Halfway through a long rocky hike in the Great Smoky Mountains, I realized I was in over my head. Unprepared and overwhelmed, I felt finished. Forward or reverse, I had 7 miles to go. Just when I was questioning my life choices, my son suggested we call the park ranger or even 911.
“Wow. What would that look like?” I thought. “Was I really that bad? As tempting as a tap-out seemed, I was able to get by with an extra Gatorade and an energy bar instead of a rescue helicopter and an IV hookup. Six hours later, my legs bruised, my ego bruised, I finished the hike in the dark.
We all face moments of doubt and indecision. Sometimes we reset and sometimes we step back. It’s the same on the road to retirement — some of us feel stuck and others struggle. If you’re thinking about your next move, don’t panic! Instead, think about: If I retired today, what would it look like?
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If I retired today, what would my cost of living be like?
This part of the image is not ideal. When you consider how quickly the inflation rate has moved from a long and comfortable period of lows to today’s all-time highs, it might seem like a good idea to pause to assess current economic conditions. In the space of just one year, the inflation rate registered its largest increase in 40 years in June, with consumer prices rising 9.1%. (opens in a new tab) This is the largest 12-month increase since the year ending November 1981, when the consumer price index reached 9.6%.
Whichever direction inflation takes from here, it impacts all of us, and in some ways inflation might affect retirees more than others. What do we see? Higher energy prices – including a recent record high for gas – and cost increases for a wide range of other items, such as groceries, travel and housing. What does this mean for retirement? An inflation rate of just 4% will double the cost of everyday items over an average retirement of 18 years. At an inflation rate of 8%, daily costs could double in nine years.
If you decide to go ahead with retirement, the outlook isn’t all bad. This year, the Social Security Administration increased benefits by 5.9%, the largest increase in the cost of living in 40 years. Although this peak for retirees is lower than today’s inflation gap, there could be a 9.6% increase for Social Security. (opens in a new tab) recipients in 2023 to offset skyrocketing inflation, according to a recent projection by the Senior Citizens League, one of the nation’s largest nonpartisan seniors advocacy groups.
If I retired today, what would my savings look like?
If you take a look at your 401(k) balance in this volatile market environment, the situation can change frequently. However, if you look, try not to touch because your wallet can be like a soap bar – the more you handle it, the smaller it can get. But digital planning tools and online calculators are available to help you stay on track and moving forward. For example, you might want to consider the wide range of helpful retirement planning resources available online at these sites:
Retiring today could be compared to starting a hike at the foot of a hill. You may face a steep climb before you can set a more comfortable pace. When making withdrawals from your portfolio, the order of your investment returns can impact the overall value. This sequence of return risk is something you should discuss with your finance professional, because timing is important.
In the future, converting some of your assets into a source of income, such as an annuity with a lifetime income benefit or a dividend-paying stock, for example, could help you fuel your retirement without worrying about running out of steam. . And when you retire, will you be emotionally ready to spend your savings? Maybe not. Three-quarters of average retirees – as defined by income and assets – saw their nest egg stay the same or increase in retirement, according to the Employee Benefits Research Institute (opens in a new tab). Why? I believe psychologist Abraham Maslow could attribute it to being stuck at the base of his pyramid.
Maslow theorized that the most basic human needs are physiological – air, water, food, clothing, and shelter – and security, including personal and financial security, health and well-being. A meaningful retirement should evolve beyond those needs at the bottom of Maslow’s hierarchy of needs. Unfortunately, the fear of running out of money in retirement continues to haunt a generation of baby boomers.
If you spend your retirement days worrying about your savings, rather than comfortably spending your savings to fulfill yourself, you’re on the wrong track.
If I retired today, what would my new life look like?
Money aside, another vital commodity in retirement is time. After retirement, your new passage of time is in daily doses in which you get an additional eight or more hours free. What might that look like? Sleep in, play golf, practice pickleball, travel or start a project. You might have an exciting start, but for many, after the retirement sugar rush is over, managing the extra time can be an unexpected challenge.
If you have an intentional plan with purpose, your clock can be filled with rewards rather than regrets. Those who lack purpose in retirement (opens in a new tab) have a significantly higher likelihood of experiencing heart attack, stroke, Alzheimer’s disease, early mortality, and other health risks associated with aging. Obviously, a financial plan is not a retirement plan. There is a bigger picture at play.
And connections are key. Vivek Murthy (opens in a new tab)former U.S. Surgeon General to President Barack Obama, notes that “loneliness and weak social ties are associated with a reduction in lifespan similar to that caused by smoking 15 cigarettes a day and even greater to that associated with obesity.
The pandemic has ushered in a new era of Carpe Diem retirement decisions. But due to inflation, the economy, or a general feeling of unpreparedness, some are reversing that decision, not retiring when possible (opens in a new tab). Or maybe they just miss building strong bonds with their co-workers.
Whether you’re moving forward or back, resetting or backtracking, take a moment to discuss your retirement plan with your financial professional. It’s a decision you can’t go wrong with.
Jackson® is the trade name of Jackson Financial, Inc., Jackson National Life Insurance Company® (Home Office: Lansing, Michigan) and Jackson National Life Insurance Company of New York® (Home Office: Purchase, New York).
This article was written by and presents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SEC or FINRA.