The end of the year is often a stressful time, with holiday commitments, extra expenses and the pressure to finish up old projects and set new resolutions for the year ahead. These demands are not unlike those that hit pre-retirees, who may often find their own stress levels rising as they think about everything that must be in place before they can move into the next phase of their lives.
Retirement is becoming real for pre-retirees, and many are concerned about whether they are really "retirement ready". No matter the source - holidays, retirement, work or family - stress can take a heavy toll on your health, mental state and wallet. How you prepare for and deal with it can make a world of difference in how it impacts you.
Interesting new research from ING U.S. shows a striking difference between pre-retirees and retirees in terms of their life stress. A 2013 Retirement Experience study conducted by the company's ING Retirement Research Institute found that pre-retirees are more than three times as likely to experience stress in their current lifestyle compared to retirees (60% versus 18%). The study defined pre-retirees as those who were over the age of 50 and within five years of their anticipated retirement.
There are certain macro forces at work that are likely driving more stress for pre-retirees. One very prominent factor is the erosion of the traditional benefits landscape. The same study found that retirees are much more likely to have a pension and health benefits compared to pre-retirees. In addition, pre-retirees are expecting to work longer; the study showed that 20% of pre-retirees expect to retire at age 68 or older compared to only 1% of retirees who waited this long to retire. Baby Boomers retiring today are on the forefront of a new retirement reality that is redefining retirement and placing greater responsibility on the individual to manage their finances and health.
Pre-retirees also may be experiencing heightened stress due to a fear of the unknown. Pre-retirees worry that their retirement savings may not generate enough monthly income in retirement, medical costs may be unmanageable or they could outlive their money. For pre-retirees, knowledge about the state of their retirement readiness is power. Without a roadmap or directions for what lies ahead, it is only natural to be more fearful.
A solid plan and deep understanding of your finances help everyone, particularly pre-retirees, feel more in control and confident as they face retirement. Pre-retirees can take concrete steps to help them gain confidence and reduce stress. First, calculate your projected retirement income, taking into account all possible asset sources such as savings, Social Security, income and investment gains.
Next, zero in on your current budget and spending habits to get a clear picture of your financial reality today. Think forward to how your current spending will change in retirement. Perhaps the mortgage and college tuition expenses go away, but travel and medical expenses rise. Visualize how you want to spend time in retirement. Then, quantify how much that vision could cost, how much you need and what savings and investments you have. This analysis of needs and wants is important. And don't forget about your wishes, such as leaving a legacy to family, friends or important causes if you have the means and the desire.
Many pre-retirees provide financial support to family. This is an important potential stress point, and it seems a growing number of pre-retirees are diverting their financial resources to help adult children or aging parents - or sometimes both! The ING U.S. study found that nearly four out of ten pre-retirees (37%) have children or grandchildren who look to them for financial support. It's important to keep family ties strong and fulfill necessary obligation. But be mindful of how this can affect your own retirement readiness. It may be time for a heart-to-heart with the kids about cutting the apron strings as retirement nears.
The pre-retirement years are an ideal time to sit down with a financial advisor and set up a comprehensive retirement strategy that considers all aspects of your life, aspirations and finances. A financial advisor can help you consider your personal goals, what will fulfill you financially and an appropriate investment strategy that is diversified and personalized to your situation. While you may not always be able to avoid the headaches that accompany each holiday season, a well-thought approach can do wonders to take the stress out of retirement.
ING Retirement Coach Jacob Gold is a third generation financial advisor. He is a published author of "Financial Intelligence; Getting Back to Basics after an Economic Meltdown", which was published in August 2009. Gold is a Certified Financial Planner™ practitioner and FINRA Series 7, 24 and 66 securities registered.
Securities and Investment advisory services offered through ING Financial Partners, Member SIPC.