How to Test Drive Your Retirement (and Stress Test Your Plans)

Before you buy a car, you’ll likely take it out for a test drive. The same should be done with your life in retirement. It’s important to gauge what retirement will feel like before you’re 100 percent committed to it.

You need answers to basic questions. Can you live on your retirement budget? Are you comfortable where you plan to live? Do you have access to essentials like healthcare for your individual needs? Are you happy in daily life?

This is why retirement planning is important. After you test the waters for a reasonable period of time, you’ll be better aware of any stresses – and how to adjust your plans to eliminate or alleviate the negatives.

It is typically not possible to do a full-scale "dress rehearsal" on retirement before you pull the ripcord. But here are 3 things you can do now to take a reasonable retirement test drive.

 

It’s never too early to start planning for the future. Contact Linscomb & Williams to see how we can help.

 

1. Live on Your Planned Retirement Budget

The first move is to determine if you can live on the retirement budget you’ve planned. In fact, if your retirement budget isn’t yet firm, there’s no time like the present to make it so! Take your existing budget categories and expenditures and calculate how they would change in retirement. Some costs, such as food, may remain the same. Others, like commuting to work, may drop. Then, there are others, such as travel expenses, that may increase if you plan to travel more extensively.

A full retirement test drive should really include an attempt to live for at least 90 days, as much as possible, on the planned spending pattern. Three months allows you to account for spending variations in individual months. In our 50 years of counseling families, we've had a few people actually attempt to live for a year on their estimated Golden Years' budget.

After a few months, look at your income versus your spending. This is when the stress test comes into play.

Is your spending comfortably within your budget? If it is, great! It looks like your retirement plan is working well on the income-versus-expenses front.

But what if your expenses exceed your planned retirement income? There are plenty of options to bring them in line. First, determine which expenses are causing the issue. Consider cutting those expenses if you can. If the issue is travel, for instance, can you cut back on your plans? If it’s real estate, can you downsize?

If you can’t cut back, the other option is to increase your income. Fortunately, many options exist here as well.

  • You can decide to work longer and save more in your retirement fund.
  • You can delay taking Social Security benefits as long as possible to increase the eventual amount you’ll receive. Social Security benefits increase roughly 8 percent between your full retirement age and the age of 70.
  • You can plan to work part-time in the early years of retirement to raise your income.

What if, on the other hand, your income exceeds your spending? Talk with your financial advisor about how best to deploy the extra money based on your situation, needs, concerns and goals. To name a few, your options include saving even more for your retirement, leaving the surplus to beneficiaries in your estate plan or spending more on items of your choice.

As you calculate a retirement budget, be sure to plan for variations over the long-term. Healthcare costs, for example, tend to rise steadily over the years and decades. Real estate costs may fall if you plan on downsizing, moving to a less expensive place or both.

2. Live Where you plan to retire

Many people harbor a long-time dream of living somewhere else in retirement. Whether your plan is a sunnier climate, a new city or living full time in a favorite vacation spot, it’s wise to live there for a while before moving there permanently.

Settling down in your location of choice for a few weeks or months can be a good way to "test drive" the full-time move. If you’re moving to a sunnier place, for example, is it too hot and sunny at certain times of the year? If moving to a city, is the hustle and bustle too much, or just as you had expected? If your plan is a vacation spot, try to live there full-time both at peak season and during slower times. This will help give you a better sense of living somewhere as opposed to just being a tourist.

When in your new locale, ask the following questions.

  • Are you comfortable in daily life?
  • Do you have a good social network, with access to family, friends and acquaintances?
  • How easy is it to do the things you love? For example, if you’re an avid golfer or painter, you should be able to do the activity easily and often.
  • How are the healthcare facilities? If you need specialized medical care, how available and accessible is it?

Be sure to monitor the expenses in your new setting as well. Real estate prices can fluctuate quickly and without warning, as can healthcare, utilities and other expenses.

It’s also important to examine the experience through a stress-test lens. Did you experience any challenges or problems? What were they? Can you accommodate them easily enough, or do your plans need to change? Again, this is why retirement planning is a worthwhile endeavor. 

3. Live Daily life as you plan to live it

Trying your new life on for size can be a huge benefit. Before you officially transition into retirement, try to find opportunities or time windows to live your daily life as you plan to live it in retirement. Some retirees have suddenly discovered boredom in their Golden Years. Gauge and test-drive what type of lifestyle will be best for you in order to stay active. 

If you plan to pursue favorite hobbies or learn things you haven’t had a chance to learn, check out some of them. Babysit your grandchildren. Buy a bike and hit the trail. Rent an RV and try some road trips, if that is your retirement dream. See friends. Make coffee dates with your neighbors or family. Are they available? Does it look as if these social events will continue when you retire?

The Takeaway

At the end of the test drive experience, you should be able to better determine whether the daily life you had once dreamed actually works for you. You may find you need more to fill your days.

Retirement is a wonderful opportunity to do things you’ve long wanted to do. But it’s important to make sure every aspect of your life works as you want it too.

Retirement planning is important. If you’re anxious about life after a long career, contact Linscomb & Williams and schedule a complimentary, no-obligation consultation.

 

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Lantz Bowman, CFP®

Lantz Bowman, CFP®

Lantz Bowman is a wealth advisor for Linscomb & Williams.

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