The last paycheque from a decades-long career arrives next Friday and the nest egg you built during those working years will now turn into a main source of income. It can be a jarring switch from saving for retirement to spending in retirement. Financial experts say that transition is a process.
People need to psychologically prepare for retirement, says Kurt Rosentreter, senior financial adviser at Manulife Wealth. "It's not just stop one day and all of a sudden, start living off your savings," he said. Forecasting how much money you'll need for the next two to three decades and figuring out how to spend that money in your golden years can be challenging.
Rosentreter said setting up a plan for retirement spending starts at least two years before bowing out of the job. That means knowing your cost of living, tax impacts and how to live off passive investment income or rental property income for the rest of your retired life. "All of a sudden, your food money and everything else -- your fund money -- is now tied to the stock market, bond market, politics, economics, tax rates," Rosentreter said.
"That's pretty intimidating." Having confidence in your planned retirement cashflows is crucial when switching from saving to spending mode -- and helps maintain calm when stocks and bonds aren't doing well, Rosentreter said. "A written plan that says, 'Here's how much you have, here's how you will access it over the next month, next year, next 10 years, the rest of your life,"' Rosent.