2 Ways to Take a “Practice Retirement” (Either Way Can Change Your Financial Future!)
For most of our lives, retirement is a distant dream. It is the mirage in the desert that keeps us moving forward, one tired step at a time.
In our younger years, we look at retired folks with a mixture of jealousy and pity. On the one hand, we envy the freedom that we imagine must come from not having to go to work. On the other hand, we fear the wrinkles, stiff joints and sometimes fuzzy memories of our grandparents.
Then, as we reach our 50s and 60s, reality sets in and, unless we are among the “lucky” (well prepared!) few who are sitting on a mountain of gold, we start to fear retirement as much as we look forward to it.
Oh, don’t get me wrong… we still look forward to having more time to ourselves. We still fantasize about traveling, going back to school, pursuing our hobbies and (gasp!) maybe just relaxing in front of the TV on a Tuesday afternoon with a beer in one hand and the Sunday newspaper in the other.
But, here’s the dirty secret that most people never discover until it is too late… retirement, for most people, is nothing like they imagine! And, it is certainly nothing like it is portrayed on TV and in the movies.
It’s not only the decline in our income that catches us by surprise; it is also the lack of social stimulation, difficulty finding meaning and worries about the future that hit us harder than we could imagine.
So, after talking with hundreds of retirees, I started to wonder why more of us don’t take a “practice retirement” in our 50s or 60s. Perhaps, if we faced out future now, we would take steps to change it.
Sound intriguing? Later in this article, I will give two possible ways to take a “Practice Retirement.” But, first, let’s quickly explore what a practice retirement is and how taking one can improve your future.
What is a Practice Retirement?
The concept of a practice retirement is simple. You set aside some time, be it several weeks or months, to live as you would in retirement.
This means that you try, as much as possible, to create the financial, social and practical environment that you will face in your retirement years.
For example, you might begin by calculating how much monthly income you expect to receive from all of your assets, including investments, Social Security and any pensions that you own. Then, you would limit your outgoings to this amount for the course of your practice retirement.
If you are able to take some time away from work for your practice retirement (see option 2 below), you might also try to recreate the social environment that you are likely to face in your later years.
By the end of your practice retirement, you should have a much better picture of your level of preparedness. And, maybe your experience will raise some important topics to discuss with your partner, financial advisor, boss and friends.
So, how can you set up your own practice retirement? There are two ways, each with their opportunities and challenges.
Practice Retirement Option 1: The Marathon
The first option that you have is to keep your life pretty much the way it is now and simply limit your budget to a post-retirement level. In this scenario, you would continue to get up and go to work every day and spend time with your work friends. You would simply adjust your budget.
The advantage of this approach is that it allows you to track your spending and live on your post-retirement budget for a long time. I even know people who have practiced this approach for a year (or more!)
The disadvantage of this approach is that it only gives you insights into one aspect of your retirement – your financial situation. It won’t tell you anything about your social situation, hobbies or mission.
Practice Retirement Option 2: The Sprint
Another option is to take a long vacation (preferably more than a month) and try to replicate, as much as possible, what your post-retirement life will be like.
In my experience, this is a difficult approach to take because most people treat their short practice retirement as a long holiday. For example, they spend way more than they actually would in an average month.
So, the trick here is to limit yourself financially and socially to match the situation that you could expect to face in retirement. Unless you have enough money to travel every month, don’t travel. The goal here is to get an accurate view of your future, not to have one big party.
The advantage of this approach is that, when done correctly, it allows you to get a 360-degree view of your future – financial, social and emotional.
The disadvantage of taking a short “sprint” practice retirement is that it has the tendency to paint an unrealistically rosy picture of your future unless you are unusually disciplined.
At the end of the day, any form of practice retirement that you take can help you to plan your future. Personally, I wish that I had used both of the above approached before I left my corporate job. If I had, I would have avoided many painful situations in the first years on my own.
Have you ever thought about taking a practice retirement? Why or why not?