Retirement can be a very confusing concept. Money is the most obvious factor—a lot of us worry we won’t have enough to be able to retire at all—or have enough to be content. Until you actually live it, your retirement plans are just a guess. Is your budget realistic? Will you get bored? Will you miss working? There are a lot of things you should be doing before you retire, but one of the most crucial is a “pretirement” phase.
What is "pretirement"?
Pretirement is a “stress test” of your retirement plans while you still have time to change course and make adjustments. You can engage in a pretirement as soon as you have some solid plans, even if you’re in your 40s or 50s and have decades to go before official retirement. Pretirement involves replicating as many of the conditions you expect to live under when retired (e.g., budget constraints, lifestyle choices) to make sure they make sense.
For some, pretirement can be a transition period between full-time work and total retirement where a person slows down and gradually changes their lives. Of course, not everyone has the ability to just work a little less, and for most of us, a pretirement plan can be a periodic activity that will help remove anxiety and doubt about whether you’ll actually be able to pull it off. There are tools you can use to help shape your pretirement plan, but it’s pretty straightforward to think about on your own.
Step one: Plan
First, you need to have a plan to stress-test. Retirement plans have two main components:
Budget. This is what most people focus on when they think about retiring: How much money will they have? Setting up a retirement budget involves calculating how much income you’ll have from retirement accounts (IRAs, 401ks, etc.), Social Security, and any other sources. You should think about whether you plan to stop working entirely, work part time, or have a side hustle of some sort and include an estimate of those earnings as well. Don’t forget to factor in taxes and other costs (like housing and healthcare) so you’ll have a solid idea of how much money you’ll have left over.
Lifestyle. Is retirement traveling the world? Sleeping in every day? Lying on a beach? Visiting friends and family around the country constantly? Develop a good idea of how you want to spend your time in retirement. If you think you might want to relocate, identify places you might want to live. The clearer you can be concerning how you want to live the better, because it will allow you to test your expectations thoroughly.
Step two: Test
Once you have a good idea of how much money you’ll have in retirement and how you want to live, it’s time to test your assumptions. The closer you can get to the actual circumstances you expect to live under, the better, so the ideal way to stress-test your retirement plans is to use vacation time for “mini-retirements.”
If you plan to move, pick one of the places you’re considering and stay there for as long as is practical for you. Live the way you imagine your retirement to be, and assess your experience honestly. Is lying on the beach every day boring? Do you get tired of having unstructured days? Is the side hustle you thought would be a great way to augment your income harder to do than expected, or not as profitable? Even if you don’t plan to move to another city or country and want to age in place, taking a week or two (or longer) to live the way you think you will in retirement is crucial. You might imagine spending your days reading and enjoying hobbies will be fulfilling and exciting, but it might get old faster than you think.
It’s also important to live within the budget you’ve envisioned for yourself to see if it meets your actual needs. If you find yourself constrained trying to stay under a certain level of spending, you might need to redraw your plans or find ways to increase your expected income. If you chafe against budget constraints when you’re ten years out from retirement, you won’t be any happier a decade from now.
One aspect of retirement that is often overlooked is personal relationships. If you and your partner are used to being apart all day at work, is suddenly spending every hour of the day together problematic? Do you have a social group outside of work, or were you lonely? Were you able to maintain connections with friends and relatives as you assumed you would? A short period of time may not be sufficient to stress-test every relationship, but it can offer you clues.
Step three: Adjust
The final step of a pretirement plan should be obvious: If it was a complete success and you’re pleased with your retirement plans, great! Proceed as planned.
If you weren’t happy about aspects of your retirement, or things didn’t go as planned, it’s time to adjust. If your budget didn’t work, go back to the drawing board: Can you save more? Should you add a part-time job to your plan? Sell your house? If you were lonely or bored, maybe moving someplace far from your current friends and activities isn’t going to work for you, or maybe you need to move closer to family.
This picture will be different for everyone, of course. The key is getting some real data to work with instead of simply relying on your imagination. Retirement can bring dramatic changes to every aspect of your life, and having some sense of whether your expectations are realistic will go a long way toward mitigating any feelings of anxiety you might be experiencing, while giving you confidence that the plans you’re making today will work as expected tomorrow.