I remember the thrill of holding that crisp paper rectangle in my hands for the first time, fifty-seven dollars that was mine all mine.
At fifteen years old, it felt like a LOT more money (heck, it was a lot more money in the early 80s). Dressing up as Chuck E. Cheese may not have been the most glamorous job, but it put my own money into my hands for the first time, and boy did it feel good. I felt powerful. I had choices!
Do you remember your first paycheck? Do you remember the rush you felt having your own money at your disposal? Maybe you were twelve working for your parents or sixteen working at a local fast food restaurant. You received your first paycheck and BAM. Suddenly you didn’t have to ask other people for money. Talk about empowering!
No more asking Mom or Dad for handouts. No more waiting for Christmas or your birthday and crossing your fingers that a few of those envelopes hid money inside. You went to work, earned your paycheck, and then could do whatever you wanted with it. You were in control.
Hopefully, that feeling of power has continued throughout your working life (assuming you’re in a career and progressing in it), The more you earn yourself, the more you can do with those earnings, and the less you have to depend on other, possibly less reliable sources of money. And the more you save, the less you are reliant on your job. If you should happen to lose it, you have those savings to help you get by until you find another position. You probably begin to feel more confident and more powerful as the years go on. By the time you hit your 50s, you are likely earning the most you ever have. And you likely have fewer expenses than ever, too.
Your paycheck equals power and confidence. It always has. It is your superpower.
And then you start getting closer and closer to retirement.
Your superpower gets closer and closer to disappearing. Anxiety builds. What happens when that paycheck—your superpower—suddenly goes away?!
Frankly, what happens next depends on you. If you have a reliable system, you can recreate your own paycheck in retirement and not miss a beat.
Watching your wealth slowly disappear because you do not have a simple, agile retirement system in place is painful. It would scare anyone. And it should! Fortunately, it does not need to be that way. All you need is a trustworthy system for creating your own paycheck during retirement. Here’s how.
Don’t Fall for the Scarcity Mindset
Even the most optimistic person can develop a mindset of scarcity upon entering retirement, regardless of how much money they have tucked away. What is a scarcity mindset? It basically means that you see resources and opportunities as limited in nature. If you spend a dollar on one thing, you have one less dollar for something else later in life.
When scarcity-minded people get their last paycheck, cue the worry. They think, “That’s all I have! I’ve got to hold on to it.” They see their income and savings abruptly stop and realize that whatever is in their accounts has to last. Worst case scenario, they enter a never-ending spiral of fear. Fear can seep into every decision they make. They rethink vacations. They rethink eating out. They rethink hobbies and personal enjoyment activities. A scarcity mindset can zap away every single amazing plan you had for retirement.
It’s not that frugality is a bad thing (far from it!), but you’ve got a life to live my friend. And I would bet that you want that living to happen while you’re still healthy enough to enjoy it. Right?
Recently I had a conversation with a gentleman in his early sixties. He shared that it had always been his dream to visit Europe and he may go in the “next ten years.” In the next breath, he told me about a family history of eyesight loss so severe that it could lead to blindness. In fact, it had recently and suddenly impacted his younger brother, whose sight became permanently gray and fuzzy. Clearly, he could afford the trip financially, so I asked him, “With this looming over your head, why aren’t you going to Europe this year?” It seemed like a logical question, but it had not occurred to him that he could go now. He needed to walk through a process to understand that he did have enough money. Within 3 weeks, he had booked his dream trip for this year.
If you’ve done well building up your savings over the years, setting up a system to keep the rhythm of a paycheck can help you make the most of the only retirement you’ll have. You might have more than enough money in retirement to pay for everything you want to do, but you would never know it without a system to guide you. By the time you reach the tipping point years down the road and realize that you will not run out of money, it is too late.
Typically when this happens, people have already wasted their first retirement years—their best and often most healthy ones—and are now too old or frail to really enjoy their money. They have less energy, cannot do as much, and their health might not be so good.
Unfortunately, It’s not that uncommon for scarcity-minded people to pass away with more money left over than they ever expected. Their irrational frugality turned them into hermits and kept them from the life they worked so hard, for so long, to reach.
It doesn’t have to be this way. All you need to do is put a plan in place to create clarity ahead of time.
Plan a Reliable Systematic Withdrawal Strategy
The first step in recreating a retirement paycheck is to plan how you will pay for your lifestyle. In the past, calculating your annual retirement withdrawals was a simple math equation. First, you figured out how much money you had saved. Then, you divided that amount equally based on how long you believed you would live. Voila! That’s your yearly withdrawal amount.
Alas, that simple equation is one-dimensional and antiquated. Life is just not linear like that. So why would you plan a linear withdrawal? It could potentially cost you a lot of money and may not serve your ideal retirement lifestyle very well.
A better way is to plan a systematic withdrawal strategy that accounts for the ebb and flow of actual life of retirement spending. Maybe you take a huge, expensive family vacation every three years. Maybe you have to buy a new car two years from now. Or maybe you have to pay for a wedding next year or anticipate having some large medical expenses. No matter the specifics, it is just not practical to expect that you will spend the same amount every year. Let’s account for that when determining your annual withdrawal amounts.
Create an Agile Retirement Plan to Manage Money in Retirement
With an agile retirement plan, you don’t have a set withdrawal ratio each year. You withdraw a paycheck based on what you expect to spend each year. Some years you may have a 10% withdrawal rate. Others, you will only withdraw 2%. Forget about simply selling stocks when you need money—a dangerous plan with the level of uncertainty in the market these days anyhow.
If you’re financially ready for retirement, implementing a system to recreate your paycheck can give you the confidence to make the most of your most active years.
In February’s How to Live Without a Paycheck series on the Retirement Answer Man podcast, I walked through the steps to set up a system to recreate the paycheck and over the next few weeks, I’ll outline that process here.
Life is too short to not have the confidence to live the retirement you want.
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