Retirement Freakout

The Retirement Freakout is real.

You’ve been taught for your entire life that you need to save your money for retirement. So you did just that. Good job!

You maxed out your 401K match at work and put as much in your IRA as you were allowed to every year. Very smart!

You never borrowed money except to buy your house, and that mortgage is paid-off. Nice work!

You didn’t spend money on frivolous things–fancy cars, expensive jewelry, custom suits–you invested that money instead. That takes discipline!

Your accounts have been growing. The market has its ups and downs, but you stuck with it. You’ve finally hit your “number.” Congratulations!

Welcome to retirement.

But something doesn’t feel quite right. After the two blissful months of waking-up without an alarm clock, reading your books at the local coffee shop and clearing out all the recorded shows on your cable box, you start to notice something. The balance in your accounts is DECREASING.

You think to yourself, “WTF?!”

This is called the Retirement Freakout.

I first learned of this phenomenon by watching my parents’ friends and how they were handling retirement. My parents have a core group of friends who have known each other for decades. They all met in their 20s and 30s and now they’re all in their 70s.

When the first few of them started to retire a few years ago, it was interesting to hear about their experiences. There were two themes that kept appearing:

They felt a little bored after a few months of retirement.
They didn’t like that the balances on their bank accounts and investment accounts started to decrease.

This is simple math. When you stop depositing a regular paycheck into your account and your expenses stay the same, the balance will decrease.*

*Yes, I understand that many investment accounts continue to grow even after the owner retires if they have invested in the right things. We’re going to leave that alone for now. For the purposes of this story, we’ll assume these folks were invested in cash or cash equivalents, like money market accounts, when they retired.

Keep in mind, these folks are mostly upper middle class families from the Midwest. They’re conservative by nature and they all had good careers. They didn’t do anything crazy with their money over the years that would have put their nest eggs at risk.

They simply weren’t prepared to handle the mental shift that happens when the accounts they worked so hard to build started to disappear.

There’s an existential component worth noting here as well. The investments were designed to be depleted during retirement. The plan ALL ALONG was to start withdrawing the money. With some simple mental math, you can easily see how many years you can afford to live. That is stressful for some people, especially those who don’t think the average life expectancy applies to them.

What’s that you say? At this pace, you’ll run out of money at age 135?

Well, I have some news for you…

The Retirement Freakout

I’ve seen the Retirement Freakout time and time again. Sometimes it appears shortly after retirement and sometimes it takes a big, unexpected expense to get a person’s attention.

Do you know what ELSE I’ve seen time and time again? People so lost in their Retirement Freakout that they forget to ACTUALLY ENJOY THEIR RETIREMENT.

Seriously. If you’ve been responsible and paid attention to your asset allocation, everything will be okay. You’re not going to live to 135, so stop doing that math in your head.

The best remedy for the Retirement Freakout is to take a deep breath and go for a walk. Understand that your decades of saving, investing and planning brought you to this point. You didn’t get here by accident. You’re not at risk of starving or losing your home. Everything will be okay.