Test-Drive Your Retirement Spending While You’re Still Working
Before buying a new car, most people go for a test-drive. They should do the same for retirement.
To take retirement life for a spin while still working, try living for a month on your expected budget. This makes the years of abstract financial plans and calculations real. These trial runs help reveal whether your vision for how to spend time and money really is a good fit, says Christine Benz, Morningstar’s director of personal finance.
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Vacations are also a good way to test the waters on any big retirement decisions—especially for those considering relocation. Check out local restaurants, the social scene, airports and transportation. Retirement takes daily practice, trial and error.
Though her new book is called “How to Retire,” Benz admits there isn’t really an answer. There are a lot of questions though, which she puts to a range of researchers and advisers.
We focus too much on money and not enough on the philosophical side of the retirement question, she said. Aside from how to invest your 401(k) or the optimum time to claim Social Security, cultivate activities and relationships that bring joy. For Benz, it is birding.
“Those things are more important to a happy and satisfying retirement than a well-designed portfolio and a carefully calibrated spending rate,” she says.
We spoke with Benz about other ways to prepare for the transition to retirement financially and emotionally.
WSJ: You suggest taking practice withdrawals from your nest egg early in retirement to get comfortable shifting from saving in a 401(k) to spending it.
Benz: People sometimes really struggle with spending from their portfolios. I like the idea of practicing to get used to how that feels. In a down market, for example, that won’t necessarily feel great, but trying your hand at it, I think, is a really valuable thing.
WSJ: Underspending seems like a problem I would like to have. But you mention a big part of it is the not-unreasonable fear over long-term care costs.
Benz: Big long-term care needs happen to a fairly small subsection of the population, but unfortunately, you don’t know in advance where you land, and so that makes it super tricky. The long-term-care insurance market has been so troubled, many older adults have decided to go without insurance and self-fund instead.
WSJ: The other source of underspending you mention is that so much retirement wealth is in home equity and people don’t want to tap in to it.
Benz: All of the decision-making around housing is criminally underrated in the whole retirement planning discussion, and really frankly, in the whole financial planning discussion. It’s sort of over there; it’s not considered part of the whole financial plan when it very much should be.
WSJ: Because everyone wants to age in place?
Benz: People are too literal about aging in place, though. It does not have to be an impractical house with a bunch of stairs. What you probably value most about your community—or your home—is its proximity to the things and people that you value.
WSJ: Do we need a new word for retirement? Isn’t it a bit crazy to talk about 30 years of your life as a one-shot deal?
Benz: One of my big takeaways has been that we need to think of retirement as a series of stages and not a hard stop. People need more nuance to the way they talk about the end date of work. So can you first find a way to do maybe a little bit less, but continue to do the things that you find fun?
Write to Jeremy Olshan at jeremy.olshan@wsj.com