Retirement is one of the most impactful emotional transitions in life. As clients face the shift from earning a paycheck to relying on sources other than work for income, it is normal for difficult emotions and deeply buried money scripts to surface. Here are some common retirement “money scripts” one advisor sees and the truths you can use to bring clients back to reality.
“I need to start drawing Social Security as soon as I stop working.” Typically, the emotion behind this money script is fear of overspending savings. Yet for many retirees, the best financial strategy is to wait until age 70 to begin receiving Social Security. This often means drawing from retirement savings to span the income gap between retirement and turning 70. Once Social Security benefits start, it’s not unusual that retirees can halt spending from retirement accounts, giving those accounts a decade or more to rebuild and grow before future withdrawals are needed.
“My expenses will decrease significantly.” Several years ago, a survey on retirement spending by Fidelity Research Institute found that many Americans don’t have a good grasp on how much money it will take to enjoy their golden years. Participants, surveyed both prior to and after retirement, were asked to estimate how much they expected to spend in retirement. Before retiring, 48% expected their expenses to decline from pre-retirement levels. Another third expected expenses to remain about the same. Only 18% expected any increase whatsoever in expenses. The reality was a bit different. After retirement, expenses actually increased for 39% of retirees. While 48% expected expenses to decrease, only 33% found that they did.
The author often sees retirees who think they need to sell off stocks and bonds (which can decline in value) and add certificates of deposit. If all of a client’s investment portfolio is in stocks when you retire, this can make a lot of sense. However, it’s important to maintain a significant portion of your investments in a diversified portfolio of asset classes that can produce returns greater than CDs, helping the principal to offset inflation and retain its purchasing power. Remember, if your client retires in his 60s, he may have 20 to 30 years of living yet. This is not the time to eliminate all investment risk. By setting aside one to three years of income in a money market account, you can avoid having to sell investments during a down cycle to fund his monthly income.
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