Just a Word -or- Much More?
Retirement is a word I’ve tried to purge from my professional vocabulary. Few people – even physicians and medical professionals – really know what it means anymore.
Instead, I like to think of retirement as being a stage in life where you get to choose what you want to do, when you want to do it, and with whom. It can also be that time when you attain financial independence and no longer intend or need to earn an income to support your lifestyle.
Sometimes, however, “early retirement” can throw us a curve ball before we’re prepared for it or ready to become financially independent.
This often comes in the form of a job layoff, termination, or health issues that require we no longer work for an income. So, here are some action steps for an unexpected early retirement [applicable to doctors and laymen, alike]:
1. Immediately become aware of your monthly expenses. If you don’t track expenses, now would be a good time to go back over the last 12 months of expenditures and set up a cash flow tracking program like mint.com or quickbooksonline.com.
2. Create a spending plan for the next 12 months. Don’t forget to include savings for large purchases (cars, repairs, travel, Christmas, etc.) as a part of your annual expenses. Make sure you reduce or eliminate past expenses related to your work life and add expenses that come as a part of retirement, like increased travel or health care.
3. Estimate your sources of income. Include Social Security, employer pensions or severance packages, and your personal investments. For personal investments, use an income estimate of 4% of the principal. One million in investments will give you $40,000 a year in income.
4. Match your estimated annual retirement income with your spending plan expenses. If the expenses exceed your income, begin deciding where you can cut your spending. It is often helpful to enroll another person to help with ideas on reducing expenses. This is an area where we all have “blinders” on, and others can suggest creative cost savings we would never have thought of ourselves.
5. Don’t give up on finding part time employment [public clinics, part-time private offices, locum tenens, substitutes, hospitals, or even pro-bono work, etc]. There are many opportunities to create some income in retirement, and even a little paycheck can go a long way to preserving your investment savings. Check your ego at the door—this is not the time to let false pride keep you from taking a part-time job that’s less “professional” than what you’ve been doing.
6. Consider reducing monthly expenses by using savings or investments to pay off debts like car loans or credit card bills. Often your best investment is paying off debt. This can be especially true when your savings is earning 0.5% and your credit card is charging you 15% on the outstanding balance.
7. Consider downsizing by selling your house. This can be an especially good move if you have enough equity to pay cash for something smaller or at least end up with no mortgage or a smaller mortgage payment.
8. For couples, talk seriously about what both of you want, separately and together, in the next few years. Brainstorm creative ways—volunteering at state parks, for example—to carry out retirement plans inexpensively.
9. Take time to deal with the emotional side—anger, fear, depression, etc. It’s especially important to surround your-self with supportive friends and family and to talk about what’s going on.
Unexpected retirement can be a life-changing blow, both emotionally and financially. Coping with it will require resiliency, courage, persistence, creativity, and support. You’ll be most successful when you take advantage of not just your financial resources, but all the resources at your disposal.
Rick Kahler, Certified Financial Planner®, MS, ChFC, CCIM, is the founder and president of Kahler Financial Group in Rapid City, South Dakota. In 2009 his firm was named by Wealth Manager as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is a co-founder of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Learn more at KahlerFinancial.com
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