Money gives you options and freedom.
- Sometimes it’s not about you. Many of the financial decisions we make are really for the benefit of other people. That might be a life insurance policy to protect income for a spouse or provide a legacy to your children. That might be a long-term care strategy to keep from paying out of pocket if you need services so that you don’t drain the assets that you’d prefer to leave to your family. I encourage people to consider this: Think about the life you want for your family today and ask yourself the question, “Do you want that same thing for your family even if you’re not here?” If so, we have to get serious about having tough conversations about some big planning concepts.
- Taxes are the carbon monoxide of financial planning. Nobody loves tax time, but it’s inarguably worse when you are surprised by taxes. When you have not done serious tax planning as part of your financial strategy, you’re likely going to experience some less than desirable reactions when Uncle Sam extends his hand and wants to be paid. Sadly, many people think they will be in a significantly lower tax bracket when they retire only to find out that isn’t usually the case. You see, there are only two reasons why people end up in a lower tax bracket in retirement: 1) they either planned to be there with proper tax planning, or 2) they have less income than they had when they were working (spoiler alert: very few people want this to be true). Pay attention to planning strategies that give you flexibility to pick and choose how various buckets of money will be taxed in retirement.
If you had to advise your loved ones about the 3 most important health issues to keep in mind before they retire, what would you say? Can you give an example or share a story?
- Not having a purpose can manifest itself into physical problems. People’s jobs can give them great satisfaction and purpose on a day-to-day basis. When that retirement date arrives, many develop health issues because their routine and mental engagement is abruptly lost. Have a plan to create purpose-driven activities and get them started before stepping foot in retirement.
- Stay connected and engaged with your network. Many people form great friendships at work and feel disconnected once they retire. Even if they keep in contact with those friends, they may find that they have less and less in common with them as time goes on. Since you’re now retired, you likely have different priorities and interests than you did while you were working. This is a great time to expand your network of friends.
- Health in retirement starts way before retiring. We can’t wait until we retire to take care of our health. That starts long before we transition out of our working years. We need our health to enjoy a long, satisfying retirement!
If you had to advise your loved ones about the 3 most important things to consider before choosing a place to live after they retire, what would you say? Can you give an example or share a story?
- Proximity to family & friends. For many, moving too far away may cause you to feel alone or disconnected in retirement. Consider this carefully before packing your bags!
- Your activity level. If you’re an active person who enjoys being outside, it is important to make certain that the climate of the area you chose complements your activity.
- The financial consequences. Every area comes with its set of perks and downfalls — it’s up to us to weigh those carefully before making a decision. Since you want to be mindful of your money, pay close attention the housing costs, property taxes, and income taxes in each area.
You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be?
Professionally, I’d like to be known for helping people to change their mindsets to make confident money decisions. It starts by acknowledging that we all have choices throughout our lifetime that shape us and our futures. Planning for retirement can be scary, but it doesn’t have to be. As serious as this topic is, it’s also important to bring levity where possible so we can enjoy the journey and the process of planning.