Transitioning to Retirement

High achievers tend to have a hard time making the jump to retirement. This may be true for a number of reasons. Some identify strongly with their work and feel concerned about their ability to move on. Societal messages that reinforce the value of work, stigmatize early retirement, or create fears of falling behind may create additional pressure.

 

Some feel there’s more to contribute while other may have golden handcuffs—unvested benefits of some kind—that create uncertainty about timing or even financial disincentives to retire. Golden handcuffs can come in the form of a compensation package, stock incentive plan, deferred compensation, bonuses, or other perks.

 

Your Brain Can Resist Retirement

There are several cognitive biases at work when it comes to retirement. The sunk cost fallacy may make it difficult for high earners to walk away from the investments they’ve made in their own knowledge and experience. And loss aversion—the tendency to weigh potential losses more heavily than potential gains—may cause them to focus on what they think they might lose (e.g., status, income, and purpose), rather than what they stand to gain (e.g., more free time, deeper relationships, and experiences).

 

These high earners could also be in their peak earning years, so fear of missing out may make them think the best is yet to come financially. This manifests in thoughts and comments like “Next year is going to be big, so I don’t want to lose out,” or “If I can just do this for another year or two, we won’t have to worry about money.”

 

Three Transition Tactics

Here are a few other tips that may help you feel more comfortable with the transition from work to retirement:

 

1. Investigate your handcuffs. If you have unvested benefits with your employer, you may find that you’ll lose less than you fear. For example, tiered vesting on retirement plans, stock programs, and deferred compensation plans could mean that you keep the lion’s share of those benefits when you retire.

    

2. Determine how much is enough. It’s a difficult transition to stop receiving a paycheck. After watching your savings account balance grow for so long, it can feel stressful to watch that money slowly decrease, even if you know this is what you saved it for. Rather than focusing on the total value of your accumulated retirement savings, visualize this money as regular income using the four percent rule. Multiply the value of your portfolio by 0.04. The resulting number is the level of cash flow your portfolio should be able to support. You may find you already have more than enough to breathe easy.

    

3. Practice mindfulness.Biases are sneaky because they operate outside of our conscious minds. Managing them means staying alert to the moments when you feel you may be falling prey. Then, you can interrupt your brain’s natural tendency to be more thoughtful and intentional instead.

 

Working with our advisors to document your plan and check your progress along the way will help make sure those couple more years don’t keep slipping into the future. It’s easy to keep moving your own finish line. Let us help you calculate the best time to retire for you and your family.

 

Written by John Curry, CapTrust