top of page

Retirement And The Hardest Financial Adjustment That No One Tells You About. Emptying the Bucket.



Imagine that you are a professional baseball pitcher. You have spent your entire career pitching right-handed. Your dream has always been to pitch in the World Series. Then, one day, it happens. Your coach tells you that you are starting Game 7 tomorrow, but you need to make just one change. You have to pitch left-handed. That would be what we could call a significant career transition.


Perhaps sports analogies aren't your cup of tea. Imagine instead that you are a classically trained violinist. You have trained and played all your life, dreaming of one day playing for the NY Philharmonic. Then, one day, it happens. Your agent tells you that you are playing tomorrow with the orchestra at Carnegie Hall, but the conductor needs you to make just one change. You need to play the flute, not the violin. Talk about stage fright.


It does not matter if you are a professional athlete, musician, or just an average career professional preparing for retirement. Change is not easy. Or, as my mother used to say in her later years, "Getting old is not for the faint of heart." She used a different term for "faint of heart," but I want to keep this blog clean!


So, I want to talk today about change and retirement finances. More specifically, I want to discuss the most challenging financial adjustment that no one tells you about as you transition into retirement.


Spending your retirement savings. It's harder than you may think.


For most of our lives, especially our working years, we have been trained (even conditioned) to save money. The message was essentially the same whether you were taught the "Rule of Three" or the "50/30/20 Strategy" for budgeting and saving. From the first day you start earning a steady income, you are told to save and invest a significant percentage of your income to hold for your future retirement.


With an average professional working career of thirty or more years and a semi-monthly paycheck, that means 700+ times that you were mentally conditioned to take a significant percentage of your income and place it into the "bucket" called retirement savings.


If you are a disciplined saver and set a retirement funding target, putting the money INTO the bucket is the easy part. Earn, save, and repeat. Multiplied by 700 times or more.


And if you believe in the power of capitalism, the compounding of money, and the long-term growth of the financial markets, you get to watch the bucket grow yearly. In some years, it may decline with the market. But viewed over multiple decades, the trend is almost always steadily climbing up to your target.


Now comes retirement. You look at your financial bucket. It's full. It's precisely what you need to fund a long and happy retirement life. But there is one change you need to make starting on Day 1.


No more paychecks are deposited into your checking and savings account every two weeks. The symbolic "coach" taps you on the shoulder and tells you to start pitching left-handed. Instead of placing money INTO your accounts, you now must begin taking money OUT of your accounts.


Do you think pushing that withdrawal button is easy?


After 30 years of conditioning, watching the dollars flow in one direction into the bucket, you need to immediately switch to watching the money flow out of the bucket. That is a tough adjustment around which to wrap your brain.


As a lifelong extrovert, I like to talk to a lot of people. And if you are 55 years or older, and I meet you, I will ask you about retirement. Are you thinking about retirement? What are your plans for retirement? Does anything about retirement scare you? And then I will probably ask you about bourbon, scotch, craft beer, and the Buffalo Bills.


From these many conversations, the most common fear I hear is the fear of running out of money. More specifically, the mechanics of spending money instead of saving money.


Note that if you are the recipient of a well-earned pension (or annuity), this fear is somewhat diminished, but it still lurks in the background. For those of us reliant on traditional retirement savings (401K, IRAs, etc.), the concern is front and center.


I confess to being in the latter category. The retirement funding was at target. All the planning tools told me that we could safely begin to live and enjoy our retirement life. But my brain wasn't ready to start taking the money out, even though that is exactly what I had planned, worked, and saved towards for over 30 years.


Crazy right? But, over time, and with the help of a very patient financial advisor, I found my comfort zone. If I can do it, I know you can as well.


Here are four tips for how I learned to embrace emptying the bucket and keep financial fears at bay (or at least to a dull background noise).


  • If you don't already have one, get yourself a financial advisor/financial planner/wealth manager. I watch CNBC daily and have an MBA in Finance. But I don't do this "stuff" for a living. Make sure the relationship is not transaction or commission-based. Make sure it is a relationship you can trust, build on, challenge occasionally, and ultimately value as a partnership for your retirement. My advisor? I have trusted her with our "retirement life" for over two decades.


  • Test your retirement savings, aka the bucket, against a financial planning tool. I am a big fan of the Monte Carlo Simulation, a tool that provides a means to test long-term expected portfolio growth and portfolio survival based on withdrawals. These tools are readily available from your financial advisor and test whether your "bucket" can sustain the planned withdrawals required for your retirement horizon. I use a tool from UBS, which gives me a simple green or red score and detailed financial modeling spreadsheets.


  • Learn to love spreadsheets. Build yourself a retirement budget. Be sure to make it a budget that allows you to enjoy your retirement in the earlier (and more active) years of your retirement. One minor criticism of some financial modeling tools is that they take a year-one budget and extrapolate out into our 90's at a constant rate adjusted for inflation. I value (and take pride in) my health. But if I am fortunate enough to live well into my 80's, will I still be riding the jet ski and towing the boat? Will I still be hiking in the national parks? It would be great, but not likely. So, I will spend (wisely) now and enjoy it while I can.


  • Automate your cash withdrawal process and supplement the process with a 12 to 24-month forward-looking cash flow forecast. Understanding how your forecasted cash flow aligns with (or conflicts) with your planned budget calms the nerves. And be prepared to adjust your withdrawals within that two-year time horizon (up or down) as conditions dictate.


Above all else, remember this dictum. You set a financial target for your retirement. When you reach that target number and choose to retire, your "job" is to use the money. The bucket exists first to be filled, then tapped (wisely with a plan), and if done correctly, to pass on as a legacy to the next generation.


Dan Troup is The Sunny Side of 57. He loves to reflect and write about life, family, career, and retirement. Check out more of his reflections on his blog site. Also, consider subscribing to The Sunny Side of 57. When not playing pickleball or hiking with Sue and Rigby, he writes a new post about twice a month.

Comments


bottom of page