Making the Financial Adjustment to Retirement

When I first left the regular workforce three years ago to venture out on my freelance career, it was not a step I took lightly. And in those first few months, I got what I felt was a small taste of retirement life. There I was, with no job, no regular paycheck, and all the time in the world on my hands. But it felt strange without the security of a regular bi-weekly paycheck.

In all honesty it was scary. Even though I had planned things out in advance and was prepared to go for a decent length of time until I could build a regular income, it made me realize that making the financial adjustment to retirement could be an equally frightening and strenuous process, one for which not everyone is fully prepared -- even when they think they are.

A Trial Run

For many, having a trial run at testing out their retirement might not be an option. However, if you have the opportunity, it might not be a bad idea in order to get a better picture of what your financial future might look like after work.

For example, a close friend of mine who is a professor nearing retirement recently took a year long sabbatical. She found that while the time off was nice, it was a little scary being without a regular income. There were certain benefits such as a lower property tax rate, more time to focus on art projects (she's an art educator), and she found several new income earning opportunities. However, in the process she realized that in order to create a more secure financial future for herself, and to better prepare her retirement budget, she should work an extra three years.

Adjustment Period

If giving your retirement plan a trial run before jumping into it for real just isn't an option, you may at least want to give yourself an adjustment period when you enter retirement before you start spending all that hard earned money. During those first few months without regular employment, you may find yourself with lots of time and little to do. It might also be a little empowering getting those social security, pension or retirement plan checks in the mail. Such situations could lead to increased spending on entertainment, activities and frivolity, and before you know it, you're blowing through more money than you had expected.

Giving yourself at least a few months to ease into retirement, to track expenses, gauge income, and get a better feel for your overall financial picture could help avoid financial missteps. There may be unexpected expenses or income shortfalls that you hadn't counted on, and finding this out once you're well into your retirement could pinch your budget, and leave you scrambling to make up lost ground, or dipping into investments you hadn't planned on touching.

A New Budget

During my first year of freelancing, my budget looked significantly different than when I was working a regular job. I was forced to make cuts, found areas in which I didn't spend nearly as much as when I was working full-time such as transportation and clothing, and discovered other areas in which I had to spend much more, such as office expenses. This left me to create a completely new budget that I had to track and adjust multiple times.

Much the same can happen in retirement. A budget in retirement may look dramatically different than the budget you had when you were working full-time, and will likely require some significant readjustment along the way.

Look for Backup

My first year of freelancing saw the financial crisis, a huge stock market implosion and real estate values plummet. While at the time, I wasn't relying upon my retirement account for income, it left me to ponder all the poor souls who had chosen that particular year to retire and how terrifying it must have been to see the retirement investments they may have been counting upon for a large part of their income, nearly cut in half.

Such a situation is why it can be a good idea to enter retirement with a few ideas of how to supplement your income should the situation call for it. While you may never need to call upon such means, at least knowing how or where to create additional income or cut expenses can be a useful tool for protecting your retirement lifestyle.

More From This Contributor:

Education Could Be the Key to a Sound Financial Retirement

Take Retirement Calculators With a Grain of Salt

The Pros and Cons of Having a Mortgage in Retirement

Disclaimer:

The author is not a licensed financial or retirement professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.