Picturing yourself in retirement can illuminate the threats and risks that line your path to financial independence.
Visualization is a deceptively valuable financial tool. It can take your mind to a future time, then retrace the steps on how you got there. Along the way back to your current reality, it can illuminate the threats and risks that line your path to financial independence.
You can begin by picturing yourself five years into your retirement. How old are you? Where are you? The answer to those two questions alone can provide enough financial homework for the next few years of your current reality.
I came across a manufacturing executive the other day while in the midst of my travels. We got to chatting, and I realized that his use of visualization might have saved his retirement aspirations. His name was Gary, and he was the highest-paid person at his company in a midsize town in the South. He lived in the nicest neighborhood in the town, a neighborhood filled with executives from a few manufacturing facilities. His $450,000 home, which he owned outright, was one of the highest-priced homes in the neighborhood, if not a three-county radius.
“I hustled to pay off my house, just like you’re supposed to. But then I realized that I had no earthly intention to retire in this town,” Gary told me.
Gary had a pension and a healthy 401(k); he owned his home outright; and he would have health care coverage throughout retirement, but a major retirement threat was looming. There had been whispers that the other two plants in the town were struggling, and one of the plants may be producing soon-to-be outdated technology. If the plants dried up, so would the high-end real estate market.
Compounding his concerns about the natural buyers in his market were the fears of rising mortgage rates. If money were more expensive to borrow, even fewer people would be able to afford one of the highest priced homes in his region.
“As I was visualizing living in another part of the country, I asked myself what could possibly derail my plans. I was comfortable with my level of market risk, my health care coverage plan was in place, but my house was a huge liability. If I can’t sell my house, then I either settle for a retirement I don’t want, or I lose tens if not hundreds of thousands of dollars.”
What Gary found was something too many of us will learn the hard way — threats to our retirement goals can take on many forms. Can you imagine if your retirement took a left turn because a company you don’t work for goes out of business in your town? Gary and his wife were all of a sudden at the whim of seemingly unrelated economic forces.
“My wife and I decided to become renters,” Gary announced with glee. They placed their home on the market, searched out a few potential rental homes, then put together a plan to grow the proceeds of their home tax-free for the next five years. After factoring in the elimination of property taxes, high utility costs and a few other expenses, Gary’s rent will increase his net expenses only about $400 per month. Not bad when you consider what’s at risk.
Visualization allowed Gary and his wife to eliminate a gigantic risk, prior to the risk materializing.
We are vigilant about how many nuts we’ve put in the tree. We stare at our portfolios and obsess over our returns. But we often ignore gigantic financial forces such as real estate and health care expenses, which can easily disrupt even the best retirement income plan.
Every week of my life, I run into someone who intends to retire at age 62. It’s a lovely plan, and they often have enough income generated to handle their lifestyle, but the wheels fall off when it comes to their plan to fund health care coverage. Retiring before age 65 can create tremendous stress on your retirement income because of health care expenses.
We’re so used to subsidized health care through our employers, yet we tend to neglect the true cost of health care when purchased on the open market as individuals. The need to fund health care can force a retirement income strategy to generate an additional $20,000 per year if a person retires before becoming eligible for Medicare at age 65. Too often, people discover this when it’s too late, and portfolios are aggressively tapped to fund the shortfall. Disaster ensues.
Visualizing what our lives will be like five years into retirement, walking our minds backward and asking questions all along the way can help ensure that the secondary and tertiary aspects of retirement don’t ruin our retirement. It’s quite possible your biggest retirement threat has nothing to do with your investments.