Your Money Mindset: How Should It Shift in Retirement?
You’ve spent your entire career following the same financial principles – but once you reach retirement, the script suddenly flips. Here are four ways your perspective on money may need to change in this life stage, along with tips for how you can manage those changes with confidence.
Saving and Spending
The Mindset Shift: For decades, accumulating and saving wealth may have been your priority – focusing on putting every additional dollar you could to your savings. Once you reach your retirement years, though, that accumulation mentality switches to a distribution mentality – and watching the funds in your retirement accounts dwindle can be jarring. While some respond to this by becoming extra conservative about their spending and end up missing out on fulfilling activities they’d enjoy, others begin spending too much – and struggle to maintain their lifestyle.
Laura Recommends: During your working years, consider investing in both retirement plans that require distributions (like traditional IRA and 401(k) plans) and those that don’t (like Roth IRAs). Also, remember you can feed required distributions that exceed your spending needs into other savings accounts to continue a bit of that saving mentality. Once you reach retirement, though, remember that you’ve worked hard to build up your savings – so by having a thoughtful budget paired with an up-to-date cash flow analysis, you can feel confident about reaping the benefits.
Taking Portfolio Risks
The Mindset Shift: For younger investors, any market downturns are accompanied by the comfort that there’s plenty of time to make up for lost value. In retirement, though, that’s not the case – and a drop in the market can have long-term effects on your finances.
Erin Recommends: As you near retirement, partner with your Financial Advisor team to take a fresh look at your portfolio – they can help you alter your investment strategy to match your new risk tolerance or tax considerations. While you likely will want to manage your investments more conservatively, you don’t want to take that idea too far and lose your chance at any kind of growth. Remember, you won’t need all your savings the day you retire – so you can put the funds you need now in more conservative investments, while keeping a portion of money you won’t need until later invested in the market.
Nearly half of retirees do not have the ability to maintain their spending five years after retiring.*
Creating Liquidity
The Mindset Shift: Liquidity in your working years comes more naturally with reliable income streams than during retirement. Once you’re retired and not generating income anymore, banks may be less receptive to any mortgage or auto loan applications – so you’ll likely need to find new ways to create that liquidity.
Chad Recommends: Consider liquidity strategies even before you enter retirement, as it may be easier to be granted a traditional line of credit (like a HELOC) while you still have an income stream. However, Baird also offers options like securities-based lending, which is based on your current non-retirement assets and does not typically require income verification. Separately, another way to build liquidity is by devoting a portion of your investments to more liquid options like cash and fixed income.
Adjusting to Unpredictability
The Mindset Shift: In the prime of your career, your most significant expenses may have been predictable. Between a fixed monthly mortgage and a recurring car payment, you likely knew what you had to pay when, and could therefore budget effectively. In retirement, though, your largest expenses become much more unpredictable – like what your long-term healthcare needs will be or how long you’ll need your retirement savings to last.
Ross Recommends: It may not be possible to solve for the natural unknowns that come with retirement, but remember that the plan you develop with your Financial Advisor takes all of those “what if” scenarios into account. What if your health expenses are much higher than anticipated? What if inflation is higher than normal? Bottom line, your advisor will be thinking about it – and waiting in the wings to adjust your plan, come what may.
Your golden years present a new opportunity to dance to your own rhythm, and fill your days with what truly brings you joy. By staying attuned to your financial mindset, you can feel confident that your money is working efficiently for you, and providing freedom and security without the burden of constant financial worry.
Altering your wealth management habits in retirement can present unique challenges – but you don’t have to work through them alone. For a helping hand as you make this transition, lean on your Baird Financial Advisor.
The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.
